Legal Malpractice: Entrepreneur Claims Andrews Kurth Conflicts Cost Him His Company

legal malpractice conflictsTexas Lawyer reported that an entrepre-neur who sued a venture capital firm for defrauding him out of his company, has amended his complaint to add a legal malpractice claim against the law firm that represented him, AmLaw 200 member Andrews Kurth.

Kyle Samani co-founded Pristine Eyesight in 2013, to use Google glass to deliver a video communication platform, primarily for health care providers. It changed its name to Pristine, and its focus to enabling field workers, i.e., inspectors, technicians, process engineers, claims adjusters, etc., to col-laborate with remote colleagues via video communication.

Samani alleges that Pristine hired Andrews Kurth to prepare a financing agreement be-tween it and venture capital investor S3 Ventures, which along with two other venture capital firms, invested $5.4 in the company in 2014. The other firms aren’t named in the suit, but a sister company of S3, and two S3 executives, who also invested in Pristine,  are named in the suit.

However, while “Andrews Kurth purported to represent (Pristine’s) interests”, it actually represented “S3’s interests to the detriment of Kyle Samani”.

Samani claims that an Andrews Kurth lawyer who drafted the financing agreement told him, “‘I am about to send you a bunch of documents. It is my job to read them, so you should probably just go through and docusign them.'”

He states that he took that lawyer’s advice, not realizing – because it was never ex-plained to him – that Andrews Kurth was representing only Pristine, and not him per-sonally.

He alleges that a year later, after S3, its sister company, and its executives who had invested in Pristine, learned that some of its shares had traded privately for $1.20 a share, and that the company was on the verge of closing several more large sales con-tracts, they terminated him as CEO, “claimed the right to force a sale of (his) roughly 700,000 unvested shares in Pristine for $0.01 each”, and barred him from participating in governance of the company, even though he’s a member of its board.

The defendants allegedly bought his 700,000 shares for $7,000, even though they had a market value of more than $1 million.

“After the financing agreement was executed, the same one he was instructed not to read,…Mr. Samani was stripped of his job without cause, and stripped of his ownership of the company without compensation.”

Samani alleges that Andrews Kurth placed S3’s interests ahead of his interests, advised him not to read important documents before signing them, and failed to advise him of:

  • Obvious conflicts between S3 Ventures, its employees and the firm;
  • The conflict of interest between him and Pristine;
  • That he should hire his own counsel before signing the financing agreement;
  • His potential downside in the financing agreement.


Law Practice Risk Management:

I. Conflict of Interest

A. According to the Texas Lawyer article, Samani claims that Andrews Kurth (AK) “had a long relationship with S3, providing legal work to a number of S3 portfolio com-panies”, which is presumably the basis of his allegation that there were “obvious conflicts” between AK and S3.

However, Samani doesn’t allege that AK represented S3 in this matter, so there was no  violation of Texas Disciplinary Rules of Professional Conduct Rule 1.06. Conflict of In-terest: General Rule, which prohibits a lawyer from representing opposing parties to the same litigation, or representing a person if it:
(1) involves a substantially related matter in which that person’s interests are materially and directly adverse to the interests of another client of the lawyer…; or

(2) reasonably appears to be or become adversely limited by the lawyer’s or law firm’s responsibilities to another client or to a third person or by the lawyer’s or law firm’s own interests.

Samani will likely be unable to prove this allegation, because a lawyer is not precluded from representing a party in a matter, just because it once represented the other party or its partners, especially when the present representation is non-adversarial, as this one was.

B. Samani alleges that AK failed to inform him of the conflict between himself and Pris-tine. 

Rule 1.12. Organization as a Client states:

(a) A lawyer employed or retained by an organization represents the entity…

Section (e) states:

(e) In dealing with an organization’s directors, officers, employees, members, share-holders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing or when explanation appears reasonably necessary to avoid misunderstanding on their part. (Emphasis added)

Further, Comment 4 to Rule 1.12 states

4. …when the organization’s interest (becomes) adverse to those of one or more of its constituents…the lawyers should advise any constituent whose interest the lawyer finds adverse to that of the organization of the conflict… (and) that the lawyer cannot repre-sent such constituent, and that such person may wish to obtain independent represent-ation. Care should be taken to assure that the individual understands…the lawyer for the organization cannot provide legal representation for that constituent individual…(Emphasis added)

Here, Samani may have a stronger case, because in his role as Pristine’s CEO, he app-arently hired AK, was its primary contact, and approved payment of its bills, but claims to have been was unaware that AK represented only Pristine, but not him personally. As co-founder of the firm, its CEO, and a major, if not majority stockholder, he probably saw no distinction between himself and Pristine.

If AK informed him in writing at the start of its representation of Pristine, that it wasn’t also representing him personally, then it will likely prevail, but if it didn’t, it should have, if not at the start, then after it prepared the financing agreement, which while presumably in Pristine’s best interests, may have been “adverse to those of the organization’s constit-uents with whom the lawyer is dealing”, i.e., Samani.

Finally, Comment 5 to Rule 1.12 states in part:

5. A lawyer representing an organization may, of course, also represent any of its di-rectors, officers, employees, members, shareholders, or other constituents…

It’s unclear why AK didn’t represent Samani, as it doesn’t appear that representing both him and Pristine would have been adverse to either one.  However, it would have been adverse to S3, because AK would have been obligated to advise Samani not to sign a financing agreement that gave S3 “the right to force a sale of (Samani’s) roughly 700,000 unvested shares in Pristine for $0.01 each”, which Samani alleges was well-below their market value.

Samani’s counsel will likely try to prove that AK didn’t represent Samani in order to aid S3. If he succeeds, then AK may face a potentially large judgment, and punitive dam-ages.

AK should have either represented both Samani and Pristine, or advised Samani to ob-tain his own counsel. The onus is on the law firm to clarify which party it is – and isn’t – representing, so if AK failed to do so, it may be found to have committed malpractice.

Will a jury of Kyle Samani’s peers – which will include small business owners, if his attorneys are adept at jury selection – believe him if he testifies that he thought AK was representing both himself and Pristine, the company he co-founded and led? Al-most certainly yes.

II. Engagement Letter

If AK produces a properly drafted engagement letter signed by Samani, then it will almost certainly prevail, perhaps via summary judgment. However, based on the com-plaint, it appears that AK either didn’t send Samani an engagement letter, or did, but didn’t require him to sign and return it, before it began work on the financing agreement.

If true, that was a mistake, because an engagement letter may have eliminated any confusion by Samani: according to legal malpractice insurer the Bar Plan, a properly drafted engagement letter will “clearly define” the “client, scope, subject matter and goals of the representation.”, disclose any potential conflict of interest, and set forth “the client’s right to independent counsel”.

Just as a kingdom was lost for want of a nail, Andrews Kurth may find that a legal malpractice claim was lost for want of an engagement letter.

Further reading:

Pristine Inc. co-founder sues S3 Ventures LLC alleging unjust termination – Austin Business Journal

Tech Lawyer Analyzes Kyle Samani’s Case  


Legal Malpractice: Andrews Kurth Hit With $200M Verdict

Legal Malpractice Andrews Kurth $200 Million VerdictBloomberg BNA reported that Houston-based oil and gas law firm Andrews Kurth was hit with a $200M legal malpractice verdict by a Harris County District Court jury, a figure equal to about two-thirds of the firm’s reported gross revenue in 2014.


The claim arises out of a dispute between Scott Martin and his brother Ruben over management of Martin Resources Management Corp. (MRMC), a drilling rig supply company that was started in 1951 as a successor to a firm founded by their father. In 2002, it became the general partner in Martin Mid-stream, which stores and distributes natural gas, provides marine transportation, and manufactures sulfur. MRMC also owns 35% of publicly-traded Martin Midstream Part-ners, L.P.

Ruben Martin was CEO of MRMC, and chairman of the company’s board of directors, while Scott Martin was Executive VP and a member of the board.

According to a court ruling in another case involving Scott Martin and MRMC, an “in-ternecine power struggle over the control of MRMC arose between Ruben and Scott. Ruben contended that Scott was trying to take control of the company, while Scott took the position that it was Ruben’s goal to “freeze” Scott out from corporate management. Beginning in 2006, the brothers’ relationship began to deteriorate regarding the general direction of the company, and their collegial relationship was finally fractured in 2007, when Ruben decided that MRMC should seek to acquire a refinery, while Scott opposed the move.”

According to the original petition in this case, and other court filings, by January, 2008, the situation had deteriorated to the point that litigation “was imminent”, as Scott Martin believed his brother was trying to marginalize his role in the company, and dilute his shares.

Their mother Margaret attempted to mediate a settlement, and after several discussions in which Andrews Kurth “was closely involved” as counsel for Scott Martin, a document entitled “Margaret’s Settlement Proposal”, signed by Ruben Martin, was presented to Scott Martin and Andrews Kurth.

Andrews Kurth “then altered the document in a number of respects”, and “assured Scott that it would protect his and SKM’s interests while settling the dispute with Ruben”. (SKM is a partnership owned by Scott Martin and his wife Kim).

Scott Martin signed the settlement agreement, but a few months later, concluded that his brother wouldn’t comply with the agreement’s terms, and had Andrews Kurth sue Rue-ben Martin on his behalf in an attempt to enforce it.

However, although Scott Martin won some damages, “the Settlement Agreement was ultimately held to be unenforceable upon appeal. The Texas appellate courts determined that…it was no more than an unenforceable agreement to agree.” Further, Andrews Kurth billed Scott Martin over $3M in fees and costs for what was “ultimately a doomed effort”.

After that, “nearly a dozen lawsuits followed that engulfed” Scott Martin and SKM, which wouldn’t have occurred “if the Settlement Agreement did what it was intended to do: settle the disputes between Scott and his brother.”

The dispute and litigation finally ended when Scott Martin sold his interest in MRMC back to the company, however, he alleges that he had to do so at a discount.

Legal Malpractice Suit

Scott Martin sued Andrews Kurth for making “a number of errors…which prejudiced Plaintiffs in the litigation” against Ruben Martin, including:

  • “Not advising Scott to resign as a trustee for a trust for Ruben’s heirs” when their dispute  led to litigation. “This led to an adverse judgment against Scott of over $3,000,000.” (The award was overturned on appeal)
  • “Failing to draft an enforceable agreement.”
  • “Failing to advise Scott of the fiduciary/liability ramifications of filing a shareholder derivative lawsuit against MMRC’s directors and employees”. As a result, “Scott was sued three times…resulting in two adverse judgments against him.”

He also alleged that internal firm emails mocked him and his “precarious financial condition”

Trial and Verdict

A trial was held, and on Nov. 11, a 12-person jury found Andrews Kurth 100% negligent, and awarded Scott Martin $167 million for the loss of his ownership in MRMC, if cal-culated as of 10/2/2012, and more than $29 million for fees and expenses incurred.

Post-trial motions

After the trial, Martin requested a hearing for judgment, which the judge set for November 23rd. Andrews Kurth then filed a motion to continue the hearing until at least Dec. 14.

Among other things, the firm wants the court to examine the date of injury used to calculate damages. The court asked the jury to calculate Scott’s loss-of-stock-value claim based on three possible dates of injury, Oct. 2, 2012, Aug. 12, 2010 and June 10, 2008. The jury calculated damages at $167 million, $99 million and $82 million for each of the dates, respectively.

Attorneys for the firm claim the plaintiff did not pick the date until after the jury decision, and then picked Oct. 2, 2012, the date with the highest value.

“Tens of millions of dollars hang on the determination of this issue alone, yet we have no authorities to support their post-verdict selection,” the firm said in its filing.

Firm’s statement

“We will remain committed to the post-verdict and appellate process and we are confident that we will ultimately be vindicated,” said Bob Jewell, managing partner of Andrews Kurth, in a statement.

Shortly after the suit was filed in 2013, Jewell described Scott Martin’s suit as simply an attempt to avoid paying the more than $2 million in outstanding fees. “Scott Martin’s claim has no merit…Andrews Kurth represented him in a professional and competent manner more than five years ago, and he received an unquestionably positive result in connection with that representation.” Jewell added that Martin was intricately involved in directing the litigation, and expressed no complaints about legal services he was receiving when he signed a promissory note in 2010 to pay the fees.

Martin et al. v. Andrews Kurth LLP, case number 2013-61098, 234th Judicial District Court of Harris County, Texas.


Texas Lawyer reported that the case been settled, although “terms of the pre-judgment settlement are confidential”.  The case went to mediation in January. The parties filed a Motion to Dismiss on April 6, and the judge signed it on April 7th.