*1 TANOX, Biosystems, INC. f/k/a
Inc., Appellant,
AKIN, STRAUSS, GUMP, & HAUER
FELD, Firm, L.L.P., Robinson Law
Williams, Andersen, &
L.L.P., Mаdigan, Michael J. Michael Mueller, Robinson, Kenneth M.
J. Birnberg, Appellees. M.
Gerald
No. 14-00-00765-CV. Texas, Appeals
Court of (14th Dist.).
Houston
April *4 Ltd., Cook, Holman, gy, Ciba-Geigy agreed A under which Eugene David W. Harris, Breitbeil, R. W. pay royalties Kenneth Warren on the sale of the Houston, appellants. for product. Gliekman, Soloway, Joy M. Hous- Julius In Tanox filed a trade December
ton, appellees. lawsuit in federal district court secret against alleging that Genentech Genentech HUDSON, Panel consists of Justices confidentiality agreement had violated the FOWLER, and EDELMAN. biotechnology
and utilized Tanox’s de- velop allergy drug. January its own OPINION ON REHEARING separate filed a lawsuit Genentech HUDSON, J. HARVEY Justice. Tanox, patent asserting a claim for Tanox, Biosystems, Inc. f/k/a infringement. Genentech added Ciba-Gei- Inc., trial confirmation appeals the court’s patent infringe- gy as a defendant its Akin, of an arbitration award favor of lawsuit, lawsuits were ment and the two Strauss, Feld, L.L.P., Gump, Hauer & consolidated. *5 Firm, Williams, Birn- Law and Robinson hired Ed Harrell of originally Tanox had Andersen, L.L.P., and the sum- berg & represent to Hughes, Watters & Askanase in mary judgment entered favor of Mi- an hourly it in on Mueller, the trade secret lawsuit Madigan, chael J. Michael J. Tanox, however, Robinson, not able rate basis. Kenneth M. and Gerald M. Birnberg. original submission we af- paying On to Harrell and his law continue part, firmed in and reversed and remand- and, accordingly, rate hourly firm on an part. rehearing, panel On has ed a contin- represent it on sought counsel previous opinion August withdrawn our of to its trade respect with gency fee basis 27, 2002, following and substitutes After against secret claim Genentech. we opinion rehearing on which have Tanox attorneys, of considering a number judgment of the trial court. affirmed the ultimately Gerald hired Andersen, Williams, Kenneth Birnberg & Background
I. Firm, and Law Robinson of The Robinson antibody envisaged the use of an Tanox Michael Mueller Madigan Michael in the treatment of asth- “anti-IgE” called (col- Akin, Strauss, Feld Gump, Hauer & develop the anti- allergies. ma and To contingency a Lawyers”) on lectively, “the Tanox, partner. body, Tanox needed 1, 1994, Tanox en- August fee basis. On confidentiality entered into a accordingly, agreement fee contingency tered into a Genentech, Inc. in agreement with of its Lawyers representation with the development antibody. Gen- for the trade secrets claim.1 not to work subsequently entech decided agreed agreement, Tanox Therefore, Under the fee Tanox with Tanox. pur- fee Lawyers contingency pay agreement into an with Ciba-Gei- entered Akin, firms, simplicity, agreement, purposes of Gump, for the 1. Tanox and the law Feld, L.L.P., Strauss, the Robinson and the Individ- Hauer & we the law firms will refer to Williams, Firm, Birnberg & Ander- Lawyers.” Law sen, ual as "the agreement. parties the fee were the hourly separate fee into a and Tanox entered Although Lawyers, Michael the Individual regard patent agreement with to Genentech’s Mueller, Kenneth Robin- Madigan, Michael infringement against Tanox. claim son, parties Birnberg, were not and Gerald Genen- claims infringement the first ent sliding to a scale: 25% of suant (3) tech, patent Tanox, cross-licensing million recovered $32 33½% (4) royalties million, receipt Tanox’s rights, and recovery from million to $82 $60 Ciba-Geigy. Fur- from recovery from million Genentech $200 40% $60 Genentech million, thermore, Ciba-Geigy and recovery and 25% of over $200 in certain their efforts agreed to combine million. In the event the case was settled markets, Ciba-Geigy held exclusive- before, trial, agreed or after during, Tanox. with agreement under its 1990 ly million received from Genen- the first $8 paid Lawyers, to the “re- tech would be parties signed July On recovery gardless of whether the total Although the agreement. settlement million.” amounts to or is less than $32 would “not ob- provides Tanox any funds nor receive any tain settlement provided The fee further would, without first con- relating to this matter in the event of a settle- ment, making full disclosure sulting form of a “new with and recover fees trans- Specifically, attorneys,” Genentech arrangement.” business successor cash, directly on paid “[a]ny ferred million to would be $16 not inform the any July 1996. Tanox did money, equivalent, or substantial Lawyers of million wire transfer. property, pay- future tangible $16 (such fees, Lawyers, Michael royalties, July one of the licensing ments On million wire respect Madigan, from third learned $16 income counsel. property, defendants’ intellectual and simi- transfer Genentech’s payments) lar future received Tanox as *6 receipt the confronted about When litigation, a result of the on account of such Anderson, million, Tanox’s the David $16 ...” arrangement, new business The Law- president, operating chief vice executive yers’ royalties share of from a new busi- counsel, officer, claimed in-house first a arrangement ness achieved as result re- know whether Tanox had he did not litigation the wаs 10%. and then payment, the million ceived $16 money whether the agreed pay Lawyers Tanox also to the would not confirm Lawyers The demanded they permanent country. million if obtained a the $100 Ta- payment of million from injunction barring Genentech from enter- immediate $8 Lawyers pay offered to the ing marketplace product $7 a com- nox. Tanox with million, give if expenses, they would petitive developed less allergy product to under the fee by agreed up rights Tanox. The total fees to Tanox royalties by received Tanox. pay Lawyers capped were at $500 million and the total fees derived from 16, 1996, a Lawyers filed July On capped at million. royalties were $300 under seal federal motion to intervene Tanox 30, 1996, recover its fees. January seeking Tanox and court
On
Genen-
and,
settlement,
the motion to intervene
objected
includ-
agreed
tech
to a
which
compel arbitration
alternatively, moved to
payment
a
million cash
to Tanox
ed $16
dispute under the arbitration
arrange-
of the fee
and a new business
Genentech
Tanox,
The
Genentech,
agreement.
clause in the fee
among
ment
and Ciba-
un-
into an
allergy
and Tanox entered
Geigy
development
for the
(1)
wire
agreed
pro-
der which
drug.
arrangement
The new business
29, 1996,
(1)
an es-
$6,724,795.15
July
on
vided for
the release of Genentech’s
Tanox,
Hughes,
Wat-
account in the name
patent infringement
against
claims
crow
Askanase,
in turn would
(2)
pat-
ters &
release of Tanox’s unasserted
Akin, Gump
favor
and en-
money
transfer the
when
Individual
litigation
the motion to dismiss the
had
judgment,
tered a final
from which Tanox
(2)
court;
Tanox and
been filed with
brings
appeal.
this
Lawyers agreed
to submit their dis-
(3)
arbitration;
pute over the fees to
II.
OP
STANDARD
REVIEW
Lawyers agreed
to withdraw their mo-
parties agree the
Although the
26,1996.
July
tion to
intervene
(“FAA”)3 applies
Federal Arbitration Act
dispute proceeded
The fee
to arbitration
case, they dispute
judicial
stan
to this
panel
before
of three arbitrators. On
applied to
dard of review that should be
29, 1999,
September
the arbitrators issued
Ordinarily,
the arbitration award.
Lawyers.
their award
favor of the
The
trial'court’s
appeals
court of
reviews the
arbitrators found Tanox breached the fee
decision to confirm an arbitration award de
agreement by failing
pay
Techs.,
Gateway
Inc.
novo under the FAA.
the first
million received from Genen-
$8
Corp.,
F.3d
v. MCI Telecomms.
anticipatorily
tech and Tanox
breached the
(5th Cir.1995).
an arbitra
The review of
agreement by repudiating
obligation
its
award, however,
usually “extraordi
tion
is
pay
roy-
percentage contingent
fee on
Training, Inc. v.
narily
Hughes
narrow.”
alty payments
pursuant
received
(5th Cir.2001),
Cook,
254 F.3d
arrangement.2
to the new business
The
denied,
1172, 122
cert.
534 U.S.
S.Ct.
arbitrators
found
Tanox on its
(2002).
may
The court
L.Ed.2d 135
claims for breach of contract and its tort
on the
the arbitrators’ decision
review
claims,
fiduciary duty,
breach of
including
alleged
if it
that the decision
merits even
is
malpractice, and fraud.
legal
on factual error or misinter
based
moved to confirm the arbi-
Major
prets
parties’ agreement.
applica-
tration
filed аn
award and Tanox
Garvey,
League
Ass’n
Players
Baseball
tion to vacate the arbitration award. On
121 S.Ct.
U.S.
February
the trial court entered
(2001);
Paperworkers
L.Ed.2d 740
United
*7
judgment grant-
interlocutory
an amended
Misco, Inc.,
Union,
484
Int’l
AFL-CIO v.
ing
application
the motion and
to confirm
364,
286
98 L.Ed.2d
U.S.
108 S.Ct.
award, denying
the arbitration
the motion
(1987).
under the FAA
presumed
It is
award,
ordering
to vacate the
be confirmed.
that arbitration awards will
nothing
against
Tanox take
on its claims
666,
210 F.3d
669
Spencer,
Dawahare v.
Lawyers.
the
(6th
878,
denied,
Cir.),
cert.
531 U.S.
(2000).
187,
There
S.Ct.
148 L.Ed.2d
Asserting
preclud-
the arbitration award
fore,
by
that are committed
“‘[disputes
them, the Indi-
ed Tanox’s claims
al
process almost
contract to the arbitral
summary judg-
vidual
moved for
the arbitrator.
ways
or lost before
are won
affirmative defenses of res
ment
the
and far
challenges are
Successful court
judicata
estoppel on all of
few
and collateral
”
Inc.,
2000,
Sys.,
Gupta v. Cisco
between.’
Tanox’s claims. On March
Cir.2001)
(1st
Keebler
(quoting
granted summary judgment in F.3d
trial court
commit
Tanox did not
Although
Tanox had
the arbitrators found
the arbitrators found
Lawyers did not
fraud because the
purposely
Lawyers its re-
actionable
concealed from the
misrepresentations
their
rely
on Tanox’s
ceipt
July
$16
million from Genentech on
detriment.
and collaborated with Genentech in
obligation
an effort to avoid its contractual
received,
(1999
Supp.2001).
seq.
§
&
3. 9 U.S.C.
et
pay
$8
the first million
Drivers,
parties’
disregard
v. Truck
Local
F.3d
held
could
Co.
(1st Cir.2001)).
8, 10
to the
by limiting its review
in
FAA.
set forth
grounds for vacatur
Although
acknowledging
Id. at 888.
FAA defines the standard of review
awards,
ar
vacatur of arbitration
Appeals has
Fifth
Court of
The
Circuit
parties contractually agreed to
gues the
Gateway,
addressed this issue.
twice
“
scope
beyond
expand the
review
deci-
parties agreed
arbitration
‘[t]he
provided by
parties may
the FAA. The
binding
final and
on both
sion shall be
judicial
arbi
agree
expand
review an
shall be
parties, except that errors
lawof
”
scope
beyond
tration award
Techs., Inc.,
subject
appeal.’ Gateway
Inc.,
Hughes Training,
FAA.
254 F.3d at
in
(emphasis
original).
F.3d at 996
lawyers agreed
593.4 Tanox and the
held the
had contrac-
Fifth Circuit
disputes
to arbitration “under
submit
expand judicial review and
tually agreed to
As
the rules of
American Arbitration
provision supplemented
their contractual
place
legal
in
and applicable
sociation then
by
default standard for review
the FAA’s
equitable principles.”
agree
The fee
law
de novo review of issues of
allowing for
pro
ment further includes a choice of law
award.
Id.
embodied
the arbitration
be con
stating
“agreement
vision
shall
recently
Hughes Training,
997. More
in accordance with the laws of the
strued
judicial scope
the Fifth Circuit found the
these
State
Texas.”
contends
the arbitration
expanded by
of review was
provisions
parties’
reflect the
intent
‘“in ac-
provided that
agreement, which
judicially
the arbitrators’ award should be
award,
vacate an
the stan-
seeking
tions
appellate
reviewed under “the normal
be
the arbitral-
applied
dard
review to
standard of review.”
findings
tor’s
and conclusions of
of fact
Other cоurts have addressed this issue.
an
applied by
will
the same as that
law
be
Appeals
The Ninth Circuit Court of
con-
reviewing
decision
a
appellate court
”
provision
sidered
jury.’
sitting
trial
court
without
parties agreed
decisions and
“‘[t]he
Inc.,
Training,
252 pro pertinent and material
Relying
the Texas choice of law
to the contro-
vision,
argues
versy;
any
Tanox further
the arbitra
or
other misbehavior
reviewing
authority
court
no
rights
party
tors
have
which the
have
However,
disregard
prejudiced.
Texas law.
even
been
provi
with the inclusion of a choice of law
(4)Where
the arbitrators
exceeded
sion, in
express provision
the absence of an
powers,
imperfectly
their
or so
execut-
scope
modify
is intended to
mutual, final,
ed them that a
and defi-
award,
judicial review of an arbitration
upon
subject
nite award
matter
applicable
FAA’s default standard is the
submitted was not made.
standard of review in this
Road
case. See
(1999).
§
In addition to
9 U.S.C.
10
way Package Sys.,
Kayser,
Inc. v.
257
statutory
four
there are several
grounds,
(3d
287,
Cir.),
denied,
F.3d
294
cert.
534
common
for
an arbi-
grounds
vacating
law
U.S.
S.Ct.
253 Servs., Neb., during Inc. v. Omaha Tribe 267 Tanox that the settlement alleges (8th 848, Cir.2001), denied, discussions, cert. Lawyers F.3d 855 the failed to disclose 1053, 1909, U.S. 122 152 L.Ed.2d proposed 535 S.Ct. Tanox the settlement (2002); Brown, 1223; 211 F.3d at “unexpected 820 and give would rise to Advisors, Inc., Cigna v. Third, Fin. 197 Williams Tanox al- massive claim for fees.” (5th Cir.1999); Jaros, 762 70 F.3d and prepared the to sue leges Lawyers 421; Mgmt. Corp., F.3d at Health Servs. represent- while actually sued Tanox still adopt F.2d a less 975 at 1267. “To strict ing Tanox. judicial
standard review would be undermine our well established deference Entering Representation 1. Prior to as to arbitration a favored method of set Agreement Fee into disputes tling agreed par when the Tanox claims the arbitrators’ conclusion Pte., (Singapore) ties.” Blanche Carte fiduciary owe Lawyers any that the did not Ltd., Therefore, F.2d 888 at 265. the prior duties to execution Tanox the disregard court’s “review for manifest August agreement the fee on is open the law does not the door to exten Dawahare, manifest of the The arbi- disregard law. judicial sive review.” 210 F.3d attorney-client relation- trators found the Accordingly, judicial at 669. review under ship lawyers began the and Tanox between “extremely this standard limited.” is Pte., Ltd., signed, Blanche when fee was (Singapore) Carte 888 265; Jaros, see F.2d at also 70 F.3d 421 before then.8 at
(stating disregard manifest of law is a review”). fiduciary relationship A exists “very narrow The standard attorneys between and as a matter clients party seeking vacate an Burrow, of law. Arce v. 958 S.W.2d bears the demonstrating award burden of 1997) (Tex.App.-Houston [14th Dist.] panel the arbitration acted in dis manifest LaPrade, modified, (op. reh’g), on regard of the law. F.3d aff'd (Tex.1999). Brown, 706; The fiducia S.W.2d 229 term F.3d at 1223. ” “ integrity fidelity.’ Id. ry ‘refers to Specific B. Breaches of (quoting Kinzbach Tool Co. v. Corbett- Fiduciary Duty 138 Tex. 160 S.W.2d Corp., Wallace (1942)). Therefore, attorney- claims Tanox breached relationship one of abun client “most fiduciary ways. duties several faith,” per First, good requiring absolute dant alleges knew candor, openness honesty, provision fect arrangement new business in the deception. concealment but absence of or ambiguous, was failed Carrigan, Perez v. 822 S.W.2d ambigui- to disclose Tanox the material Kirk & 1991, writ (Tex.App.-Corpus and further ty failed to disclose their inter- Christi denied) State, of that and the 735 S.W.2d prеtation provision (citing conflict Hefner 'd)). Second, 608, provision (Tex.App.-Dallas pet. ref of interest created. conclusion, reaching Tanox was the evidence establishes that arbitrators Anderson, explained: represented by David president chief vice Tanox’s executive persuades The evidence us that officer, operating negotiations represent negotiation did not Tanox in intimately involved CFA. Mr. Anderson of the CFA and that did not look veiy lengthy negotia- every aspect rely legal advice in process. negotiations weight tion of the CFA. *10 254 1994, “undisputed” asserts is prior August tion and billed Tanox
Lawyers did the acts about which its com Akin, for that work. Joe Osborne of $600 therefore, plains; primary dispute Gump Madigan requested testified Michael whether those acts constitute breaches of that he review the time records connec- However, fiduciary duty under Texas law. patent infringement litiga- tion with the issue, before we can reach that we must Explaining tion. that he was not aware of attorney-client first determine whether an the date of the fee and that he relationship existed between the gave no consideration of the issue his Glusing, and Tanox. See Yaklin v. Sharpe records, review of those Osborne included Krueger, 380, & (Tex.App. 875 S.W.2d 1, 1994, performed prior August work writ) 1994, -Corpus (stating Christi no patent infringement the bill for the litiga- attorney-client there must first be relation tion. Osborne testified that had he known arises). ship duty before agreement, of the date of the fee he would not have included that work in the bill. attorney-client Thе relation ship relationship is a contractual whereby Birnberg’s Tanox also relies on Gerald attorney agrees professional testimony protective to render that he worked on a 1994, services for a client. Mellon prior Serv. Co. v. July signing order late to the Co., 432, Touche Ross & However, S.W.3d agreement. although of the fee (Tex.App.-Houston 2000, [1st Dist.] no Birnberg protective worked on the order pet.). relationship may expressly be prior August explained he contract, may implied created or it filing because the deadline for the motion parties. from the actions of the Sutton performed preparato- was approaching, he McCormick, 179, Estate 47 S.W.3d work, work, ry but not so that substantive 2001, (Tex.App.-Corpus pet.); Christi no agree- if the entered into Moran, Vinson & Elkins v. 946 S.W.2d Tanox, ready ment with “be they would (Tex.App.-Houston [14th Dist.] step protective in and do the work on the by agr.). writ dism’d The determi order in Tanox furthers short order.” meeting nation of whether there is a Akin, records, points Gump’s time objective minds must be based on stan “client,” not refer to Tanox as the dards of what the did and said and “prospective” Birnberg’s client. time en- alleged subjective not on their states of tries, however, “pro- refer to Tanox as State, mind. Terrell v. 891 S.W.2d spective client.” 'd). (Tex.App.-El pet. Paso ref A officer, Nancy Tanox’s chief executive question of fact exists when evidence Chang, thought Birnberg testified she conclusively does not establish the exis attorney prior entering her into the fee attorney-client tence of an relationship. agreement because trusted him and he she Sutton, 182; Kanow v. S.W.3d helped put together lawyers. a team of Brownshadel, 691 S.W.2d 805-06 however, Chang’s testimony, further con- (Tex.App.-Houston no [1st Dist.] Birnberg tradicts her belief that was al- writ). ready attorney. her She testified “[Birn- support In berg] certainly my of its assertion that an said he wanted to be attorney-client relationship prior attorney. represent existed Robinson wanted to us, event, signing of the fee agreement, excited about the case.” portions relies on Chang’s subjective selected the record. belief that First, Tanox relies on evidence that the was her is not relevant to this litiga- inquiry. worked on the trade secret The determination of whether *11 words, agreement if in the minds is the terms fee meeting there is a based objective repre- there solely par- of what are not to then is no agreed on standards said, attorney’s to alleged subjec- agreement did and their An ties sentation. Terrell, on represent may tive states of mind. See client be conditioned a at 813. fee negotiation arrangement. S.W.2d the of a Re- GoveRning (ThiRd) Law statement fiduciary Tanox also a relation- argues (2000). The agreement § 14 cmt. fee e his ship attorney between an client subject negotia- provides it was the also preliminary extends to consultations con- tions, to opportunity each had party possible cerning retention attor- during negotiations, consult with counsel Foreman, Nolan ney. See F.2d presumption there of construc- is no (5th Cir.1982). Nolan, n. agreement against either tion the fee apрeal retained to convic- party. also that these Anderson conceded marijuana trafficking. for Id. tion at 739. negoti- arm’s-length terms are evidence rejected attorney’s argu- The court ations. attorney-client there ment that was no re-
lationship prior reaching agreement an Furthermore, the evidence also showed Instead, Id. observing on the fee. at n. 3. Tanox would not allow parties may that the manifest intent to pro- considered any review information create an ex- attorney-client relationship prietary signed until the had conduct, plicitly or the Nolan their example, Birnberg agreement. For attorney’s fiduciary court found the duties Law- although Tanox told the testified that attached when he entered into a discussion Ciba-Geigy yers agreement its with legal problems of the chent’s “with viewa Tanox, provided Tanox would royalties undertaking representation.” toward Id. not allow the to review that “pro- said it was because distinguishable We find Nolan prietary” to make those doc- and “declined example, of this facts case. For while the they hired uments available to until [them] Lawyers and Tanox were involved in the lawyers.” Similarly, Mike [them] negotiation of agreement, the fee did not the im- Mueller testified he have considering attorneys was still other for him as pression that Anderson viewed representation. example, For on July someone “to be trusted with confidential 1994, Anderson a letter received from Os- August prior agree- information 1st Dykes Fulbright borne J. & Jaworski and, accordingly, ment” Anderson would stating, per your Tuesday, “As request give him confidential information July have pre- we endeavored to attorney. until he was Tanox’s to Tanox pare preliminary proposal Bios- (‘Tanox’) ystems, Inc. for the engagement 1, 1994, Birnberg Finally, August, Fulbright (‘Fulbright & Jaworski L.L.P expressing wrote his Chang desire Jaworski’) to represent Tanox’ interest <& would into a and Tanox enter in connection with referenced matter.” attorney-client relationship: “successful”
Moreover, states, you meeting Thank with Ken Robin- the fee son, Mueller, provide and me to discuss attorneys agreed “the have such Mike subject possible representation Biosys- of Tanox representation following ... Strauss, tems, Akin, terms, conditions, Gump, Inc. understandings.” Feld, L.L.P., Law representa- Hauer & Robinson acknowledged Anderson Firm, Williams, Ander- & upon agreeing tion is conditioned sen, in connection the anti- agreement. terms of the fee In other L.L.P. *12 Genentech, IgE litigation with ... After the Lawyers represent did not Tanox meeting you during negotiation reviewing agree- the ma- of the fee provided, terials we have ment is not in disregard been the three manifest of the firms law. This issue collectively sufficiently opti- feel is overruled.
mistic prospects about the for a success- Arrangement 2. New Business ful outcome of litigation this arewe Provision willing representation to undertake Tanox in its affirmative claims Tanox contends the arbitrators’ (the Genentech and the others “trade conclusion that did not owe litigation”) secret on a contingency fee Tanox fiduciary duties connection basis. Accordingly, on behalf of the preparation with the of the fee firms, three I сopies pro- enclose manifestly disregards two Texas law requiring posed Representation Letter an Agree- must inform the client of ments which set forth upon the terms the basis of his rate or at the fee outset of which we propose would to undertake the matter. Levine Bayne, See Snell & Krause, (Tex.2001).9 representation both in that case and in 40 S.W.3d patent infringement litigation. Specifically, Tanox the Lawyers contends
knew arrangement” the “new business provision is, ambiguous. was That they believed could and, I recover look forward to hearing you from percentage royalties Tanox was enti hopefully, mutually to a rewarding and tled Ciba-Geigy to receive under the 1990 attorney-client successful relationship. agreement, while Tanox believed the Law Because the evidence does not conclu- yers’ royalties. fee was not based on those sively establish the existence of an at- contention, support of this Tanox re- torney-client relationship between the 27,-1994, portions July lies on selected of a Tanox, whether such a re- memorandum Ken Rob- lationship existed was a question of fact inson, which states: Sutton, arbitrators. See 182; Kanow, at finally S.W.3d at It suddenly S.W.2d has occurred (in 805-06. finding The arbitrators’ morning) me the shower this what 9. The represent- pendent arbitrators found Tanox was attorneys, of that of the the arbitra- negotiation ed stated, counsel in the of the fee tors "Tanox’s contention that it relied agreement. Specifically, the arbitrators ob- representations rests on the counsel, Anderson, legal served that Tanox’s supposition that neither its chief executive "intimately every aspect was involved in officer, Nancy Chang, Dr. nor its executive very lengthy negotiation process” and that officer, president operating vice and chief "competence sophisti- Anderson’s and level of Anderson, meaning plain David knew the undertaking comparable cation in that plain language this were so naive as Lawyers." regard, that of the In this meaningless. believe it to be The credible arbitrators found "it difficult to believe that simply support suppo- evidence does not this permitted Mr. Anderson would have Tanox's Instead, sition.” the arbitrators found that sign chief executive officer agree- evidence established that the which, provisions which contained as Tanox negotiated arm’s-length by ment was so- contends, Mr. Anderson did not understand phisticated parties comparable knowledge competent attorney or which a would know bargaining power, rejecting as- "Tanox’s illegal or should know to be or unconsciona- unsophisticated, inexperi- sertion that was ble.” Lawyers.” enced or reliant on the Noting agreement provides the fee Tanox legal representation has availed itself of inde- proposal in that agreed your hang-up Tanox’ is on 10% versus royalty they’re I regard. issue and think 25% right. The new business “settlement is, entirely my judgment, *13 talking arrangement” we have been in a fee justified resisting paying us involve, essentially, about would Genen- they already are entitled on what based in taking Ciba-Geigy’s position teсh over (even contract receive under the Ciba to arrange- “collaboration” Tanox/Ciba posi- takes over Ciba if Genentech ... ment. contract). We, on the in the Ciba tion problem is that Ciba-Tanox hand, entirely justified in re- are other already to provides deal that Tanox is a fee on the (demanding) based questing ar- existing from that royalty receive they be- by any royalties which amount (I rangement. forget percent- what the receive exceeds the come entitled to is, age but think it to be around [sic] to they presently are entitled amount 8%). litigation If the ends with Genen- under contract. Unfor- receive the Ciba simply posi- taking tech over Ciba’s this out at this tunately, straightening “new nothing tion—and more—that what stage to make it more reflective of no arrangement” business would have proba- actually should receive would we (over incremental what value above “chang- rightly perceived be as bly have) whatsoever, they already to Tanox said, take [you] we we’ll ing the deal”: they already since have that Ciba (whether royalties 10% of all received position agreeing royal- to that pay or arrangement from a new business Yet, ty[J fee we agreement, under our judgment or- from a Genentech would be to percent- entitled receive a pay “royalty” them as dam- dering to age of the from royalties received or or 40% rather than 25% ages), 33½% arrangement,” “new not- that business any new or increased or whatever of the fact that be
withstanding they would re- becomes entitled to royalties Tanox exactly position are in they the same Well, a on account of our efforts. ceive (ex- now right litigation and before and, in deal; made the is a we deal deal cept for having “partner”— a different stick it. Ac- my judgment, we should to Ciba). Genentech rather than entirely possible I think it tually, is Originally, sought David Anderson favor, may actually work to our “deal” (to Tanox) by address this unfairness detriment, only but rather than to our proposing percentage provided that the time will tell. contingent for in the agreement fee that, my hope Having said all applied, only portion be would but to the he explain can it to Mike you so royalties which exceeds (a) being “ripped not are feel we will they presently amount are entitled (I don’t think we are by off” client agreement. under the You coun- Ciba fact, issue; I are they think on this proposal percent- tered with a that the (b) essentially with right) and tinker applied be to the amount of age entire provisions of the draft received, royal- royalties whether those try that if regard. My fear is we this Ta- ties result from our efforts or from to all applies “tie down” that the 10% Ciba, present but at a nox’ contract ef- (rather resulting from our royalties, whether than the reduced rate of 10% otherwise, spook will we which are en- forts percentages 25%-40% we just and it ain’t worth are client even more “damages” on titled receive efforts). present I in its it. think the obtained for Tanox our (in possible point form the section entitled distinguish Settlement what by New Business would Arrangement) royalties Tanox would receive incremental sufficiently covers the situation [sic] opposed royalties as the base under the entitling “any pay- us 10% of future Therefore, Ciba-Geigy agreement. it was (such ...) ... royalties ments re- suggested compromise as a such ceived account of new on 10% of all royalties regardless based arrangement.” business royalties whether Tanox recovered un- retrospect, we might have tried to Ciba-Geigy agreement der the or from the distinguish “royalties” resulting between trade secret lawsuit. *14 from a business arrangement new Birnberg reminded Robinson the Law- “royalties” awarded a court as dam- had yers agreed compromise. to the Birn- trial, ages after but and I we didn’t that berg trying felt to craft new deal (or think it is too late now to on insist 25%, Lawyers which the would receive 33½ even propose) approach a different to of royalties % or 40% received from Gen- this issue. royalties entech rather than of all 10% up If end what we with in this case is deal” at changing would “the the last than
nothing taking more Genentech try would to minute. Concerned Robinson nothing over position Ciba’s more Anderson, renegotiate provision that with (and if world-wide sales amount $1 Birnberg wrote this memo. per year billion an 8% assuming royalty in the current Ciba-Tanox argues language Tanox the “tie down” agreement), lawyers the would receive Birnberg’s memorandum indicates the year years million for per nearly $8 Lawyers provision ambigu- knew the was nothing! for not a achieving That’s bad suggested Birnberg ous. Robinson that deal.10 needed to “tie language additional was Birnberg’s Tanox claims memorandum applied the agreement down” that 10% Lawyers establishes that the knew there however, royalties. Birnberg, all ex- interpretations. conflicting Birnberg were plained rereading that the after draft of July testified Robinson called him on agreement, the believed the lan- fee he stating why he did not the understand Lawyers’ guage regarding recovery on Lawyers only would recover of the 10% clear. royalties sufficiently Birnberg was royalties at trial awarded instead Lawyers that if explained tried to “tie percentages incremental they would recov- clear, already down” that something was er damages. on other wanted Robinson might Lawyers then believe royalties awarded trial to be distin- “reaching something [they were were] guished royalties though from recovered really reaching not for.” According Birnberg, settlement. Tanox further contends the Anderson did believe the chose not to reveal to Tanox their inter- should the full on all percentages recover arrange- pretation of the “new business Genentech, royalties Tanox received from “spook provision rather than ment” only but on the incremental difference be- explained Chang Birnberg client.” royalties tween the under the 1990 Ciba- day him Geigy agreement previous recovered had called because royalties she was would re- Birnberg explained Genentech. concerned problem approach programs with this was that it was cover fees on other such Emphasis original. 10. Furthermore, in a with program. conversation light
as its AIDS this confirmed July Robinson on Anderson Birnberg was Chang, conversation arrangement” provision the “new business clarify the lan- trying concerned royalties. Finally, a review of covered all “play would into the fear that guage right nu- the fee show the drafts of expressed previous Nancy had to me sup- and deletions merous interlineations them day, going spook that was even Lawyers’ this porting the assertion more.” parties. negotiated by the provision was Moreover, testified the calcula- finding that the The arbitrators’ tion fee on was royalties discussed disclose that required were July a meeting with Tanox at on under royalties was on received based explained, As Anderson did not previously not in mani- Ciba-Geigy lawyers recover the full believe should fest law.11 This issue is disregard royalties Ta- percentages incremental overruled. already
nox to receive entitled under 3. Conflict Interest however, Ciba-Geigy agreement; *15 fail possible royalties claims the arbitrators’ distinguish was not to Tanox the Lawyers ure to find that breached agreement the Ciba-Geigy received under by fiduciary duty creating, failing their royalties received from the Genen- disclose, re to a conflict interest with Robinson, therefore, litigation. pro- tech spect by new business the settlement posed Lawyers that the recover 10% of all resulting fee is in arrangement and royalties, royalties both from the received spe of the Tanox disregard manifest law. Ciba-Geigy agreement and those received cifically “could complains from the with collaboration Genentech. they if only claim windfall fee сould this Indeed, Birnberg’s July memo- part litigation settle the trade secret testimony: supports randum his If had been a new deal. the case business Originally, sought David Anderson however, tried to judgment, (to Tanox) this address unfairness have claimed the wind possibly could not provided that proposing percentage Disoiplinary R. PROf’l fall fee.” See Tex. in the fee contingent 1.04, (providing cmt.6 once the Conduct portion applied, only be to the would but to a attorney agreed and his client have royalties which exceeds the should not arrangement, they presently are amount entitled fur way handle the matter such a You under the Ciba coun- agreement. interests attorney’s thers financial percent- a proposal client). Thus, that the tered Tanox the detriment of applied the entire amount of age be had dis if the maintains interest, ... at a royalties received but reduced it could have closed the conflict agreed differently or the case to your rate of 10%.... Tanox settled tried judgment.12 regard. in that proposal any argument support present argues further the fee failed to Tanox assertion, thereby complaint waiving this this because it violates several rules of voidable Tex.R.App. appeal. P. 38.1. professional conduct. See Tex. Disciplinary R. 1.02, 1.03, 1.04, 1.06, and Prof’l Conduct stated, Ann., 1.08, summary, noth- reprinted in Gov't Code tit. 12. The “In Tex. arbitrators (Vernon 1998) (Tex persuades us that ing presented app. A subtit G Bar State X, 9). precisely the deal it generally citing § not achieve sever- did R. art. While conduct, knowingly sought.” professional desired and Tanоx has al rules tion, purpose
Tanox’s in suing Genentech be- Genentech would be more willing to lies its assertion that it would sought have settlement, enter into a which included a pursued a different settlement or the law- business deal with Genentech and the set- suit to judgment. Genentech wanted to tlement of patent Tanox’s rights. Ciba-Geigy’s place take under the 1990 Tanox further asserts the new business Ciba-Geigy agreement develop- for the arrangement bore no relation to the law- ment of the anti-body. Under Genentech’s Chang’s suit. own comments to Robinson however, proposal, Genentech would con- negate this assertion. During settlement tinue to develop anti-IgE its own program negotiations, Chang persuaded Genentech in addition to collaborating with Tanox on to add a million payment milestone if $20 program, its thereby making Genentech they achieved million sales. $300 partner both Tanox’s competitor. this regard, Chang explained said to Robinson: Chang “Kenny, you Anderson were concerned owe I big tip. just got me Tanox/Gen- program eliminated, entech would be leav- us a million get bonus when we $20 ing only development of Genentech’s sales of million.” There would have $300 and, product therefore, Tanox would not been no reason for Chang to make that getting royalties part “its on this if comment the new arrangement business pie.” Birnberg Chang testified him told had no relation to the trade secret lawsuit. Genentech had pay offered to Tanox $25 Finally, Tanox in- contends million for taking Ciba-Geigy’s place, while tended to claim large they fees if could still developing program, its own but Ta- *16 combine a with settlement a new business rejected nox Chang the offer. wanted at Genentech, arrangement with if even the least Ultimately, million. $100 Tanox settlement “achieved Birn- nothing.”13 (1) wanted an arrangement which would berg acknowledged per- that from Tanox’s step allow Genentech to Ciba-Geigy’s into shoes, (2) spective, if all that was provide and. achieved was Gen- leverage to make Genentech, shoes, collaboration entech stepping Ciba-Geigy’s with which into could result in pro- achieved, the elimination of nothing Tanox’s then would have been gram, economically viable for Tanox. Lawyers but the large would still recover a Therefore, according Birnberg, to the law- however, fee. Birnberg, explained Tanox’s expectation suit was not filed with the surviving per year to receive million $80 ultimately would go to trial. years possible for 40 only would be be- cause lawyers the “were there long enough
Anderson similarly testified one reason keep propped up them to they where fifing for the lawsuit was to continue dis- Genentech, get quashed by didn’t possible cussions about a which is business ar- was, rangement what their fear with Genentech. Eric Mirabel then we would have also testified that with the threat of fitiga- earned that fee.”14 Birnberg’s July years 13. This is in reference to nearly achieving nothing! for 1994 memorandum in he states: That’s not a bad deal. (Emphasis original). in up If what we end in with this case is nothing taking following exchange more 14. than Genentech over The occurred between (and Birnberg pоsition and one of the arbitrators: nothing Ciba’s and more if per $1 world-wide sales amount to billion question Hoover: Can I ask Arbitrator year assuming royalty and an in the you saying 8% you say here? Are when noth- here, agreement), current Ciba-Tanox the law- ing might you what is what mean yers per year $8 appear nothing? would receive million for to be Moreover, Madigan had offered though Birnberg fees and Chang understood the (2) a new Lawyers wanting the could recover from to draft the settlement go; arrangement, her business when she told the any without assistance documents husband, Chang, (3) Tse before former Wen Madi- when Lawyers; evasiveness lawyers the case settled that the could attempted discuss the mechanics gan in entitled to million fees. $100 $200 instruc- closing, wiring which included The arbitrators’ failure to find that tions. placed had their interests own Lawyers, after reach- According to the not in achieving ahead of the best result is all January the settlement on ing disregard
manifest of the law. This issue Ciba-Geigy agree that remained was for overruled. arrangement. to the new business sub- they claim did have Litigation Against Tanox in drafting stantive involvement man Tanox claims the arbitrators he Madigan documents. stated settlement law ifestly disregarded finding litigation little on the after very did work longer represented no settlement. reached they prepared litigate Ta- when Birnberg Madigan’s Anderson refused nox and filed the motion to seek intervene meeting Ciba-Geigy offer to attend a with ing attorney fees federal court help draft the settle- in Switzerland and 16, 1996, and, therefore, July did Birnberg testified ment doсuments. any fiduciary regard breach duties. With primary Anderson draftsman (1) conclusion, to this found arbitrators docu- preparing settlement had, consultation, sup “Tanox without told he had Birnberg ments. Anderson planted counsel,” other contracts, knowledge more about biotech (2) litigation trade secret had ef expert negotia- he was an contract 30,1996. fectively January ended on explained only involve- tion. his fact Madigan Tanox maintains the drafting. in the of the settlement ment directed associate at his law firm to *17 1996, May in late when documents was possible the litigation look issue of sent him a draft settlement Anderson over fees conclu- final nearly “in agreement which was sively pre- establishes the were spent his sev- Birnberg form” for review. paring represent- to sue Tanox while still sug- reviewing hours the draft and eral 1996, in ing Beginning February Tanox. substantive, minor, not revi- gested but Anderson, “had Madigan concerns” about only the sions. This was time by May and that he there believed any draft the saw settlement documents. the problem Lawyers’ could be with re- they In addition to their assertion covery Madigan’s of their fee. concerns (1) in the set- had no substantial involvement wanting any included Anderson’s Law- January him after the meeting attend a with tlement replaced them with Ciba-Geigy yers to discuss claim Tanox had Switzerland of the settle- arrangement, drafting new business even other counsel in the Yeah, absolutely, nothing superior mar- the benefit of Genentech’s far [Birnberg]: "Oh, perspective. They say, keting, having their well, would the benefit of Genentech’s thing up scientists, benefit, we ended with the same hаving perhaps, got achieving you It’s still some- before.” being as a in the market Genentech not lot, thing. It would have achieved a whole competitor.... way. having by the It would have achieved ment documents. Tanox asserts it hired ment of these additional funds ‘immediate- attorney, another Foley Bernard Saxe of & ly’ upon receipt million $16 Lardener, only provision review Madigan joint Tanox.” further warned the arrangement business relating to Genen- motion to dismiss would not be filed until opposition patents tech’s to one of Tanox’s pursu- received the million $8 Office, European Patent not to han- ant to agreement.15 the fee Robinson also any aspect dle litigation of which the wrote Anderson and Chang, instructing Lawyers were the attorneys of record. them to wire million to Lawyers, and $8 Anderson, however, also testified he had stating, further “I cannot leave town or discussed the settlement agreement with participate in a dismissal Order [sic] counsel, Tanox’s former Ed Harrell. until case our contract is honored and all $8,000,000 interest on signed paid.” agree- settlement ment on July 1996. Madigan first July response On Madigan’s learned July about the 8 settlement when letter, Anderson informed Madigan that he read newspaper. about it the Madigan “determining paid what was such settle discussed with Anderson and Genentech’s litigation is fundamental to establishing counsel, Beck, general David the need to the basis for contingent calculation of the up set Madigan escrow account. in- payable.” fee that is explained Anderson formed Anderson when the escrow account that Tanox asked Genentech to advise it of had up. been set paid the amount for which it to settle the Under agreement, the fee “Tanox ex- trade secret litigation. Anderson states pressly agree[d] that it [would] obtain paid Genentech million to settle the $7 any settlement nor receive funds relat- Therefore, trade secret litigation. accord- ing to this matter without first consulting Anderson, ing to million payment $16 with and making full disclosure to the suc- was not related to the settlement of the attorneys.” cessor Unbeknownst to the trade litigation. secret Lawyers, July on Genentech gave Lawyers conflicting Anderson wired directly. million to Tanox $16 Madi- First, instructions. the Law- he ordered gan learned of the million wire trans- $16 yers papers. to file the Howev- dismissal fer July general from Genentech’s er, Madigan he also advised counsel. Madigan went to Robinson’s of- should have no contact further direct fice, where he and Robinson called Tanox. Tanox, but, instead, Tanox had retained Madigan informed Anderson that he had represent Ed Harrell it in concluding *18 learned of the million payment. $16 the in any disputes settlement and with response, Anderson told Madigan that he regard agreement. to the fee Anderson would have to check on the wire transfer wrote: they and would have to discuss the amount Lawyers
the would recover. by [W]e believe that the threats made you Madigan delay then wrote and Ken to dismissal of the Anderson and re- you paid lawsuits until quested Tanox wire million to have been are $6 Akin, Gump’s account highly and million to both unethical conduct and consti- $2 Madigan Robinson’s account. reminded tute a breach of both our trade secret that, Anderson requires pay- patent “our contract litigation agreements. lawsuit and Madigan 15. joint wrote: "The motion and These documents will not be filed until we yet dismissal order have not been filed. receive confirmation of the wire transfer of awaiting We're still (Emphasis original). the finalized documents. the funds.” the motion to dismiss when Unfortunately, signed it is clear that “our had now attorneys” for working they authority have been their do so on of had no behalf interests, Therefore, 15,1996: own not Tanox’s. July Tanox as of today you Tanox either demands surprised signa- I learn that the was sign and file the or withdraw dismissals Madi- the dismissal motion of tures on as Tanox’s counsel. appar- gan, and were Robinson
ently product Madigan a Mike the position The request. adversarial hopeful are that conclusion of our We attorneys became im- Tanox’s former provided can agreements as above July former mutable on The quickly accomplished and we can end authority speak no attorneys had relationship our in an manner. amicable presump- act Tanox’s Their on behalf. however, Finally, we would like to let only tion behalf is not to act on Tanox’s the you know that based on threats grave delayed filing concern the but by you made and Ken and on the adver- papers.17 of the dismissal taken, position it sarial we do believe After settlement had been reached the appropriate is or advisable us to did not January require Tanоx continue with directly any to deal Lawyers obtaining assistance you in with this matter and connection Ciba-Geigy’s agreement to settlement engaged we have Mr. Ed Harrell of drafting or in documents. settlement Hughes, & to repre- Watters Askanase Tanox used its in-house counsel and other concluding sent us in the above for those tasks. After the outside counsel may other matters which arise con- fees, Lawyers payment demanded their agreements nection between it had the motion to inter- but before filed us.16 vene, Lawyers had Tanox informed the July un- Lawyers On filed set- hired another to conclude the der seal motion to seeking intervene represent it with regard tlement and to attorney fees in connection with work Lawyers and that agreement, performed litigation. in the trade secret directly. should contact Tanox Tanox intervene, response In its motion to Lawyers made it clear to the that as stated, “This settled case' is July longer represent- no agreements settlement executed [sic] it. ed motion(s) parties. The form order(s) agreed dismissal was still Whether the parties except Ciba-Geigy, and the re- attorney-client relationship had an issue(s) maining are apparently virtually fact for the question of arbitrators. dispute solely resolved. The between finding that the did arbitrators’ Attorneys.” TANOX and the Former duty by preparing any fiduciary not breach added). (Emphasis actually filing to file and motion longer because the no August Harrell wrote to intervene On *19 Tanox disre- Akin, Gump, complain- represented is not manifest David Donahoe of Robinson, is gard that and the law.18 This issue overruled. ing Madigan, of Lawyers’ Emphasis complains preparation 16. added. 18.Tanox anticipation litigation of is of documents they an breach- admission tantamount Emphasis added. fiduciary duty. ed See Resolution Trust their 264 Policy GmbH,
C.Public
1434,
Gutehoffnungshutte
141 F.3d
(11th Cir.1998)
1446 n. 16
(quoting Brown
further claims the award
Tanox
Inc.,
Refsnes,
v. Rauscher Pierce
994 F.2d
should be vacated because the arbitrators’
(11th
775,
Cir.1993)).
words,
In other
findings that the Lawyers did not breach
the court will not
an
vacate
award as arbi
(1)
fiduciary duty
public poli
violate
trary
capricious
and
unless it cannot infer
(2)
cy, and
arbitrary
capricious.
are
any ground for the award from the facts.
argues
the arbitrators’ findings do
Brown,
An arbitrary capricious, vacated as attorney unless An an may charge illegal or Disoiplinary departure “‘exhibits a wholesale R. unconscionable fee. Tex. 1.04(a). the law if reasoning palpably [or] is so presumption A PROf’l Conduct faulty that no judge, group judges invalidity unfairness or attaches to could ever conceivably have made such a and the bears the bur ” ruling.’ Indus. Risk Insurers v. M.A.N. prove den to is fair and H—, P.C., However, Corp. v. 128 F.R.D. because the arbitrators determined (N.D.Tex.1989) (stating longer represented claim at- no time, torney preparation that materials were created in antici- of those documents
pation litigation Lawyers’ with client would does not constitute a breach of the *20 fiduciary duty). admission of a fiduciary duty. breach of
265 of a fair deprived it was party a that Griffith, Archer v. 390 S.W.2d reasonable. Int’l, (Tex.1964). v. Gibbs Oil 735, However, hearing. Forsythe S.A fee ar- 739 “a (5th Tex., Cir. F.2d 1023 arm’s-length at with Co. rangement negotiated of 1990) Stereotypers’ Un (quoting Newark experienced client would rare- an business Co., Morning Ledger other No. v. Newark subject to the ion ly question. be On (3d Cir.1968)). Assum hand, an unedu- 397 F.2d arrangement a fee refusing in the arbitrators erred having ing that unsophisticated or individual cated evidence, to disputed va in such matters should consider experience no prior award, the arbitrators’ cate the arbitration carefully for over- more scrutinized be faith or made in bad must have been reaching.” Tex DISCIPLINARY R. Prof’l error gross as to constitute must be so error 1.04 cmt Conduct Inc., Misco, affirmative misconduct. The arbitrators found Tanox was 364. The at 108 S.Ct. arbitrator U.S. repre sophisticated party, a which was admissibility judge of the is the'sole negoti by competent sented counsel relevancy an of the evidence submitted agreement. ation of the fee proceeding. Hoteles Condado arbitration subject agreed agreement the fee was the Beach, & Convention Ctr. La Concha had the negotiations of F.2d Tronquistas Local Union De opportunity independent counsel to consult (1st Cir.1985) A. M. Hill & (quoting Similarly, Anderson during negotiations. Sinicropi, in Arbitration Evidence acknowledged the fee was ne (1980)). Moreover, gotiated arm’s-length. at Ta- work-product Tanox claims the nox could recover understood the privilege is available royalties it. Under fees all received anticipate liti circumstanсe, of un an cannot presumption no because these a client without gation against current fairness attached to the fee case, fiduciary duty. In this and, therefore, his breaching the failure find that the however, found the Law is the arbitrators fees were unconscionable Lawyers’ Tanox at the longer represented no yers This disregard manifest of the law. subject were created. time the documents issue is overruled. not in manifest finding is Because Privilege law, arbitrators’ deci disregard of the Y. Work Product production of those sion not to order the claims the arbitrators is not in manifest disre documents also manifestly disregarded the law in sustain law. This issue is overruled. gard product ing Lawyers’ assertion of work and time privilege regarding documents VI. Essence of the Contract Lawyers prepared they while
entries the Tanox claims the arbitration representing Tanox. Under were its from the authority to “draw essence” FAA, to award fails the courts have its draw essence agreement. To “[w]here an award vacate contract, “must ... an arbitration award misconduct guilty were arbitrators rationally least pertinent and have basis refusing to hear evidence drawn, inferable, from the obviously if not controversy.” to the 9 U.S.C. material agree This, however, ... 10(a)(3). purpose § is a narrow letter must, logi in some ... award evidentiary [T]he An error ment. ground for vacatur. wording or law; from the way, cal derived rath merely not be error must Local Union er, the contract.” rights purpose so such error must affect *21 266 Workers,
Int’l Bhd. Elec. neys AFL-CIO v. were preexist- awarded fees based on of (5th Corp., Cir.), Green 725 F.2d 268 ing royalties patent licensing fees denied, 833, 105 cert. 469 U.S. S.Ct. which had no relation to the trade secret (1984) L.Ed.2d 66 (quoting Brotherhood litigation.19 of Co., R.R. Trainmen v. Ry. Central Ga. of Anderson testified the trade secret liti- (5th Cir.1969)). F.2d When gation was a regard consideration with disputes resolving concerning applica the to the new arrangement among business contract, tion of a dishonesty and no had Tanox, Genentech, Ciba-Geigy. arbitrator, been alleged part on the of the Anderson, however, further testified the “‘improvident, silly, arbitrator’s even ” dispute, patent which included the in- factfinding’ provide does not a for basis fringement and litigation, trade secret was uphold the court not to the Major award. by resolved a arrangement new business League Ass’n, Baseball Players 532 U.S. and “the recovery settlement cer- could 509, 121 Inc., Misco, at (quoting S.Ct. 1724 tainly include the best deal business 364). at U.S. 108 S.Ct. If the ... was based on that lawsuit.” Birnberg arguably arbitrator even construing the similarly parties agreed testified the acting contract and within scope of his disputes settlement of the concerning Ta- authority, the fact that the court is con patent nox’s rights merger and the vinced he committed serious error is not Genentech anti-IgE and Tanox/Ciba-Geigy sufficient vacate the (quot award. Id. projects part were of the settlement of the ing Eastern Associated Coal Corp. Unit litigation Genentech, pending among Ta- Am., ed Mine Workers U.S. nox, and Ciba-Geigy. Birnberg further 462). words, S.Ct. other long as the merger testified of the anti-IgE pro- the arbitrators’ decision draws its essence jеcts was a new arrangement business contract, from the the award must be con within meaning agreement. fee Misco, Inc., firmed. 484 U.S. at Chang Tse Wen likewise testified he could S.Ct. 364. not think of way litigation could be Tanox contends the arbitration settled a arrangement new business award fails to draw its essence from the patents. would not be on based First, fee for two reasons. Second, Tanox the fee ignored agree- arbitrators fact contends that the attor ment ney type limits the payments fees based on future on Tanox’s recovery under can attorney new fees arrangement business be calculated were limited payments payments “received from “received Tanox as a re the defendants.” argues sult litigation, Ciba-Geigy on account of because such arrangement.” (Emphasis new business a defendant in litigation, the trade secret added). complains royalty fees cannot be based panel erroneously payments found the existing new business under the 1990 Ciba- arrangement agreement. was a Geigy result the trade The fee and, therefore, secret litigation the attor- “contemplated dispute between ever, explained The "[n]othing general arbitrator the new language business in the whole, arrangement integrated was an agreement] suggests propriety [fee dependent promises and conditions. "Tanox approach. 'cafeteria' If Tanox had wanted to attempted argument to exclude certain ele- exceptions, carve out ... it had the burden to purview ments from the of the nеw business agreement] do so. does [fee not contem- " arrangement by classifying pur- them plate a divisible 'settlement.' ” poses litigation.’ as not 'results of the How-
267 v. Hardee’s Neal re- should not denied. might be Tanox and defendants (5th Inc., (in Cir. by F.2d 37 part) Sys., solved whole or some busi- 918 Food 1990) whereby at arrangement Tanox and one Park DFW (quoting ness Commerce Co., engage in business 729 F.2d or more defendants Freeport v. Mardian Constr. provision (5th Cir.1984)). This does not limit together....” 334, 338 Tanox a to and arrangement new business the fee Tanox contends only. merely It the dis- Genentech states involving to issues limits arbitration pute by resolved Tanox and Gen- may be agreement. The arbitration breach of the but engaged together, entech in business clause states: possibility that Tanox exclude the does not of this potential or breach Any actual a would do business with Genentech brought a is to be party party. third The arbitrators’ award draws Upon promptly. attention party’s agreement. its essence from the fee This meeting shall be request party, of a issue overruled. is parties attempt among the convened relating VIL Arbitration to such any issues resolve of Tanox’s Tort Claims par- or breach. If the potential actual the trial court claims unable to resolve such issues ties are fiduciary submitting erred in its breach of any other if cannot resolve duty and other tort claims to arbitration negoti- further may require which issues arbi agreement provided because may, any agreement, party ations and only for claims to the relating tration any request, require that written agreеment, breach of the fee not tort issues be submitted such unresolved law favor claims. Both federal and state ... binding arbitration disputes. In re Ameri the arbitration Lancaster, Inc., can 50 Homestar of assertion, we con- Contrary to Tanox’s (Tex.2001). A how party, S.W.3d 484 “any language clude inclusion of the ever, compelled cannot be to submit may require further other issues dispute agreed he arbitration has arbi- agreement” in the negotiations Inc. v. Chase Man submit. PaineWebber enough to include clause is broad tration (Switz.), Bank 260 F.3d hattan Private tort claims. related (5th Cir.2001). 453, 462 On the other event, a review of hand, any concerning scope doubts specifically re reflects that Tanox record issues, arbitrable should be resolved fiduciary duty its breach of quested that H. favor of arbitration. Moses Cone arbi claims be submitted to and other tort Corp., Mercury v. Hosp. Mem’l Constr. example, in its motion to tration. For 1, 24-25, 927, 74 460 103 S.Ct. U.S. arbitration, states, compel “[t]he (1983); Sugars, L.Ed.2d 765 Valentine agreement (p.ll) requires representation (5th v. F.2d Corp., Inc. Donau disputes Former arbitration of all between Cir.), denied, 923, 113 S.Ct. cert. U.S. add Attorneys (Emphasis (1993) TANOX.” (explaining L.Ed.2d Moreover, ed). in a notice to the written ex determining that in whether arbitrator ar specifically demanded Lawyers, Tanox jurisdiction, court resolves all ceeded claims,” arbitration). in bitration of “the enumerated Therefore, in favor of doubts “ fiduciary duty cluding claims for breach positive assur it can be said ‘unless malpractice. may claimant “A legal clause is not sus ance an arbitration his to arbitra voluntarily submit claim interpretation which ceptible of an would outcome, and, tion, if decision issue,’” await the dispute cover unfavorable, Gonzalez, challenge Henry then the authori- See 18 S.W.3d ty of the arbitrators act.” Ficek v. *23 (Tex.App.-San pet. Antonio dism’d (9th Co., Southern. Pac. 388 F.2d Moreover, agr.).20 agreement ne- Cir.1964); see Sys., also Bull HN gotiations were at arm’s-length as Tanox Info. “ Inc., 229 F.3d (stating at 332 ‘the arbitra- representation had the of benefit inde- interpretation scope tor’s pendent experienced and legal counsel. issue submitted to him is to be treated properly Tanox’s tort claims were submit- great with deference’ and ‘must be upheld ted to arbitration. This issue is overruled. so long rationally itas is derived from the ”) (citations omitted). parties’ submission’ Summary Judgment VIII. for Accordingly, Tanox is estopped argue Individual Defendants its tort claims were not arbitrable. Tanox claims the trial court erred in argues that even it initial- though summary granting judgment in favor of ly asked for disputes arbitration of all the Individual on the affirmative Lawyers, including claims, tort its it is judicata of defenses res and collateral es- not estopped to assert that these claims toppel. For forth the reasons set in the subject
were not agree- the arbitration concurring opinion on rehearing, this issue knowledge ment because it did not have of by majority is overruled of panel. all requested its claims at the time it arbi- Tanox, however, tration. recites in detail IX. Conclusion
many of the facts giving rise to its claims for of fiduciary breach duty legal mal- We conclude the trial court did not err practice in its written demand for arbitra- Lawyers’ in granting motion con- Therefore, tion. it is evident that Tanox firm the arbitration in denying award and sufficiently was underly- aware the facts Tanox’s motion to vacate the arbitration ing its fiduciary duty breach of and other Accordingly, judgment award.
tort claims at the time it demanded arbi- trial court is affirmed.
tration.
Finally, argues that as a matter J., FOWLER, WANDA McKEE public policy, client’s breach of fiducia- VIII, Concurring on Rehearing on Part ry duty legal malpractice claims EDELMAN, joined by J. arbitration, should subject never be the HUDSON, HARVEY Dissenting J. J. Tanox, absent special protection. there- Opinion on Rehearing of Part VIII of
fore, this asks court to declare the arbitra- Rehearing. tion public void as a matter of
policy. Appeals The San Antonio Court of Justice, FOWLER, WANDA McKEE rejected argument, explaining this concurring. “public-policy such un- contentions are founded because well established fully judgment caselaw We concur the court’s mandatory join favors Majority Opinion dispo- and holds in its deny parties that arbitration does not except sition of all issues one. This this trial, right jury to a opinion a matter of law.” the of the court as to this issue. C.J., (Hardberger, ignores tionship reality But see id. at 693 dis- senting) (expressing applying engaged concerns that client are in most instances general principles arm's-length negoti- during contractual to arbitration transaction initial ations). attorney-client in context of rela- Elec., Quinney Inc. v. litigated and lost. Judgment Summary I. Inc., Entertainment, 988 S.W.2d Kondos Individual curiam). (Tex.1999) gen It (per the trial court erred Tanox claims fully and applies when the issue erally granting summary judgment favor previous action and in the fairly litigated affirmative the Individual on the previ in the judgment was essential to judicata es- defenses of res and collateral The elements collateral ous action. Id. prevail sum toppel.1 To on a motion for *24 (1) sought to be the facts estoppel are: estab mary judgment, the defendant must fully were second litigated in the action it fact and lish that no material issue exists (2) action; fairly litigated prior in the judgment a matter of law. is entitled as Rhone-Poulenc, Steel, judgment to the v. 997 those facts were essential Inc. S.W.2d (3) 217, (Tex.1999). action; parties were 222 If the defendant in the first summary for on an affir Ea judgment moves adversaries in the first action. cast as defense, Scharbauer, prove it has the burden to mative v. 807 Properties, Ltd. gle affir conclusively (Tex.1990). all the elements of the 714, 721 The issue de S.W.2d v. KPMG Peat Marwick mative defense. prior in must be identical cided action County Corp., Hous. Fin. 988 Harrison & pending issue in the action. State to the (Tex.1999); 746, 748 S.W.2d Velsicol Co., Fire 52 S.W.3d County Mut. Ins. 529, Corp. Winograd, v. 956 S.W.2d Chem. a estoppel requires further 696. Collateral (Tex.1997). 530 v. Frost Nat’l Bank judgment. final 580, (Tex.App.-Hous 29 595 Burge, S.W.3d pre- judicata, preclusion, Res claims 2000, v. pet.); no Starnes ton [14th Dist.] relitigation of claims that have cludes the 86, Holloway, (Tex.App.- 93 779 S.W.2d adjudicated, related finally been as well as denied). 1989,writ Dallas in litigated matters that should have been County & Mut. Fire prior suit. State judicata and collat- Tanox contends res 693, Miller, Ins. 696 Co. v. S.W.3d inapplicable are because estoppel eral (Tex.2001). Texas follоws the transaction- motion judgment. no final On there was approach. al Barr v. Resolution Trust Lawyers urge rehearing, the Individual (Tex.1992). Corp., 837 S.W.2d our initial conclusion us to reconsider a suit is approach, subsequent Under that estoppel did not and collateral judicata res subject if it arises out of the same barred hearing. summary judgment apply to the through prior matter of the suit and which in award argue that the arbitration They in the litigated could have been diligence preclu- firms have a favor of the law does judica- prior suit. elements of res Id. The it has the as to them because sive effect (1) a on the prior judgment ta are: final court of last judgment as a of a same effect competent jurisdic- a court of merits resort. (2) tion; identity or those (3) them; a action privity second opinion original we noted our As claims were raised based on the same February the trial court entered ac- in the first or could have been raised grant- interlocutory judgment an amended Corp., Brass tion. Amstadt U.S. application confirm ing motion and (Tex.1996). 644, 652 S.W.2d award, denying the motion the arbitration award, ordering party prevents vacate estoppel Collateral on its claims nothing take previously an relitigating issue that Mueller, (see Madigan, Ken- opinion Michael J. majority Michael J. in the foot- As noted Robinson, Birnberg. M. M. and Gerald supra), are neth note 1 the Individual the law firms. On preclusive March given effect even though ap an granted trial court summary judgment peal is pending.
favor the Individual Lawyers and en- In our original opinion recognizеd we judgment. tered final general principle that preclusive awards can acknowledge
While we
that it is a
have
effect in subse
issue,
See,
close
weight
quent
litigation.
we believe the
of au
e.g., Milliken v.
thority suggests
(S.D.Tex.1997),
that an arbitration
Grigson,
F.Supp.
award
preclusive
has
though
ap
(5th Cir.1998);
effect even
'd,
In
v.
Fireman’s
Scurlock Oil Co.
Co.,
261,
(2d
that,
Fund Ins.
F.3d
Supreme
267-68
Texas
Court held
with an
Cir.1997)
here,
(holding
judicata
exception not
that res
applicable
a trial
court’s judgment
purposes
estoppel apply
is final for
collateral
of
issues resolved
judicata
res
despite
estoppel
collateral
arbitration when
a
there has been final
a pending appeal.
1,
merits,
See 724 S.W.2d
6 determination
notwithstand
(Tex.1986).2
addition,
our courts have
ing
award);
a lack of confirmation of the
recognized that an arbitration award has
Pryner
Co.,
see also
Supply
v. Tractor
judgment
the same effect
(7th
as
of a court
354,
Cir.1997)
F.3d
(recognizing
Lig
last resort. Anzilotti v.
D.
Gene
award,
that an arbitration
whether
Inc.,
gin,
(Tex.App.-
899 S.W.2d
confirmed,
pleaded
can
judicata).
res
1995, writ);
[14th
Houston
Dist.]
no
J.J.
Here,
the trial court confirmed
Services,
Gregory Gourmet
Inc. v. An
the arbitration award and denied Tanox’s
(Tex.
Co.,
Import
tone’s
motion for the arbitration award that I that an arbitration agree untо ceeding “separate proceeding” was a ordi- by the trial court has confirmed been to vacate filed itself. Tanox’s motion preclusive has effect as narily was, essence, appeal the trial an court The discrete subsequent proceedings. award, claims that final and the inter- is the trial court’s issue in this case conjunc- the Individual —heard the arbitration locutory confirming order not a tion with the motion to vacate and summary granting award and the order part proceedings of the arbitration —were the Individual Law- judgment in favor of completely separate proceeding from the proceed- in the same trial court yers were So, proceeding. technically, majority proposes that the arbi- ing. being applied to a subse- the award was motion to proceeding and Tanox’s tration hearing.3 quent, separate vacate, appeal which was in effect reasons, the Individ- grant For these we award, of a part were final arbitration rehearing on Lawyers’ ual this issue proceeding from the separate proceeding summary judgment affirm the trial against the Individual in which the claims court entered in their favor. Lawyers were heard. *26 Justice, HUDSON, J. HARVEY award, I disagree. The arbitration dissenting. unconfirmed, was whether confirmed Originally, we sustained Tanox’s claims point, Tanox could interlocutory. At that that the trial court sum- granting erred in the appeal not take an of the award in favor of mary judgment the Individual entering trial court a final absence of the Lawyers on the affirmative defensеs of res subsequently.1 judgment, did so judicata estoppel. and collateral On re- and, Thus, judgment was no there final hearing, majority panel concludes therefore, preclusive had no ef- award holding. I do not we erred so Because fect. agree, respectfully grant- I dissent to the ing rehearing. judgment no as there final Because award, required as to the arbitration
Subsequent February to its I estoppel, and collateral judicata both res interlocutory confirming amended order in granting erred would find the trial court award, court, the trial the arbitration summary of the Individ- judgment favor granted March the trial court ual on the affirmative defenses summary judgment in favor of the Individ- estoppel. Ac- judicata judicata ual based on res and res collateral against by severing claims Although argument Tanox's 3. this additional is useful achieved separate point, Lawyers. case to illuminate how At that there this the Individual against proceeding and the claims arbitration judgment sum- been final would have were, an arbitration the Individual if judicata and mary judgment on res based entered, this additional award is final when estoppel of the Individual in favor collateral probably necessary separation because appropriate. have been would separate, is itself a sub- the motion to vacate severance, an from an of a order the absence sequent proceeding pro- summary judg- remanding appellate court ceeding. necessary to the trial court severs ment case, there- action from the remainder Lawyers’ judgment 1. A final arbitra- by creating judgment. a final have been tion award Tanox could I cordingly, dissent to granting of re-
hearing. parte Stephen
Ex Mark NAILOR.
No. 14-02-00444-CR. Texas, Appeals
Court of (14th Dist.).
Houston
April