Court Opinion

ID: 9913201
Source: CourtListenerOpinion
Date Created: 2023-12-27 07:09:50.074546+00
Date Added: 2024-06-11T13:07:45.314808
License: Public Domain

Affirmed and Opinion Filed December 21, 2023

                                               In The
                                 Court of Appeals
                          Fifth District of Texas at Dallas
                                      No. 05-22-00841-CV

                      PAUL PICONE, Appellant
                               V.
           GARY CRUCIANI AND MCKOOL SMITH, P.C. Appellees

                   On Appeal from the County Court at Law No. 4
                               Dallas County, Texas
                       Trial Court Cause No. CC-21-00300-D

                            MEMORANDUM OPINION
                    Before Justices Pedersen, III, Garcia, and Kennedy
                             Opinion by Justice Pedersen, III
       Appellant Paul Picone appeals from the trial court’s June 28, 2022 final

judgment, which dismissed with prejudice his claims for legal malpractice, breach

of fiduciary duty, and fraud and awarded appellees Gary Cruciani and McKool

Smith, P.C. (together, McKool Smith) attorney’s fees, costs, and interest.1 In two

appellate issues, Picone contends the trial court erred in compelling arbitration and

   1
       The court’s judgment is titled “Order Granting Defendants’ Motion to Lift Stay and Confirm
Arbitration Award and Denying Plaintiff’s Motion to Reconsider Order Compelling Arbitration and Staying
Case.”
in confirming the arbitrator’s award in the absence of an agreement to arbitrate

between these parties. We affirm the trial court’s judgment.

                                    Background

      The lawsuit before us has complicated roots that involve these parties and a

number of others, who have become entangled in business and legal matters over a

number of years. For our purposes, we focus upon the legal disputes, representations,

and resolutions that lead to the lawsuit and arbitration below.

                  2006 Dispute between OSI and Picone and PIC

      Picone owned a company named Photographic Illustrators Corporation (PIC)

that licensed his photographs to Osram Sylvania, Inc. (OSI). In 2006, a dispute arose

between the parties concerning OSI’s use of PIC’s photographs outside the scope of

the parties’ license agreement. Wolf, Greenfield & Sacks (WGS) represented PIC

and Picone in their efforts to resolve the dispute. The resulting agreement included

a release of claims against OSI, a payment by OSI of $50,000, and new licensing

terms by which OSI would pay a monthly royalty to PIC and PIC would provide

Picone’s photographic and imaging services to OSI (the 2006 Settlement

Agreement). The parties agreed to resolve any disputes relating to the 2006

Settlement Agreement through arbitration. An initial recital states that this is an

agreement between OSI and PIC, but—after signing for PIC as its president—Picone

also signed the following statement:

                                         –2–
        INSOFAR as this Agreement calls for my personal services and/or
        deals with rights and/or obligations that I may have personally, I, Paul
        Picone[,] hereby acknowledge and agree to be bound by this
        Agreement.

                         2016 OSI Arbitration with Picone and PIC

        During the term of the 2006 Settlement Agreement, PIC became aware that

copies of PIC Images in which it owned the copyrights were appearing on internet

sites belonging to OSI’s customers without a PIC copyright notice or attribution.

PIC filed a number of copyright infringement actions against OSI’s customers in

federal courts; the suits were consolidated in Massachusetts. In January 2016, OSI

intervened in the consolidated action and moved to refer the contract and copyright

disputes between PIC and OSI to arbitration. According to Picone, WGS represented

Picone and PIC until approximately “mid-2016,” when WGS withdrew.

        At approximately the same time, in June 2016, Picone “began to explore the

possibility of selling PIC,” and he began negotiating with Matt Fleeger to that end.

On October 5, 2016, Picone finalized the sale of PIC through a Stock Purchase

Agreement with Copyright Strategies, LLC (CSL), a company owned by Fleeger.2

The Stock Purchase Agreement contained a lengthy provision relating to resolution

of disputes between the parties. Initially, any controversy or claim that arose out of

the agreement was to be mediated. If the mediation was not successful, then the

parties were to proceed to arbitration:

    2
       Picone’s wife, Carolyn Picone, was also a party to the Stock Purchase Agreement. She is not a party
to this suit.
                                                  –3–
      [A]ny controversy or claim arising out of or relating to this Agreement,
      including but not limited to the arbitrability of any such controversy or
      claim, between or among the parties hereto and/or any of their
      respective affiliates shall be resolved by binding arbitration in
      accordance with JAMS Comprehensive Arbitration Rules and the
      Federal Arbitration Act by JAMS in the County of the Respondent and
      judgment upon any award arising in connection therewith may be
      entered in any court of competent jurisdiction. An award rendered by
      the arbitrator shall be final and binding.

The Stock Purchase Agreement also included a provision addressing certain claims

belonging to Picone and PIC that might not be completely resolved with third parties

by the time the sale became effective. The agreement provided that when those

claims were ultimately resolved, Picone was entitled to forty percent of the recovery.

      Picone contends that “around” August 2016, “shortly after WGS withdrew,”

he hired McKool Smith to represent himself and PIC in the OSI arbitration. Our

record does not include a contract reflecting this representation. Although the Stock

Purchase Agreement was not effective until October 5, 2016, Fleeger signed his own

agreement with McKool Smith on August 21, 2016, for the firm to represent PIC in

the OSI arbitration (the 2016 Retention Agreement). PIC is named as the “Client” in

the 2016 Retention Agreement; Fleeger signed as the President of PIC. According

to Picone, he was completely unaware of the 2016 Retention Agreement until years

later, and Fleeger had no authority to enter into such an agreement when Picone was

the sole owner of PIC.

      The dispute did proceed to arbitration, and the arbitrator signed his Partial

Final Award on November 20, 2017, awarding PIC more than $9.5 million for its

                                         –4–
breach of contract claims, plus attorney’s fees and costs. But the arbitrator made no

award for copyright infringement by OSI based on what he called WGS’s failure to

employ “language of conditions” when it drafted certain provisions in the 2006

Settlement Agreement. According to Picone, Cruciani told him at the close of the

arbitration that a legal malpractice claim existed against WGS based on the findings

of the arbitrator.

                         2019 WGS Malpractice Mediation

       Picone asserts that sometime between June 1 and June 25, 2019, Cruciani

contacted him by telephone and offered to have McKool Smith represent him and

PIC on a contingency fee basis in pre-suit negotiations with WGS. Picone contends

that he hired McKool Smith on that phone call, but he was never provided a written

contract reflecting the representation. Picone also asserts that—after he had

interviewed and hired McKool Smith—he recommended that Fleeger sign a

retention agreement with the firm and that Fleeger pursue the malpractice claim

against WGS. Fleeger did sign a second retention agreement with McKool Smith.

The agreement called for the firm to act as settlement counsel for PIC—identified as

the “Client”—in return for a thirty percent contingency fee; it included a provision

requiring disputes to be resolved by arbitration (the 2019 Retention Agreement).

       Before litigation was filed against WGS, a mediation of the malpractice claim

was held on March 12, 2020. Picone contends that Cruciani told him he was required

to attend the mediation. During the mediation, Picone and Fleeger argued over the

                                        –5–
distribution of any recovery from WGS: Picone claimed he was entitled to forty

percent of the recovery based on the Stock Purchase Agreement; Fleeger asserted

that Picone was entitled to nothing. Picone contends that throughout the mediation

he continued to believe McKool Smith was representing him individually. Picone

claims that Cruciani advised him that he was entitled to the forty percent share of

the settlement and that there was no need to reduce that understanding to writing. At

the end of the mediation, WGS agreed to settle with Picone and PIC for $15 million,

and Picone signed a term sheet to that effect. But the term sheet did not include an

express division of the recovery between him and PIC.

      Shortly after the mediation, a personal attorney for Picone, David Fernberg,

contacted Cruciani; Fernberg asked McKool Smith to retain the WGS settlement

proceeds in its client account until Picone and Fleeger could work out their

respective shares of the settlement. In response, Cruciani informed Feinberg that

Picone was not a client of McKool Smith and that McKool Smith had played no role

in the Stock Purchase Agreement and did not wish to be put “in the middle.” Several

days later, Picone signed an agreement with CSL, which provided for payment of

$2.5 million to Picone as his share of the WGS settlement and which included a

broad release of claims by both parties (the 2020 Settlement and Release).

                                        –6–
                           Picone Sues Cruciani and McKool Smith

        Picone sued McKool Smith, pleading claims for legal malpractice,

negligence, breach of fiduciary duty, and fraud and fraud in the inducement.3 The

petition attached Picone’s declaration, stating that “during a phone conversation with

Gary Cruciani, Esq., I hired Gary Cruciani, Esq. and McKool Smith as counsel to

represent me individually and PIC regarding the WGS legal malpractice claim.” This

oral agreement for representation provides the basis of Picone’s claim that he had an

attorney-client relationship with McKool Smith. Picone’s declaration and pleading

alleged eleven violations of McKool Smith’s duty to him related to its handling of

the WGS malpractice claim and mediation.4 The petition also set forth Picone’s

damages claim, stating:

   3
       Picone’s fraud pleading alleged that McKool Smith:
        made misrepresentations of material facts to [Picone] regarding the representation of
        [Picone] and the settlement to be signed by [Picone] with positive statements and with
        concealment and failure to disclose facts when it had a duty to disclose such.

   4
       Picone alleged that McKool Smith failed to:
        i. Advise me to obtain a writing confirming my entitlement to 40% of any recovery from
        of the WGS legal malpractice claim per the October 5, 2016 Stock Purchase agreement and
        Paragraph 10 above;

        ii. Advise me to obtain a lawyer separate from that of Copyright Strategies, LLC and PIC
        to represent my individual interests regarding the WGS legal malpractice claim;

        iii. Advise me to enter into a separate, individual fee agreement with Gary Cruciani, Esq.
        and McKool Smith separate from any agreement between PIC and McKool Smith;

                                                     –7–
      The Two Million Five Hundred Dollar ($2,500,000.00) PICONE
      received was far less monies than PICONE was owed per Paragraph 11
      [of the Stock Purchase Agreement] above.
              a. $15,000,000.00 x 70% = $10,500,000.00

              b. $10,500,000.00 x 40% = $4,200,000.00

      McKool Smith answered Picone’s lawsuit and moved to compel arbitration,

denying that Picone was a client of McKool Smith in the WGS malpractice matter.

It argued that Picone’s claims had to be arbitrated because both those claims and

Picone’s purported damages depended upon two agreements that expressly required

arbitration: the Stock Purchase Agreement and the 2019 Retention Agreement.

      iv. Advise me that Gary Cruciani, Esq. and McKool Smith were not representing me
      individually but were only representing PIC;

      v. Provide me, individually, any separate legal fee agreement with Gary Cruciani, Esq.
      and McKool Smith;

      vi. Enter into any separate legal fee agreement with Gary Cruciani, Esq. and McKool
      Smith with me individually;

      vii. Advise me that Gary Cruciani, Esq. and McKool Smith believed that Gary Cruciani,
      Esq. and McKool Smith did not and would not represent me individually in the WGS legal
      malpractice claim;

      viii. Advise me that I would need a separate lawyer other than Gary Cruciani, Esq. or
      McKool Smith for my individual protection regarding the WGS legal malpractice claim;

      ix. Obtain or direct me to obtain from PIC or Fleeger any additional writings respecting
      my entitlement to a percentage of the recovery in the legal malpractice claim against WGS;

      x. Advise me regarding conflicts between my individual claims and the claims of PIC or
      Fleeger; or

      xi. Present me with a conflict waiver regarding my individual claims and the claims of PIC
      or Fleeger.

                                                –8–
Accordingly, McKool Smith argued that the doctrine of direct benefits estoppel

required that Picone’s claims be arbitrated.

        The trial court granted the motion to compel arbitration on March 10, 2021,

based on the doctrine of direct benefits estoppel.5 The case proceeded to arbitration,

where McKool Smith filed a counterclaim, pleading that Picone’s suit against it was

a breach of the covenant not to sue in the 2020 Settlement and Release. The arbitrator

ultimately determined that Picone’s claims were barred by the release that Picone

gave in that 2020 Settlement and Release.

        The trial court granted McKool Smith’s motion to lift the stay and to confirm

the arbitrator’s award and denied Picone’s motion to reconsider the propriety of

compelling arbitration. This appeal followed.

                                          Discussion
        Picone raises two issues based on the same straightforward legal argument: a

party seeking to compel arbitration must establish that the dispute in question falls

within the scope of a valid arbitration agreement. J.M. Davidson, Inc. v. Webster,

128 S.W.3d 223, 227 (Tex. 2003). Picone argues that because he never signed an

agreement to arbitrate disputes with McKool Smith, the trial court erroneously

compelled the parties to arbitration and erroneously confirmed the arbitrator’s

award. ‘“But sometimes a person who is not a party to the agreement can compel

    5
       Our record does not include this order. But at the post-arbitration hearing, the trial judge stated on
the record that she had ordered the case to arbitration based on direct benefits estoppel.
                                                    –9–
arbitration with one who is, and vice versa.”’ Lennar Homes of Tex. Land & Constr.,

Ltd. v. Whiteley, 672 S.W.3d 367, 376 (Tex. 2023) (quoting Meyer v. WMCO-GP,

LLC, 211 S.W.3d 302, 305 (Tex. 2006)). We conclude that this is one of those times.

                                Compelling Arbitration

      The Texas Supreme Court has recognized that when a litigant sues based on

a contract, it subjects itself to the contract’s terms, including an arbitration provision.

G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 527 (Tex. 2015).

The rule is an equitable one: a litigant cannot “on the one hand, seek to hold the

non-signatory liable pursuant to duties imposed by the agreement, which contains

an arbitration provision, but, on the other hand, deny arbitration’s applicability

because the defendant is a non-signatory.” Id. Thus, if a non-signatory claimant

seeks “direct benefits” under a contract that contains an arbitration agreement, the

claimant may be compelled to arbitrate under that contract. Id. This standard is not

met by a claim that merely “relates to” the contract that contains the arbitration

agreement. Id. Nor is the standard met by claims when liability arises solely from

general obligations imposed by law. Id. at 528. “[T]he claim must depend on the

existence of the contract . . . and be unable to stand independently without the

contract.” Id. at 527–28. We determine whether a claim seeks a direct benefit from

a contract containing an arbitration clause by analyzing the substance of the claim.

Id. at 527.

                                          –10–
      McKool Smith contends that Picone depends upon both the 2019 Retention

Agreement and the Stock Purchase Agreement to state his claim. Picone argues

that—at most—his claim against McKool Smith “relates to” these other agreements,

but the claim actually “arose from general obligations imposed by state law,

including statutes, torts and other common law duties.” See Jody James Farms, JV

v. Altman Group, Inc., 547 S.W.3d 624, 637 (Tex. 2018) (direct benefits estoppel

may not be implicated if substance of claim arises solely from general obligations

imposed by state law, including statutes, torts and other common law duties, or

federal law).

      We first address the 2019 Retention Agreement between PIC and McKool

Smith. Picone asserted below and continues to insist in this Court that he does not

contend that he is McKool Smith’s client based on that 2019 Retention Agreement.

Instead, he claims client status based on the oral agreement he reached with Cruciani

in June of 2019. Picone’s pleading of his damages does begin with the understanding

that McKool Smith would be taking a thirty percent contingency fee from the WGS

settlement recovery. The record is not clear as to the source of Picone’s assumption

concerning the amount of McKool Smith’s contingency interest:            perhaps he

employed the figure from the 2019 Retention Agreement, or perhaps it was the

percentage Picone agreed to in his oral agreement. Regardless, even if Picone’s

damages model draws its thirty percent contingency figure from the 2019 Retention

Agreement, we cannot conclude that this mere reference to a percentage amount in

                                       –11–
an agreement can suffice to bind Picone to the agreement’s arbitration clause. See,

e.g., G.T. Leach Builders, LLC, 458 S.W.3d at 527 (not sufficient to invoke direct

benefits estoppel when party’s claim merely “relates to” contract containing

arbitration agreement).

      The parties’ relationship to the Stock Purchase Agreement is a different

matter. At the outset, Picone is a party to the agreement. And his claims against

McKool Smith do not merely refer to the Stock Purchase Agreement; they are in fact

dependent upon that agreement. Picone contends that he hired the firm to represent

him and PIC to attempt to settle the WGS malpractice claim. WGS’s malpractice

resulted in Picone’s and PIC’s being denied recovery for copyright infringement by

OSI. And although Picone no longer owned PIC in 2019, he claimed an individual

right to compensation based upon the term of the Stock Purchase Agreement

concerning later-resolved claims against third parties. Picone identifies no other

legal reason why he had a right to forty percent of his former company’s recovery

from WGS.

      Just as the damages Picone claims in this suit are defined by the Stock

Purchase Agreement, so is the malpractice with which he charges McKool Smith.

Picone’s first allegation of the firm’s wrongdoing avers that it failed to:

      [a]dvise me to obtain a writing confirming my entitlement to 40% of
      any recovery from of the WGS legal malpractice claim per the
      October 5, 2016 Stock Purchase Agreement.

                                         –12–
First and foremost, then, Picone alleges that McKool Smith breached its fiduciary

obligation to assist him in obtaining what he was due under the Stock Purchase

Agreement. His subsequent complaints speak to the firm’s failure to represent his

individual interests as opposed to those of PIC and its owner CSL, i.e., the entities

with competing interests to his own based on the Stock Purchase Agreement.

      We are not tasked with resolving any of the many legal issues that underlie

these parties’ relationship and Picone’s claims. The question before us is a limited

one: did the trial court abuse its discretion in ordering these parties to arbitration?

Our resolution of the question is similarly limited by the facts and arguments before

us. We conclude that Picone’s lawsuit against McKool Smith seeks a direct benefit

of the Stock Purchase Agreement. His claims—and McKool Smith’s liability—

depend upon the existence of that agreement and are unable to stand independently

without it. See G.T. Leach Builders, LLC, 458 S.W.3d at 527–28. Accordingly,

Picone may not avoid the arbitration clause that governs the Stock Purchase

Agreement. The trial court did not abuse its discretion by ordering these parties to

arbitration. We overrule Picone’s first issue.

                         Confirming the Arbitration Award

      Picone’s second issue argues that the trial court erroneously confirmed the

arbitrator’s award. His argument again is based on the absence of an agreement

between him and McKool Smith to arbitrate their disputes in this lawsuit. We have

concluded that the trial court did not abuse its discretion in ordering the parties to

                                        –13–
arbitration in the first instance based on the doctrine of direct benefits estoppel. We

address under this second issue the matters that arose during arbitration involving

the 2020 Settlement and Release.6

        Initially, Picone complains that McKool Smith’s counterclaim involving the

covenant not to sue was made part of the arbitration. The 2020 Settlement and

Release does not include an arbitration provision. But McKool Smith argues that its

claim was a compulsory counterclaim, inextricably enmeshed with Picone’s

malpractice claims. See Gray v. Ward, No. 05-18-00266-CV, 2019 WL 3759466, at

*3 (Tex. App.—Dallas Aug. 9, 2019, no pet.) (claim is arbitrable if facts alleged

touch matters, have significant relationship to, are inextricably enmeshed with, or

are factually intertwined with agreement that includes arbitration provision). As we

have discussed, Picone hired McKool Smith to pursue the benefit he was due under

the Stock Purchase Agreement. He alleges that the firm committed malpractice

during this representation, specifically surrounding the mediation of that dispute.

McKool Smith, in turn, charges that Picone has violated the parties’ agreed

resolution of that mediation. We conclude that McKool Smith’s allegations are

factually intertwined with Picone’s malpractice claims. Accordingly, those

allegations were within the scope of the arbitration pending between the parties. See

    6
      Picone has not challenged the arbitrator’s decision that his claims are barred by the release in the
2020 Settlement and Release.
                                                 –14–
Ascendant Anesthesia PLLC v. Abazi, 348 S.W.3d 454, 462 (Tex. App.—Dallas

2011, no pet.).

      Picone’s final argument relies on the venue provision found in the 2020

Settlement and Release, which states:

      Venue for any action arising under this Agreement shall be exclusively
      in the courts (federal or state) located in Dallas County, Texas.

Picone characterizes this provision as a “dispute resolution agreement” that requires

claims based on the agreement to be decided by the trial courts of Dallas County. He

contends that this provision superseded any prior arbitration agreement that could

govern these parties’ disputes. We disagree.

       Black’s Law Dictionary defines “venue” as:

       1. The proper or a possible place for a lawsuit to proceed, usu. because
      the place has some connection either with the events that gave rise to
      the lawsuit or with the plaintiff or defendant. 2. The territory, such as a
      country or other political subdivision, over which a trial court has
      jurisdiction. 3. Loosely, the place where a conference or meeting is
      being held. 4. In a pleading, the statement establishing the place for
      trial. 5. In an affidavit, the designation of the place where it was made.

Venue, Black’s Law Dictionary (11th ed. 2019). The concept of venue speaks to the

place where a lawsuit is to proceed. See id. It does not speak to the manner in which

a dispute will be resolved. Nor is a provision calling for venue in Dallas County

courts mutually exclusive from an arbitration provision: even if the parties agree to

arbitrate their differences, a court must confirm the arbitrator’s award, and a venue

provision determines where that confirmation will take place. The venue provision

                                        –15–
in the 2020 Release and Settlement has no bearing on the arbitrability of any claim

between these parties.7

       The trial court did not abuse its discretion by confirming the arbitration award.

We overrule Picone’s second issue.

                                             Conclusion

       We affirm the trial court’s judgment.

                                                      /Bill Pedersen, III//
220841f.p05                                           BILL PEDERSEN, III
                                                      JUSTICE

   7
       To underscore this point, we note that the Stock Purchase Agreement’s arbitration provision ends
with the following statement assigning venue for proceedings required to take place in court:
       Notwithstanding anything in this Section 8.07 to the contrary, the parties hereto shall have
       the right to commence litigation or other legal proceedings with respect to any claims
       relating solely to: (i) emergency or injunctive relief, or (ii) enforcement of the dispute
       resolution provisions of this Agreement and/or any arbitration award. Venue for any and
       all such litigation shall be in the courts situated in the County of the Respondent.

                                                 –16–
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                   JUDGMENT

PAUL PICONE, Appellant                         On Appeal from the County Court at
                                               Law No. 4, Dallas County, Texas
No. 05-22-00841-CV           V.                Trial Court Cause No. CC-21-00300-
                                               D.
GARY CRUCIANI AND MCKOOL                       Opinion delivered by Justice
SMITH, PC, Appellees                           Pedersen, III. Justices Garcia and
                                               Kennedy participating.

       In accordance with this Court’s opinion of this date, the judgment of the trial
court is AFFIRMED.

      It is ORDERED that appellees Gary Cruciani and McKool Smith, PC
recover their costs of this appeal from appellant Paul Picone.

Judgment entered this 21st day of December, 2023.

                                        –17–