This dispute arose between lawyers involved in the Fen-Phen pharmaceutical litigation over what expenses could be charged to a referring lawyer under the parties' letter agreement. Lawyers Johnson and Barton (J&B) referred cases to Fleming & Associates (F&A). Disputes arose concerning what expenses could be charged to J&B. Johnson then entered into a Profits Interest Transfer Agreement with F&A. The trial court did not err in refusing to reduce any damages awarded to appellees/cross-appellants by 45% pursuant to the PITA; F&A is not entitled to an extinguishment, or offset, of its damages to the extent of 45% pursuant to the PITA because the PITA is an agreement between it and Johnson, not it and J&B. The trial court erred by awarding statutory attorney's fees against it under Texas Civil Practice and Remedies Code §38.001 because a limited liability partnership is neither an individual nor a corporation. The trial court's judgment is affirmed as modified. Houston's 14th Court of Appeals, No. 14-12-00582-CV, 02-27-2014
February 27, 2014 at 12:00 AM
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On Appeal from the 281st District Court Harris County, Texas Trial Court Cause No. 2009-50241
Panel consists of Justices Christopher and McCally. (Former Justice Jeffrey V. Brown not participating).
OPINION
Sharon McCally Justice
In this dispute over a referral fee agreement, Fleming & Associates, L.L.P. challenges the final judgment in favor of appellees/cross-appellants in three issues. First, Fleming & Associates challenges the pre-trial partial summary judgment on liability. Second, Fleming & Associates asserts that the trial court erred in refusing to reduce any damages awarded to appellees/cross-appellants by 45% pursuant to a Profit Interest Transfer Agreement entered into between Fleming & Associates and former partner of the Johnson-Barton Joint Venture, Nick Johnson. Finally, Fleming & Associates claims that the trial court erred by awarding statutory attorney’s fees against it under section 38.001 of the Texas Civil Practice and Remedies Code because it is neither a corporation nor an individual. Appellees/cross-appellants Daniel P. Barton, the Barton Law Firm, and the Johnson-Barton Joint Venture (collectively, the Barton Group) assert in their cross appeal that the trial court erred (1) by granting a pre-trial partial summary judgment finding that George M. Fleming was not liable in his personal capacity and (2) by computing prejudgment interest from March 8, 2008, instead of April 29, 2007.
We agree with Fleming & Associates that the trial court erred by awarding statutory attorney’s fees against it under section 38.001 because a limited liability partnership is neither an individual nor a corporation. We therefore modify the trial court’s judgment to remove all portions awarding attorney’s fees to the Barton Group. Rejecting all other challenges, we affirm the judgment as modified.
I. Background
The underlying dispute
This dispute arose between lawyers involved in the Fen-Phen pharmaceutical litigation over what expenses could be charged to a referring lawyer under the parties’ letter agreement. Lawyers Nick Johnson and Dan Barton formed the Johnson-Barton Joint Venture (J&B). J&B obtained powers of attorney for Fen-Phen cases in the second round of that litigation. J&B entered into a February 6, 2002 letter agreement to refer cases to another law firm, Fleming & Associates (F&A).[1]
The February 6 letter agreement (the Contract) outlined the fee structure between the parties in two material parts: (1) 224 existing FDA positive cases already in J&B’s offices to be forwarded to F&A; and (2) future Fen-Phen business to be referred by J&B to F&A. The pertinent provisions regarding handling of expenses at issue in this case are substantively identical in both parts of the Contract. The provision excerpted from the first part provides as follows:
(c) The attorneys’ fees on the 224 FDA positive cases described in paragraph 1(a) will be divided 50% to F&A and 50% to [J&B], jointly. F&A will be responsible for all future litigation costs, the discovery, preparation for trial and/or appeal of the cases forwarded to F&A by J&B. These litigation expenses will be deducted from the client’s recovery at the time of settlement or recovery.
(d) F&A will have the right to retain local counsel to assist in any future litigation concerning the cases forwarded to [F&A] by J&B. The attorney fees payable to local or outside counsel, under an agreement with F&A or J&B will be paid out of the settlement or recovery before fees are divided under paragraph 1(c) of this agreement.
The second part of the Contract, entitled “Future Fen-Phen Business, ” begins with the following statement: “ It is the intention of both parties to this agreement to associate in obtaining Fen-Phen cases, in addition to the 224 cases referred to in paragraph 1(a) above. F&A and J&B hereby enter into a joint venture to sign up additional FDA positive cases according to the following terms[.]” This part differs in that the first sentence of subsection 2(c) states, “ The attorneys’ fees on the new FDA positive cases described in paragraph 2(a) will be divided 50% to F&A and 50% to J&B, jointly.” Additionally, the final sentence of subsection (d) refers to the division of fees under paragraph 2(c) of the Contract, rather than paragraph 1(c). J&B sent F&A approximately 1, 500 additional cases under the terms of part two of the Contract. F&A entered into agreements with other referring law firms and prosecuted roughly 8, 000 Fen-Phen cases. F&A favorably resolved most of the cases referred to it by October 2006.
On October 16, 2006, F&A paid J&B for most of the cases J&B had referred to it, sending a letter and a “distribution statement” for J&B’s “portion” of fees (the October 16 Letter). In this letter, F&A stated, “In reviewing the distribution statement, you may notice that in accordance with our venture, there are deductions for certain client non-reimbursable expenses. These expenses were not overhead, but were specifically incurred to keep our Fen-Phen clients in court and to allow their recovery.” On the attached “Attorney Distribution Statement, ” F&A showed the sums it deducted from J&B’s total referring attorney’s fees of $11, 026, 890.04. Specifically, F&A deducted $2, 697, 581.92 for “ Your Firm Percentage Share” of the following:
Common Expenses
$1, 615, 966.69
Professional Services
$736, 444.72
Advertising Expenses
$345, 108.01
Communications/Call Centers
$62.50
F&A paid J&B a “net referring attorney’s fee” of $8, 329, 308.12. J&B disputed these deductions, and numerous emails were exchanged between George Fleming, Dan Barton, and Nick Johnson. F&A subsequently agreed that the advertising expenses should not have been deducted and reimbursed J&B $345, 108.01. Based on the October 16 distribution, total disputed deductions of $2, 352.473.91 remained. J&B informed F&A that these deductions were improper. In 2007, a second dispute arose regarding whether certain expense reimbursements and additional attorney’s fees earned and collected on forwarded cases settled after the October 16, 2006 distribution was made were owed to J&B. J&B’s efforts to resolve this dispute also failed.
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