Texas Supreme Court to Review Dismissal of Malpractice Claim Against Andrews Kurth

Legal Malpractice Andrews Kurth Supreme CourtTexas Lawyer reported that the Texas Supreme Court has agreed to review a decision by the Dallas 5th Court of Appeals, dismissing a legal malpractice claim against Am Law 200 member Andrews Kurth Kenyon LLP.

Background

According to the appeals court’s decision and a synopsis of the original complaint, entitled Rogers v. Zanetti, James Rogers hired Andrews Kurth attorney Victor Zanetti to represent him in his acquisition of 80% of Accent Home Health from its owners, Daniel and Leslie Alexander.

After the deal concluded, Rogers was added as a signatory to Accent’s bank account and opened new bank accounts for Accent. Further, his colleague and co-plaintiff, William Burmeisterer, handled Accent’s accounts payable.

A dispute soon arose over between Rogers/Burmeister and the Alexanders, who alleged that Rogers had been misallocating funds from Accent’s bank account. The Alexanders sued to void the Investment Agreement as unconscionable, unenforceable, illusory and void, and also brought claims for fraud and breach of fiduciary duty.

Rogers/Burmeister asked Victor Zanetti to refer them to a lawyer to defend them; he referred them to his colleague, Charles Perry, at Andrews Kurth, who handled the case for awhile, but was later replaced by counsel from a different firm (see below).

The case was tried in 2004. The jury found the Rogers/Burmeister defendants had committed fraud and breached fiduciary duties, and awarded the Alexanders over $3 million in damages. Further, the trial court also ruled that the Investment Agreement was void.

Defendants appealed the judgment, and the 5th Court of Appeals affirmed.

Malpractice Complaint

The Rogers/Burmeister defendants responded by suing Andrews Kurth, Zanetti, and Perry in 2012 – eight years after the trial – for negligence and for breach of fiduciary, alleging improper acts, including:

  • Zanetti had a fiduciary duty to recommend an outside lawyer, since the contract that he had drafted was at the center of the litigation, but he instead recommended a co-worker, whose fiduciary duties were split between his clients and his firm. “This irreconcilable conflict of interest compromised the entire strategy for defending the case…Perry and Andrews Kurth LLP found themselves in the untenable position of choosing between defending the work product of Zanetti that had sparked the litigation and acting as zealous and competent advocates for the plaintiffs, who were the firm’s clients.”
  • Perry failed to tell his clients that he had received a $450,000 settlement offer from the Alexanders before trial, which “would have released the [Clients] from liability and given them control over Accent.”
  • Perry failed to rebut the Alexanders’ damages claim, i.e., he didn’t hire an expert to counter the Alexanders’ expert’s valuation of their business.
  • Perry advised his clients to prepare documents detailing the services that they were providing to Accent, which were to be used in deposition, but he allegedly tried to “hoodwink” the court by pretending the documents were old invoices, rather than having been prepared for litigation purposes. Rogers was forced to pay $25,000 in sanctions when the court discovered the truth.

    Following the sanction, Andrews Kurth suggested that their clients find new counsel.

Note: Rogers/Burmeister’s counsel stated that the Alexanders’ $3 million judgment against his clients had grown to about $5 million, including interest, at the time they filed their malpractice complaint. Only about $100,000 of that total had been paid.

Settlement Offer

Rogers/Burmeister seemed to believe that their strongest claim was that Perry failed to advise them of the Alexanders’ offer to settle the claim for $450,000, while allowing them to maintain control of Accent Home Health.

According to the Appeals court decision, they elicited deposition testimony from Marketos, the Alexanders’ attorney that

“he sent a settlement demand to (Rogers/ Burmeister) soon after the suit was filed and got no response. The record contains the settlement offer itself, which was dated August 6, 2003. The Alexanders offered to let Rogers continue using the Accent name and to execute mutual releases of all claims if Rogers paid them $450,000 immediately upon executing the settlement agreement. Marketos said the demand was a “starting point,” but he could not remember how much authority he had to go below $450,000.

Rogers testified by affidavit that the Lawyers did not communicate the settlement offer to him and that he did not learn about it until 2013, after the Alexander litigation concluded and this malpractice case began.

Rogers further said, “Had I known that I could have settled the case with the Alexanders and Pucci and received control of Accent for $450,000, I would have instructed my attorneys to negotiate the best possible resolution and release without incurring the time or expense of litigation.”

He also said that the Alexanders later made settlement demands of over a million dollars after the trial court sanctioned him.”

Law Firm Response

Andrew Kurth filed a motion for summary judgment that argued “(1) no evidence of causation, (2) collateral estoppel, (3) the unlawful-acts doctrine, (4) the statute of limitations, and (5) impermissible fracturing of negligence claims into fiduciary breach claims.”

The trial court granted the motion.

Appeals Court

Plaintiffs appealed, and the Fifth Court of Appeals upheld the lower court’s dismissal.

Regarding the settlement offer, the court ruled:

“…the clients contend that they would have avoided a much larger liability and acquired Accent as well if they had known about the settlement offer. For this to be true, they would have had to both reach a settlement and perform its term…But they adduced not evidence that they could pay the Alexanders $450,000, as the actual settlement offer demanded, or any lesser amount that the Alexanders would have accepted. Without such evidence, there is a fatal gap in the but for cause evidence.”

Supreme Court Appeal

Rogers/Burmeister appealed the dismissal to the Supreme Court, arguing that the lower courts erred by applying the “but for” legal malpractice causation evidence standard to their claims. That standard requires that plaintiffs prove that they would have prevailed at trial but for their attorney’s alleged legal malpractice.

The Supreme Court accepted the case for review, and scheduled oral argument for Jan. 11, 2017.

According to Texas Lawyer, Rogers/Burmeister’s lawyer, Brian Lauten, said the review of the case — and whether the “but for” legal malpractice causation evidence should be applied to it — is important.

“The standard that should have been applied is the substantial factor causation test. It means I don’t have to prove I would have won this case, but the lawyer’s negligence was substantial in causing some quantifiable harm…Had the trial court and the Dallas Court of Appeals applied the correct standard, there is absolutely no question that this case should have been decided by a jury and not a court in a one-page order,” he said.

Defendants Brief

Texas Lawyer reported that in its Supreme Court brief, Andrews Kurth and its attorneys argued that their former clients reliance on the “substantial factor” causation standard should fail, and their alleged damages due to the lost settlement opportunity are “sheer speculation”.

“For example, there is no evidence in the summary judgment record that plaintiffs had the financial capacity or desire to settle the case at any amount — much less the (as of yet, hypothetical and unspecified) amount acceptable to Accent… Instead, plaintiffs ask the court to reverse summary judgment based on their sheer speculation that an agreement would have been reached. But plaintiffs’ assertions of ‘possibility, speculation, and surmise’ are ‘no evidence of causation’…Plaintiffs’ lost settlement opportunity thus fails as a matter of law.”

Print Friendly, PDF & Email
About Curtis Cooper