Court Opinion

ID: 33230
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:02:37+00
Date Added: 2024-06-11T09:01:04.172127
License: Public Domain

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that this opinion should not be published and is not precedent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.

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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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