Filed: Nov. 18, 2003
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS November 18, 2003 FOR THE FIFTH CIRCUIT _ Charles R. Fulbruge III No. 02-11176 Clerk _ LIBERTY MUTUAL INSURANCE COMPANY and LIBERTY MUTUAL FIRE INSURANCE COMPANY, Plaintiffs-Appellants v. GARDERE & WYNNE, L.L.P., A Texas Limited Liability Partnership, JOHN C. NABORS, ESQ., Individually and as a Partner of Gardere & Wynne, L.L.P. and GREGORY N. WOODS, ESQ., Individually and as a Former Partner of Gardere
Summary: United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS November 18, 2003 FOR THE FIFTH CIRCUIT _ Charles R. Fulbruge III No. 02-11176 Clerk _ LIBERTY MUTUAL INSURANCE COMPANY and LIBERTY MUTUAL FIRE INSURANCE COMPANY, Plaintiffs-Appellants v. GARDERE & WYNNE, L.L.P., A Texas Limited Liability Partnership, JOHN C. NABORS, ESQ., Individually and as a Partner of Gardere & Wynne, L.L.P. and GREGORY N. WOODS, ESQ., Individually and as a Former Partner of Gardere &..
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United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS November 18, 2003
FOR THE FIFTH CIRCUIT
_______________________ Charles R. Fulbruge III
No. 02-11176 Clerk
_______________________
LIBERTY MUTUAL INSURANCE COMPANY and LIBERTY MUTUAL FIRE
INSURANCE COMPANY,
Plaintiffs-Appellants
v.
GARDERE & WYNNE, L.L.P., A Texas Limited Liability Partnership,
JOHN C. NABORS, ESQ., Individually and as a Partner of Gardere &
Wynne, L.L.P. and GREGORY N. WOODS, ESQ., Individually and as a
Former Partner of Gardere & Wynne, L.L.P.,
Defendants-Appellees.
--------------------
Appeal from the United States District Court
for the Northern District of Texas
(3:95-CV-1330-L)
--------------------
Before HIGGINBOTHAM, STEWART and PRADO, Circuit Judges.1
PRADO, Circuit Judge.
Appellants Liberty Mutual Insurance Company and Liberty
Mutual Fire Insurance Company (collectively “Liberty”) appeal
from a summary judgment against them on their claims against
their former law firm, Gardere & Wynne (“Gardere”), and two of
Gardere’s partners, John Nabors and Gregory Woods.2 Although we
1
Pursuant to 5th Cir. R. 47.5, this Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5th Cir. R.
47.5.4.
2
Woods has since left the law firm.
1
certainly do not endorse the conduct of Gardere or its attorneys,
we affirm.
Liberty had been a long-time client of Gardere & Wynne when
Nabors and Woods joined Gardere as partners in 1992. At the time
they joined Gardere, Nabors and Woods represented TransAmerican
Natural Gas (“TANG”) in litigation against one of Liberty’s
insureds and against Liberty itself. In this litigation, TANG
alleged that Liberty participated in “the Armageddon Strategy,” a
conspiracy designed to destroy TANG’s business. The suit also
accused Liberty of insurance fraud. Gardere did not represent
Liberty in the TANG lawsuit, but Nabors and Woods continued to
represent TANG after they joined the firm.
When Liberty discovered this conflict, two of its
representatives met with Nabors. During this meeting, Nabors
promised to sever all claims against Liberty and to withdraw from
the severed case. Nabors fulfilled this promise (although the
parties disagree about Nabors’ performance of other promises he
allegedly made), and TANG’s lawsuit against Liberty continued
with different lawyers until it settled after five years.
Although Nabors and Woods withdrew from representing TANG in
the suit against Liberty, Gardere continued to represent TANG in
the litigation against all the other parties. Thus, although
Gardere withdrew, Liberty alleges that the conflict continued
because Nabors and Woods helped with prosecuting the suit against
it. In particular, Liberty alleges that Nabors and Woods settled
2
with another defendant and convinced this defendant to sign an
affidavit and turn over some of Liberty’s privileged documents,
that they forwarded these (and other) documents to TANG’s new
lawyers, that they made discovery requests about Liberty’s
involvement in the alleged conspiracy, and that Nabors appeared
as TANG’s corporate representative in a deposition during the
TANG/Liberty suit. During this deposition, Nabors testified that
Liberty had been part of a conspiracy that injured TANG.
Liberty sued Gardere, Nabors, and Woods, alleging that their
representation of TANG in the Liberty lawsuit and in the related
TANG lawsuits violated the fiduciary duty they owed Liberty as a
client. As damages, Liberty sought the defense costs it incurred
during the litigation with TANG as well as the amount it paid to
settle the lawsuit. Liberty also asked that Gardere be required
to disgorge fees -- not the fees that Liberty paid to Gardere,
but rather the fees that TANG paid the firm in pursuing the
related litigation.
The district court granted summary judgment on Liberty’s
damages claims, ruling that Liberty could not show a fact
question that the breach of fiduciary duty proximately caused its
injuries. The district court also determined that, as a matter of
law, Liberty could not recover the fees TANG paid Gardere. After
granting summary judgment on these issues, the district court
entered final judgment in the case.
Liberty raises three issues on appeal. First, it argues
3
that the district court improperly required it to present
evidence of proximate cause for its actual damages. Second, it
argues that, contrary to the district court’s ruling, it
presented evidence sufficient to survive summary judgment on
causation. Finally, it argues that the district court erred by
ruling that Gardere could not be ordered to forfeit the fees that
it received from TANG during the litigation.
We review the district court’s grant of summary judgment de
novo. Hanks v. Transcon. Gas Pipe Line Corp., 953 F.2d 996, 997
(5th Cir. 1992). In this review, we use the same standards as the
district court.
Id. Under these standards, a movant is entitled
to summary judgment if he can show the absence of any genuine
issue of material fact and that he is entitled to judgment as a
matter of law.
Id. In reaching this determination, we are to view
all evidence in the light most favorable to the non-movant.
Id.
Causation
Liberty initially argues that, contrary to the district
court’s conclusions, proximate cause is not an element it must
prove to recover actual damages for breach of fiduciary duty.3
3
The district court called Liberty’s claim “legal
malpractice.” Texas courts distinguish between legal malpractice
claims and breach of fiduciary duty claims; this distinction
depends on the source and kind of duty that the lawyer allegedly
breached. If a claim, regardless of what it is called, involves
a lawyer’s performance in representing a client, then it is a
legal malpractice claim. Goffney v. Rabson, 56 S.W.3d 186, 190
(Tex. App. – Houston [14th Dist.] 2001, pet. denied). If a claim
involves a lawyer’s “integrity and fidelity,” then it is a breach
4
In essence, Liberty argues, contrary to this Court’s precedent,
that it has no burden to prove any causation of its damages at
all.
Not all forms of recovery require a client who is suing his
attorney to prove that the attorney’s actions caused the client
injury. In Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999), the
Texas Supreme Court determined that, in a breach of fiduciary
duty case, an attorney may be required to forfeit some amount of
the fees his client paid regardless of whether the client can
prove that the attorney’s breach caused harm. Burrow’s holding,
though, only applies to forfeiture, not to claims for actual
damages. To recover damages, a plaintiff must still prove
causation. In re Segerstrom,
247 F.3d 218, 225 n.5 (5th Cir.
2001) (“injury and causation are still required when a plaintiff
seeks to recover damages for a breach of fiduciary
duty”)(emphasis added); Two Thirty Nine Joint Venture v. Joe,
60
S.W.3d 896, 905-6 (Tex. App. – Dallas 2001, pet. granted).
To get around this distinction, Liberty argues that Lesikar
v. Rappeport, 33 S.W.3d 282 (Tex. App. – Texarkana 2000, pet.
denied), eliminates any proximate cause requirement. The Lesikar
court held that a jury charge for a breach of fiduciary duty did
of fiduciary duty claim. Kimleco Petroleum, Inc. v. Morrison &
Shelton,
91 S.W.3d 921, 923 (Tex. App. – Fort Worth 2002, pet.
denied). We agree with Liberty that its claim, which only
involves the loyalty of a law firm to its client, alleges breach
of fiduciary duty, not malpractice.
5
not have to include a question about the proximate cause of
actual damages. Despite this holding, Lesikar does not help
Liberty’s argument.
Proximate cause consists of two elements: foreseeability and
cause-in-fact. Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d
778, 784 (Tex. 2001). The Lesikar court held that actual damages
were presumed to have been foreseen.
Lesikar, 33 S.W.3d at 305.
Because of this presumption, the jury did not have to determine
foreseeability.
Id. Nowhere does the Lesikar court hold that
the jury does not have to determine causation. To the contrary,
the jury charge in Lesikar read “what amount of damages do you
find resulted from the breach of fiduciary duty?” (emphasis
added).
Id. Thus, even under Lesikar, a plaintiff in a breach
of fiduciary duty case still must prove that the breach caused
its harm before it can recover actual damages for that harm.
Causation evidence
After striking two paragraphs of Liberty’s expert report,
the district court determined that Liberty had not produced
evidence showing a fact question concerning causation. Liberty
challenges that decision, first arguing that its expert’s
affidavit was proper and also arguing that it produced additional
“common sense”evidence of causation.
Expert’s affidavit
The district court determined that two paragraphs of the
6
expert report prepared by Liberty’s expert Charles Herring were
too conclusory to be summary judgment evidence. This decision
can only be reversed if manifestly erroneous. Hayter v. City of
Mount Vernon, 154 F.3d 269, 273-74 (5th Cir. 1998).
The two paragraphs at issue both concern causation:
17. In light of the relatively low value of TANG’s
claims against Liberty, it is my opinion that, without
the substantial and often surreptitious efforts of Nabors
and Gardere in taking action adverse to Liberty (as
described, in part, in Paragraph 15, above), it is more
probable than not that TANG’s claims against Liberty
would have been resolved sometime in 1992 or early 1993,
at little or no cost to Liberty. However, as a result of
Nabors’s and Gardere’s efforts, Liberty was forced to
expend millions of dollars and thousands of man-hours in
the course of years of litigation defending itself
against TANG’s claims, all but one of which were
ultimately dismissed before trial.
18. It is also my opinion that Nabors, because of his
unique historic close relationship with TANG and its
principal, John R. Stanley and because of his special
strategic role in developing and orchestrating TANG’s
litigation strategy, continued to pursue meritless claims
against Liberty that another lawyer, unburdened by the
conflict, would not have pursued. Nabors and Gardere had
a huge financial incentive to pursue frivolous litigation
on behalf of TANG. Gardere was in dire financial
condition at the time of Nabors’s arrival. Nabors
brought with him the promise of millions in fees as a
result of his relationship with TANG. It is my opinion
that Nabors and Gardere, therefore, had a personal
economic motivation to pursue meritless claims that
another lawyer, acting independently, would not have
done.
The district court concluded that Herring’s affidavit failed
to provide a factual basis for his conclusions in these two
paragraphs. The district court further pointed to statements in
Herring’s deposition that he did not know whether the wrongful
7
discovery, for example, actually caused Liberty to incur more
fees.
An expert’s opinion is proper summary judgment evidence if
it provides a sufficient basis for its conclusions – in other
words, if it provides the factual basis from which it draws its
conclusions and the reasoning behind these conclusions. Boyd v.
State Farm Ins. Co., 158 F.3d 326, 331 (5th Cir. 1998). As this
factual basis, Liberty initially points to the lengthy
description in Herring’s affidavit of Nabors and Woods’ actions
against Liberty. Although these actions sufficiently support
Herring’s conclusion that Appellees breached their fiduciary duty
to Liberty, they do not provide any factual basis for Herring’s
causation conclusions contained in Paragraphs 17 and 18.
As additional factual support, Liberty also points to
paragraph 16 of Herring’s affidavit, which states that he
understands that in March 1992, Nabors admitted that the claims
against Liberty were “incidental” and “of little value” and that
those claims would “go away.” In paragraph 16, Herring also
emphasizes the amount for which the claims ultimately settled,
which was less than .05% of the amount TANG originally requested
as damages. But these facts, too, fail to support Herring’s
conclusions about causation. Herring’s stated facts do not
connect the breach with the harm; for example, that Nabors might
have viewed these as low-dollar claims does not necessarily mean
8
that another attorney would not have pursued them.
Finally, Herring’s affidavit describes Gardere’s financial
trouble and attempts to provide a connection between the breach
and the harm. Nevertheless, the affidavit provides no indication
that pursuing “meritless” claims against Liberty would be any
financial benefit to Gardere. After all, Gardere withdrew from
the actual suit against Liberty. Herring’s affidavit also does
not contain information about any amount of financial benefit
that Gardere might have gained from the discovery in the other
suits. In light of these problems, Herring’s description of
Gardere’s financial difficulties cannot form the basis for his
conclusions about causation.
Because of the affidavit’s failure to provide a factual
basis for its conclusions, the district court’s decision to
strike two paragraphs of Herring’s affidavit was not manifest
error.
Other evidence of causation
Liberty emphasizes several actions that it claims caused it
harm. In arguing that the district court erred by disregarding
these actions, Liberty points to its evidence of a breach, but
fails to point to evidence of causation. For example, Liberty
first discusses Gardere’s actions in forwarding TANG’s new
counsel the allegedly privileged documents they obtained from the
settlement. Liberty also points to Nabors’ actions in serving
discovery, not directed at Liberty, but designed to implicate
9
Liberty. Finally, Liberty emphasizes Nabors’ appearance as
Liberty’s corporate representative at the deposition where Nabors
testified that Liberty had been part of a conspiracy with its
insured. While these actions might not serve as models for the
way lawyers should behave, Liberty has failed to produce any
evidence linking these actions to increased expenses. Liberty
draws no connection between these actions and the litigation
costs it incurred, but only makes what it calls a “common sense”
argument that Nabors’ actions were intended to cause the
litigation. Liberty points to no direct or circumstantial
evidence, except for its expert reports, that it attached to its
summary judgment response that would indicate that these actions
increased the cost of litigation, the extent to which these
activities might have increased the cost of litigation, or that
litigation would not have proceeded but for these breaches. The
district court properly concluded that Liberty did not establish
a fact question concerning causation.
Fee Forfeiture
A client does not have to prove either causation or injury
to be entitled to fee forfeiture as a remedy for an attorney’s
breach of fiduciary duty. Burrow v. Arce, 997 S.W.2d 229 (Tex.
1999). Liberty’s difficulties in establishing causation, then,
are meaningless when it comes to fee forfeiture. In contrast to
the usual case, however, Liberty has not requested forfeiture of
any amounts it paid to Gardere. Instead, Liberty asks that
10
Gardere forfeit the fees it earned representing TANG in all of
the related lawsuits. We agree with the district court that
Texas law does not permit this recovery.
As the Texas Supreme Court noted in Burrow, forfeiture is
based on two ideas. First, the client is considered not to have
received what he bargained for if the attorney breaches his
fiduciary duties while representing the client. Burrow, 997
S.W.2d at 237-38. Second, fee forfeiture is designed to
discourage attorneys from being disloyal to their clients or “to
protect relationships of trust by discouraging agents’
disloyalty.”
Id. at 238. In this case, Liberty and Gardere each
emphasize one of the two rationales. Because Liberty is not
asking for forfeiture of the fees it paid to Gardere, Gardere
correctly argues that forfeiting the fees earned from TANG makes
no sense under the first, contract-based justification for
forfeiture. In making this argument, Gardere ignores the
potential deterrent effect. Liberty, on the other hand, focuses
heavily on deterrence as a justification for the forfeiture it
requests.
In emphasizing the deterrent argument, Liberty mostly cites
non-attorney cases for the proposition that a fiduciary must
account for all gains obtained in violation of fiduciary duties,
even when those gains come from third parties. See, e.g.,Watson
v. Limited Partners of WCKT, Ltd., 570 S.W.2d 179 (Tex. Civ. App.
11
– Austin, 1978, writ ref’d n.r.e)(partner must account for
gains); Anderson v. Griffith, 501 S.W.2d 695 (Tex. Civ. App. –
Fort Worth 1973, writ ref’d n.r.e) (broker). Liberty argues,
citing Burrow, that there is no reason to exempt attorneys from
this general rule of Texas law.
Yet Liberty’s argument ignores the careful creation of the
forfeiture remedy in Burrow. The Texas Supreme Court in Burrow
balanced the relevant policies and considered the general
principles of fiduciary law when determining that an attorney
may, even in the absence of damages, sometimes be required to
return a client’s fees. Burrow, 997 S.W.2d at 237-40. The
Burrow court then set out several factors for determining when
forfeiture is appropriate.
Id. at 241-45. Burrow, thus,
provides a flexible and adequate remedy. Further addition to
Burrow’s remedial scheme is unwarranted. We conclude that
Liberty’s expansion of the Burrow rule is not one that Texas
courts would adopt. We therefore, hold that the district court
did not err in refusing to allow forfeiture of fees paid by other
clients, particularly when the client could have chosen to seek
forfeiture of the fees that it paid.
AFFIRMED.
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