Texas SC weighs in on fees from negligent lawyers

The SE Texas Record Nov. 5, 2009, 7:39am

Justice Phil Johnson

AUSTIN – Clients can recover fees from negligent lawyers but only to the extent that negligence caused the fees, the Supreme Court of Texas ruled on Oct. 30.

The justices didn't measure the extent of negligence in the case before them, however, choosing instead to let Fifth District appeals judges in Dallas measure it.

Fifth District judges can dodge a decision too, because the justices authorized them to remand it to Dallas County for a new trial if they wish.

For the moment a question mark still hangs over a trial that ended 10 years ago.

At trial, the firm of Akin, Gump, Strauss, Hauer and Feld represented National Development and Research Corp. in a suit with Panda Energy International.

The companies had agreed in 1994 to invest in an energy project in China.

In 1997, Panda issued $155 million in bonds for the project through a subsidiary.

Pursuant to the 1994 agreement, NDR received shares of stock in Pan-Sino, another Panda subsidiary.

Panda then notified NDR that it would terminate the agreement and buy back its stock.

NDR wouldn't sell, so Panda sued the company and its president, Robert Tang, in Dallas County district court.

Tang hired the Akin Gump firm, agreeing to pay an hourly fee plus a contingency fee on a sliding scale.

For Tang, Akin Gump filed a counterclaim against Panda.

At jury trial in 1999, a Panda International employee testified that the China project couldn't meet its debt and that he was trying to save the company.

Panda's chairman testified that banks lost confidence in the China market and bonds were trading at 30 to 40 cents on the dollar.

Jurors rendered a verdict but District Judge Jay Patterson struggled to carry it out.

He entered judgment but modified it three times in two years.

He finally ruled that no one owed damages to anyone, but that NDR owed Panda $427,317 in legal fees.

The Fifth District affirmed Patterson in 2002.

By then, NDR had filed a malpractice suit claiming Akin Gump failed to request jury instructions on breach of contract.

At trial, District Judge Charles Stokes instructed jurors "to only consider the amount of money NDR would have recovered and collected" from Panda.

Jurors found that Akin Gump's negligence caused NDR to lose more than $500,000 in stock value and success fees.

They held Akin Gump liable for about $170,000 of the judgment in Panda's favor and $216,590 in legal fees it received from NDR.
Stokes entered judgment accordingly.

On appeal, Fifth District judges affirmed Stokes in awarding damages for stock value, success fees, and the Panda judgment, but they reversed him on awarding legal fees.

Both sides appealed to the Supreme Court, where neither gained complete victory.

Justice Phil Johnson wrote, "We agree with Akin Gump that the evidence is legally insufficient to support the jury's findings that NDR would have collected damages awarded in the Panda suit for the value of NDR's Pan-Sino stock and for success fees."

On the other hand, he rejected Akin Gump's argument that NDR would have incurred legal fees regardless of negligence.

He wrote, "We also agree with NDR that it may recover damages for attorney's fees it paid to its attorneys in the underlying suit to the extent the fees were proximately caused by the defendant attorneys' negligence."

He wrote that a general rule against recovery of fees from an adverse party in litigation "does not bar a malpractice plaintiff from claiming damages in the malpractice case for fees it paid its attorneys in the underlying suit."

He rejected Akin Gump's argument that NDR didn't prove a breach of duty that would allow fee forfeiture.

"If an attorney has breached his or her fiduciary duty to a client, then part or all of the fees the client paid may be recovered through disgorgement and forfeiture," he wrote.

Still, he couldn't find evidence to support the jury's award of $216,590.

The justices remanded the award to Fifth District judges and advised that if they can't solve it, they should send it back to Stokes.

David Shuford and Michael Jones represented National Development and Research.

Thomas Allen, Corbet Bryant, Jeffrey Levinger and Christopher Scanlan represented Akin Gump.

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