Court Opinion

ID: 3128042
Source: CourtListenerOpinion
Date Created: 2015-10-16 15:54:05.467964+00
Date Added: 2024-06-11T11:45:56.498626
License: Public Domain

Opinion issued May 19, 2011

In The
Court of
Appeals
For The
First District
of Texas
————————————
NO. 01-09-00685-CV
———————————
Jacquelyn C.
Gregan, individually, and Jacquelyn C. Gregan, P.C. d/b/a Haskins & Gregan,
formerly d/b/a The Haskins, Gregan & Kelly Law Firm, Appellants
V.
Lannie Todd Kelly, Appellee

 

 
On
Appeal from the 157th District Court
Harris
County, Texas

Trial Court Case No. 2007-20570
 

 
O P I N I O N
Appellant, Jacquelyn C. Gregan,[1]
appeals from a jury verdict finding that Gregan breached a fiduciary duty she
owed to appellee, Lannie Todd Kelly.  In
four issues, Gregan argues the trial court erred by (1) denying her motion for
summary judgment; (2) denying her motion for directed verdict; (3) denying her
motions for judgment notwithstanding the verdict and new trial; and (4) denying
her motion in limine seeking to exclude certain parol evidence.
We reverse and
render.
                                                                                                                                                                
Background
In 2002, Kelly began working for Gregan’s law firm, then
known as Haskins & Gregan.  In 2004,
an agreement was reached to add Kelly’s name to the firm.  The firm became known as The Haskins, Gregan & Kelly Law Firm.  At all times relevant to this appeal,
however, Gregan remained the sole owner of the business.
In March 2006,
Gregan, Kelly, and the business signed a written employment agreement,
commemorating in writing the parties’ earlier oral agreement.  The agreement provided it had commenced on
July 1, 2002.  It identified Kelly as “a
profit-sharing partner (non-owner)” of the law firm.  Under the terms of the agreement, Kelly
received an annual salary, the business paid for certain expenses incurred by
Kelly, and, after each calendar year, Kelly would receive 20% of the law firm’s
net profits after accounting for expenses and maintaining a certain balance for
operations.  Additionally, the agreement
provided that Kelly would have the right of first refusal to obtain ownership
of the business if it were to be sold, traded, or otherwise ceased to perform
its functions under its current ownership.
Around September
2006, Gregan terminated Kelly, effective immediately.  Kelly brought suit in April 2007.  The claims ultimately presented to the jury
were Kelly’s claims for breach of contract, statutory fraud, and breach of
fiduciary duty.
The evidence at
trial established that, during her deposition, Gregan stated that she believed
that she had fiduciary obligations to the law firm and to all the employees who
worked there.  The testimony also
established that, after the deposition, Gregan entered corrections to her
deposition on an errata sheet.  Gregan
testified that she explained in the errata sheet that, at the time of the
deposition, she did not understand the legal definition of “fiduciary duty” and
that she did not believe that she owed a fiduciary duty to Kelly or any other
employee.
Additionally, at
the end of Gregan’s cross-examination, the following colloquy occurred:
Q:      . . . .  Prior to [an occasion when Kelly claimed he
had been underpaid], did you trust him and have confidence that he would do
what was in your interest and in the firm’s interest?
A.      Yes.
Q.      And do you believe that he
trusted you and had confidence that you would do what was in his professional interest?
A.      Yes. I -- we -- and we did
before that time.
The trial court denied Gregan’s motion for directed
verdict on her claim that no fiduciary relationship existed between her and
Kelly.  Subsequently, the jury found,
among other things: (1) there was no agreement between Gregan and Kelly that
Kelly could be terminated only for good cause; (2) Gregan did not commit
statutory fraud; (3) a fiduciary relationship existed between Gregan and Kelly
based on “a relationship of trust and confidence”; and (4) Gregan failed to
comply with her fiduciary duty to Kelly.
                                                                                                                                                           
Fiduciary Duty
In her second issue, Gregan argues that the trial court
erred in denying her motion for directed verdict based on the argument that
there was no evidence that Gregan owed Kelly any fiduciary duties that would
affect his termination.
A.              
Standard of Review
A complaint about the denial of a motion for directed
verdict is the same as a challenge to the legal sufficiency of the
evidence.  City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005).  Under this standard, we must view the
evidence and inferences in the light most favorable to the jury’s findings.  Id.
at 807.  When, as here, an appellant
attacks the legal sufficiency of an adverse finding on an issue for which it
did not have the burden of proof, it must demonstrate that there is no evidence
to support the adverse finding.  Croucher v. Croucher, 660 S.W.2d 55, 58
(Tex. 1983).  Such a challenge will be
sustained only when (1) there is a complete absence of evidence of a vital
fact; (2) the court is barred by rules of law or evidence from giving weight to
the only evidence offered to prove a vital fact; (3) the evidence offered to
prove a vital fact is no more than a mere scintilla; or (4) the evidence
conclusively establishes the opposite of a vital fact.  King
Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003); see also City of Keller, 168 S.W.3d at
810.
B.              
Analysis
To recover on a breach of fiduciary duty claim, the
plaintiff must first establish the existence of a duty, that is, the existence
of a fiduciary relationship.  See Meyer v. Cathey, 167 S.W.3d 327,
330–31 (Tex. 2005) (discussing interchangeably whether fiduciary relationship
exists and whether fiduciary duty existed); Priddy v. Rawson, 282 S.W.3d 588, 599 (Tex. App.—Houston [14th Dist.] 2009,
pet. denied) (identifying first element of fiduciary duty claim as existence of
fiduciary relationship and second element as breach of duty created by that
relationship).
There
are two categories of fiduciary relationships. 
Meyer, 167 S.W.3d at 330–31; Priddy, 282 S.W.3d at 599.  The first is a formal fiduciary relationship,
such as attorney-client, principal-agent, and trustee-beneficiary
relationships, as well as partners in a partnership.  Chapman
Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 439 (Tex.
App.—Houston [14th Dist.] 2000, pet. denied). 
The second is an informal fiduciary relationship, “where one person
trusts in and relies on another, whether the relation is a moral, social,
domestic, or purely personal one.”  Schlumberger Tech. Corp. v. Swanson, 959
S.W.2d 171, 176 (Tex. 1997).  This second
category is also known as a “confidential relationship.”  Chapman
Children’s Trust, 32 S.W.3d at 439.
Kelly’s live petition asserted a claim for breach of a
partnership agreement.  This claim was
not submitted to the jury, however. 
Accordingly, it has been waived.  See Tex.
R. Civ. P. 279 (providing “[u]pon appeal all independent grounds of
recovery or of defense not conclusively established under the evidence and no
element of which is submitted or requested are waived”).  For purposes of this appeal, then, there was
no partnership agreement between the parties and, by extension, no formal
fiduciary relationship based on any such partnership.
Kelly argues that an informal fiduciary relationship
existed, and the jury found such a relationship in answering one of the jury
questions.[2]  We turn, then, to determine whether there was
sufficient evidence to support the finding of an informal fiduciary
relationship.  See Romero v. KPH Consolidation, Inc., 166 S.W.3d 212, 221 (Tex.
2005) (holding sufficiency of evidence review limited by questions submitted to
jury).
A fiduciary relationship is an extraordinary one and will
not be lightly created.  Hoggett v. Brown, 971 S.W.2d 472, 488
(Tex. App.—Houston [14th Dist.] 1997, pet. denied).  “It is well settled that ‘not every
relationship involving a high degree of trust and confidence rises to the
stature of a fiduciary relationship.’”  Meyer, 167 S.W.3d at 330 (quoting Schlumberger, 959 S.W.2d at
176–77).  “A person is justified in
placing confidence in the belief that another party will act in his or her best
interest only where he or she is accustomed to being guided by the judgment or
advice of the other party, and there exists a long association in a business
relationship, as well as personal friendship.” 
Hoggett, 971 S.W.2d at
488.  
Additionally, courts remain cautious to create informal
fiduciary relationships in business arrangements.
The fact that one businessman trusts another, and relies
upon his promise to perform a contract, does not rise to a confidential
relationship.  Every contract includes an
element of confidence and trust that each party will faithfully perform his
obligation under the contract.  Neither
is the fact that the relationship has been a cordial one, of long duration,
evidence of a confidential relationship.
Crim Truck
& Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594–95
(Tex. 1992), superseded by statute on
other grounds as noted in Subaru of Am., Inc. v. David McDavid Nissan, Inc.,
84 S.W.3d 212, 225–26 (Tex. 2002).
Courts review a variety of facts for determining whether
an informal fiduciary relationship exists. 
The overarching consideration, however, is the nature of the
relationship between the parties.  See Thigpen v. Locke, 363 S.W.2d 247,
253 (Tex. 1962) (holding “[t]he existence of the fiduciary relationship is to
be determined from the actualities of the relationship between the persons
involved”).
In
reviewing the relationship between the parties, one factor we consider is
whether the party claiming to be owed a fiduciary relationship justifiably
placed special confidence in the other party to act in his best interest.  See Trostle
v. Trostle, 77 S.W.3d 908, 915 (Tex. App.—Amarillo 2002, no pet.) (holding,
to establish fiduciary relationship, evidence must demonstrate plaintiff
actually relied on purported fiduciary “for moral, financial, or personal
support or guidance”); Lee v. Hasson,
286 S.W.3d 1, 14–15 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (same).  An informal fiduciary relationship requires
proof that, because of a close or special relationship, the plaintiff “is in
fact accustomed to be guided by the judgment or advice” of the other.  Thigpen,
363 S.W.2d at 253.
Kelly
argues that Gregan conceded that they had a relationship of trust and
confidence.  For support, he cites to the
following colloquy:
Q:      . . . .  Prior to [an occasion when Kelly claimed he
had been underpaid], did you trust him and have confidence that he would do
what was in your interest and in the firm’s interest?
A.      Yes.
Q.      And do you believe that he
trusted you and had confidence that you would do what was in his professional interest?
A.      Yes. I -- we -- and we did
before that time.
Kelly argues on appeal that this testimony is “tantamount
to a judicial admission.”  Kelly also
relies on Gregan’s deposition testimony, presented at trial, in which she
stated that she believed she owed all of her employees, including Kelly, a
fiduciary relationship.  While Gregan
later attempted to correct that statement, the jury was permitted to resolve
this conflict.  See Benavente v. Granger, 312 S.W.3d 745, 749 (Tex. App.—Houston
[1st Dist.] 2009, no pet.) (holding conflicts in witnesses’ testimony is
credibility question for jury to resolve).
The mere existence of mutual confidence and trust in the
other party in a transaction does not, in itself, however, create an informal
fiduciary relationship.  See Schlumberger, 959 S.W.2d at 177 (holding
“the fact that the parties to a transaction trust one another will not, in and
of itself, establish a finding of a confidential relationship”).   Indeed, even relationships that involve “a
high degree of trust or confidence” do not always rise to the level of an
informal fiduciary relationship.  Meyer, 167 S.W.3d at 330.
In Crim Truck,
the parties’ contract specifically stated, “This is a personal agreement,
involving mutual confidence and trust . . . .”  823 S.W.2d at 595 n.7.  The Texas Supreme Court held, “We are
unpersuaded that this language was ever intended to inject an element of
personal trust and confidence above and beyond that which is ordinarily
contemplated by parties to contracts of this type.”  Id.
at 595–96.  As the Crim Truck court made clear, particularly in
the business arena, trust and reliance alone are not sufficient ingredients to
create a fiduciary
relationship.  See id. at 595.
The evidence on which Kelly relies concerns the subjective
belief of the parties.  Kelly’s
subjective trust and feelings alone do not justify transforming the parties’
arm’s-length dealings into a relationship of trust and confidence.  If the written language in Crim Truck was not sufficient to
establish the existence of a fiduciary relationship, then similar testimony by
Gregan of the parties’ subjective beliefs is not enough to create a fiduciary
relationship.
We also examine the length of the parties’
relationship.  In order for a fiduciary
relationship to exist, the parties must have had a special relationship of trust and confidence that
existed “prior to, and apart from, the agreement made the basis of the
suit.”  Meyer, 167 S.W.3d at 331; Schlumberger,
959 S.W.2d at 177.  Courts examine the
length of time that the parties dealt with each other, in part, to determine
whether their dealings “continued for such a time that one party is justified
in relying on the other to act in his best interest.”  Am.
Med. Int’l, Inc. v. Giurintano, 821 S.W.2d 331, 339–40 (Tex. App.—Houston
[14th Dist.] 1991, no writ).  But even
relationships of trust and confidence that are of long duration are not
necessarily informal fiduciary relationships. See Crim Truck, 823 S.W.2d at 595 (concluding that 42-year
relationship was not sufficient in itself to create informal fiduciary
relationship).
Kelly
did not demonstrate that he had a special relationship of trust and
confidence that existed “prior to, and apart from, the agreement made the basis
of the suit.”  Meyer, 167 S.W.3d at 331.  The
parties did not have any kind of relationship, professional or personal, prior
to Kelly’s employment with Gregan’s law firm. 
Kelly contends that his employment agreement with Gregan first as an
associate and later as a non-equity partner establishes a fiduciary
relationship between the parties.[3]  Even if we ignored the parties’ contract and
distinguished between the time Kelly was an associate and the time he was a
non-equity partner, Kelly presents no evidence that there was any action taken
in his relatively brief time as an associate that would show a fiduciary
relationship was created.  Accordingly,
no fiduciary relationship could have existed before and separate from the
agreement made the basis of this suit.  See Meyer, 167 S.W.3d at 331; Schlumberger,
959 S.W.2d at 177.
On appeal, Kelly concedes that Gregan could have fired him
but argues that it was the manner in which she fired him that breached the
fiduciary duty he claims to exist.  
The jury found, in answer to one of the jury questions,
that the parties’ relationship was an at-will relationship.  Traditionally, both employer-employee
relationships and partners in a partnership are at-will relationships.  See
Midland Judicial Dist. Cmty. Supervision & Corr. Dep’t v. Jones, 92
S.W.3d 486, 487 (Tex. 2002) (holding employment in Texas is at-will); Bohatch v. Butler & Binion, 977
S.W.2d 543, 545–46 (Tex. 1998) (“Bohatch
II”) (holding that partnerships are at-will and partners have no obligation
to remain partners).  An at-will
relationship can be terminated “‘for good cause, bad cause, or no cause at all.’”  Midland
Judicial Dist., 92 S.W.3d at 487 (quoting Montgomery Cnty. Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex.
1998)).  It can also be terminated at any
time.  Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex. 1993).  While other fiduciary duties exist among
partners, there is no fiduciary duty owed in the decision to expel a
partner.  Bohatch II, 977 S.W.2d at 546–47 (holding fiduciary duty partners
owe one another does not encompass duty to remain partners).  
A formal fiduciary relationship such as one between
partners does not affect the at-will nature of the partnership, and standard
employment relationships are at-will. 
There is no reason, then, to treat informal fiduciary relationships
differently absent evidence showing not just that a fiduciary relationship
existed in general, but that the fiduciary relationship necessarily modified
the at-will nature of the standard employment relationship.  There is no such evidence in the record.
Kelly also argues that the opinion from the Fourteenth Court
of Appeals that preceded Bohatch II
establishes that there is a fiduciary duty not to expel fellow partners in a partnership
in bad faith and, by extension, a similar duty can exist in an informal
fiduciary relationship.  See Bohatch v. Butler & Binion, 905
S.W.2d 597, 602 (Tex. App.—Houston [14th Dist.] 1995), aff’d, 977 S.W.2d 543, 545 (Tex. 1998) (“Bohatch I”).  Kelly argues
that, because the Texas Supreme Court affirmed the judgment of the Fourteenth Court
of Appeals, this holding still stands. 
We disagree.
In Bohatch I,
the court held that a fiduciary duty existed not to expel fellow partners in a
partnership in bad faith but also held there was legally insufficient evidence
in the record to show that the duty had been breached.  Id.
at 602, 604; see also Bohatch II, 977
S.W.2d at 545 (summarizing holdings in Bohatch
I).  In Bohatch II, in contrast, the Texas Supreme Court held that partners
in a partnership are at-will relationships and, accordingly, there is no duty
to remain partners.  977 at 545,
546.  It went on to analyze whether there
was a narrow good-faith whistle-blower exception to this at-will relationship
and held that there was not.  Id. at 546–47.
An at-will relationship and a relationship protected by a
duty not to terminate the relationship in bad faith are antithetical.  The very idea of at-will relationships is
that they can be terminated “‘for good cause, bad cause, or no cause at all.’”  Midland
Judicial Dist., 92 S.W.3d at 487 (quoting Montgomery Cnty. Hosp. Dist., 965 S.W.2d at 502).  It follows, then, that the Texas Supreme
Court’s holding in Bohatch II that
partners in a partnership are at-will relationships necessarily overruled the
holding in Bohatch I declaring a
fiduciary duty existed not to fire fellow partners in a partnership in bad
faith.  The Texas Supreme Court affirmed
the judgment of the Fourteenth Court of Appeals because the two opinions
reached the same result—overturning the jury’s determination that there had
been a breach of a fiduciary duty in the termination of Bohatch—not because all
the holdings in the two opinions were consistent.
Both employer-employee relationships and partners in a
partnership are at-will relationships. 
Kelly bore the burden of establishing that an informal fiduciary duty
necessarily modified the at-will status of his employment.  Kelly only presented evidence that the parties
subjectively believed that fiduciary duties existed in general.  Additionally, there was no evidence of a fiduciary relationship in a business transaction
between two lawyers where nothing in their contract suggested such a
relationship, their relationship as lawyers practicing in a firm did not
suggest such a relationship, and there was no evidence that Kelly justifiably
relied on Gregan to put his interests above those of the law firm.  We hold that Kelly failed to carry his burden
as a matter of law to show that Gregan had a fiduciary duty to Kelly that
limited the manner in which she could terminate Kelly’s employment.
We sustain Gregan’s second point of error. [4]
                                                                                                                                                                   
Conclusion
We reverse the judgment of the trial court and render a
take-nothing verdict in favor of Jacquelyn
C. Gregan.
 
                                                                   Laura
Carter Higley
                                                                   Justice

 
Panel consists of Justices Jennings, Higley, and Brown.

[1]           Jacquelyn C.
Gregan, P.C. d/b/a Haskins & Gregan, formerly d/b/a The Haskins, Gregan
& Kelly Law Firm was also a party at trial and identified as an
appellant in this matter.  No verdict or
judgment was obtained against it, nor has any point of error been raised that
would affect it.  Accordingly, we do not
consider it a proper party to this appeal. 
Gupta v. E. Idaho Tumor Inst.,
Inc., 140 S.W.3d 747, 751 n.4 (Tex. App.—Houston [14th Dist.] 2004, pet.
denied).

[2]           The relevant question submitted to the jury asked:
 
Did a relationship of trust and confidence exist
between Gregan and Kelly?
 
A relationship of trust and confidence existed if
Kelly justifiably placed trust and confidence in Gregan to act in Kelly’s best
interest.  Kelly’s subjective trust and
feelings alone do not justify transforming arm’s-length dealings into a
relationship of trust and confidence.

[3]           As we have held above, for the purposes of this appeal,
there was no subsequent partnership agreement between the parties.  The contract explicitly stated it covered all
of Kelly’s employment with Gregan: both his time as an associate and his time
as a non-equity partner.

[4]           Because this holding is dispositive of this appeal, we do
not reach Gregan’s remaining points of error.