Appeals court keeps lawyer's hands out of client's settlement

Throughout his company's Hurricane Rita suit, Waleed Khan � the owner of Wythe II Corp. � was billed directly by his attorney John Stone. When the case settled, Stone obtained an order from the trial judge granting him a portion of the settlement proceeds.

Not happy with paying for the same suit twice, Khan, on behalf of Wythe, appealed the ruling. On Feb. 12 justices on Texas' Ninth Court of Appeals issued a per curiam decision granting Khan's writ of mandamus.

Wythe II Corp. hired Stone to file a Hurricane Rita lawsuit against XL Lloyds Insurance. The suit was filed April 5, 2007, in Jefferson County District Court and was assigned to 60th District Judge Gary Sanderson.

In November 2008, after the case settled, attorney Stone filed a "Intervenor's Motion to Enforce Settlement Agreement," court papers say.

Judge Sanderson granted the motion, leading Khan to file an appeal on Dec. 12, 2008 � the same day the motion was granted.

On appeal, Khan filed a petition for writ of mandamus and prohibition to prevent the release of funds on deposit in the registry of the trial court.

"This original proceeding concerns the process required when an attorney intervenes in his client's suit for the purpose of recovering attorney's fees out of settlement proceeds," the opinion states.

"In this case, the trial court ordered the funds to be released in an interlocutory order signed 16 days after the attorney filed the intervention. Because due process was not provided in this case and an appellate remedy would be inadequate, we conditionally grant partial relief and direct the trial court to vacate its order.

"We hold the trial court must provide adequate notice and an opportunity to be heard as required by the applicable rules of civil procedure before adjudicating disputed issues between the attorney and the attorney's client. All other relief sought in this proceeding is denied."

The opinion goes on to state that Judge Sanderson abused his discretion when he ordered the disputed funds to be disbursed following a preliminary hearing held with only 11 days notice.

"We are confident that the trial court will vacate its order of Dec. 12, 2008, and that all further proceedings will be set in due course in the manner required by the rules of civil procedure. The writ shall issue only if the trial court does not comply."

Khan is represented in part by attorney Mark W. Stevens.

Stone is representing himself.

Trial case No. B179-073
Appeals case No. 09-08-00539-CV