Ken Bigham and Tracy Hollister v. Southeast Texas Environmental, LLC
458 S.W.3d 650
Tex. App.2015Background
- STE (Southeast Texas Environmental, LLC) owned a contaminated site (Malone site). Jeffrey Pitsenbarger (Jeff), Hollister, and others formed STE; Jeff and Hollister were key STE principals.
- In 2003 STE executed a Power of Attorney (POA) giving nonlawyer Ken Bigham authority to manage the environmental litigation and to hire counsel; the POA allocated litigation proceeds to Bigham, Jeff, Hollister, and financier Roger/Regor rather than to STE itself.
- Disputes arose in 2007: Jeff revoked the POA alleging Bigham put his own interests first; Bigham insisted he retained control and threatened actions (e.g., revealing damaging information or intervening) that allegedly would undermine STE’s “innocent landowner” posture and pressured for an early settlement.
- On the eve of trial Hollister withheld cooperation (he was STE’s key contamination witness) and did not appear at trial; the Malone litigation settled for $1.2 million and the POA-related shares were paid out to appellants.
- STE sued Bigham and Hollister for breach of fiduciary duty, breach of contract, and conspiracy; a jury found appellants breached fiduciary duties, conspired, and awarded $2.5 million in actual damages plus exemplary damages. The trial court denied disgorgement of fees.
- The court of appeals: (1) affirmed the finding that Jeff had authority to file suit and that appellants breached fiduciary duties; (2) reversed and rendered judgment that STE take nothing on the damages award (actual and exemplary) for insufficient evidence of causation/amount; and (3) reversed and remanded the disgorgement denial for reconsideration as to disgorgement based on fiduciary breach (but not on the unauthorized-practice theory).
Issues
| Issue | Plaintiff's Argument (STE) | Defendant's Argument (Bigham/Hollister) | Held |
|---|---|---|---|
| 1. Authority to file suit (Jeff’s authority to sue for STE) | Jeff had authority as an STE owner/manager to file suit on STE’s behalf. | Jeff lacked authority because STE should be managed only by managers and Jeff wasn’t a manager. | Court upheld jury finding that Jeff had authority to file the suit. |
| 2. Breach of fiduciary duties | Bigham and Hollister threatened to undermine litigation (reveal harmful info, intervene) and withheld Hollister’s cooperation, causing fiduciary breaches. | Actions were permissible (e.g., POA allowed managing litigation); threats were mischaracterized or justified. | Court found evidence legally and factually sufficient that appellants breached fiduciary duties. |
| 3. Damages causation and amount (actual & exemplary) | Appellants’ misconduct forced a low settlement; STE sought recovery of the difference as damages. | No evidence shows settlement would have been larger or establishes quantum; damages speculative. | Evidence legally insufficient to prove STE would have obtained a higher recovery or to quantify it; award of actual and exemplary damages reversed and rendered for STE. |
| 4. Disgorgement of fees (POA illegal / fiduciary breach) | Disgorgement appropriate either because POA was illegal (unauthorized practice of law) or because appellants breached fiduciary duties. | Trial court acted within discretion in denying disgorgement; if POA illegal, whole contract may be void; disgorgement not mandatory. | Trial court did not abuse discretion in refusing disgorgement on unauthorized-practice theory; but remand required to reconsider disgorgement based on fiduciary breach now that damages award is vacated. |
Key Cases Cited
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal and factual sufficiency review)
- Elizondo v. Krist, 415 S.W.3d 259 (Tex. 2013) (expert proof required to show settlement value but-for malpractice; guidance on measuring but-for settlement damages)
- ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010) (disgorgement/fee forfeiture as equitable remedy for breach of fiduciary duty)
- Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419 (Tex. 2008) (trial court discretion in awarding equitable relief such as fee forfeiture)
- Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999) (bench issues re: equitable relief and unauthorized-practice determinations)
- Osterberg v. Peca, 12 S.W.3d 31 (Tex. 2000) (measure sufficiency against the charge as submitted)
- Dow Chem. Co. v. Francis, 46 S.W.3d 237 (Tex. 2001) (burden-of-proof rules in sufficiency review)
- Pool v. Ford Motor Co., 715 S.W.2d 629 (Tex. 1986) (factual sufficiency: setting aside findings only if against great weight and preponderance)