Brian P. Lauten 2012-12-26 02:05:24
In 2012, Texas courts continued to develop the case law in five highly explosive areas: (1) the evident partiality of an arbitrator as a basis for vacating an arbitration award; (2) the enforceability of a “waiver-of-reliance” provision as a bar to a fraud claim; (3) the anti-fracturing rule, which prevents legal malpractice plaintiffs from contriving multiple causes of action against attorneys that sound only in professional negligence; (4) the rights and remedies available to oppressed shareholders; and (5) a new decision that re-shapes the jurisprudence applicable to attorney’s fees. First, the courts have continued to write extensively on what satisfies the proof requirements to successfully vacate an arbitration award as a result of the alleged evident partiality of the arbitrator. Compare Ponderosa Pine Energy, L.L.C., v. Tenaska Energy Inc., 376 S.W.3d 358, 370-375 (Tex. App. — Dallas 2012, motion granted) (reversing the trial court’s order vacating an arbitration award and reinstating a $125 million award), with, Karlseng v. Cooke, 286 S.W.3d 51 (Tex. App. — Dallas 2009, no pet. h) (vacating a $22 million arbitration award for insufficient disclosures). Second, the legal ramifications of a waiver-of-reliance provision have become a hot topic of judicial discussion. In the wake of Sclumberger Tech. v. Swanson, 959 S.W.2d 171 (Tex. 1997), Forest Oil v. McAllen, 268 S.W.3d 51 (Tex. 2008), and Italian Cowboy Partners Ltd. v. Prudential Ins. Co. of America, 341 S.W.3d 323 (Tex. 2011), Texas courts have continued to wrestle with the magic language necessary to defeat a fraudulent inducement claim. The best judicial discussion is Dragon Fish, L.L.C., v. Santikos Legacy Ltd., 2012 WL 1523041 * 2 ___S.W.3d___(Tex. App. — San Antonio 2012, no pet. h.) (analyzing prior precedent and holding that waiver of reliance clause conclusively barred a fraud claim in a landlord/tenant dispute). Third, Texas courts continue to develop the case law on the anti-fracturing rule in legal malpractice cases; that is, the rule that prevents legal malpractice plaintiffs from opportunistically transforming a claim that sounds only in negligence into a breach of fiduciary duty. See Riverwalk CY Hotel Partners v. Akin Gump Strauss Hauer & Feld, L.L.P., 2012 WL 5503891, * 7 (Tex. App. — San Antonio 2012, no pet. h.); Mendenhall v. Clark, 2012 WL 512657 (Tex. App. — Amarillo 2012, no pet. h.). Fourth, the court of appeals’ decision in Ritchie v. Rupe, 339 S.W.3d 275, 300-301 (Tex. App. — Dallas 2011, pet. granted), held that an oppressed shareholder is entitled to a corporate buy-back of her stock based upon fair value. After denying a petition for review, the Texas Supreme Court granted re-hearing and then granted the petition. The case is pending. Finally, the most important case decided this year is in the area of attorney’s fees. El Apple I, Ltd. v. Olivas, 370 S.W.3d 757 (Tex. 2012), re-shapes the proof requirements applicable to an attorney’s fees application. As a general rule, the Texas Supreme Court has been hostile toward awards of attorney’s fees. Reversing an award of attorney’s fees on contractual theories and under the declaratory judgment statute in MBM Financial Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 663 (Tex. 2009), former Justice Scott Brister stated: [T]here have been charges that some cases benefit the lawyers more than the clients. But suits cannot be maintained solely for the attorney’s fees; a client must gain something before attorney’s fees can be awarded. While making losing parties bear their own attorney’s fees may add injury to insult, the American Rule has long been that each party pays its own lawyers. Id. at 663 (emphasis added). In the past six years, the Texas Supreme Court has been prolific in opining upon when attorney’s fees are recoverable, conditions precedent to recovering attorney’s fees, how attorney’s fees should be submitted, and what evidentiary showing must be made to support an attorney’s fee award. See El Apple I Ltd. v. Olivas, 370 S.W.3d 757 (Tex. 2012) (parties must keep time records to prove attorney’s fees); Tony Gullo Motors I, L.P., v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006) (parties must segregate attorney’s fees); Medical City Dallas v. Carlisle Corporation, 251 S.W.3d 55, 63 (Tex. 2008) (a breach of an express warranty will trigger attorney’s fees); Varner v. Cardenas, 218 S.W.3d 68 (Tex. 2007) (attorney’s fees for successfully defending a counterclaim are recoverable where it helped prove a breach of contract claim); Intercontinental Group P’ship v. KB Homes Lone State, L.P., 295 S.W.3d 650 (Tex. 2009) (adopting a no-harm/no-fee rule); MBM Financial Corp. v. Woodlands Operating Co., 292 S.W.3d 660 (Tex. 2009) (a party could not recover attorney’s fees under the declaratory judgment statute because the breach of contract action failed); Midland Western Building, L.L.C., v. First Service Air Conditioning Contractors Inc., 300 S.W.3d 738 (Tex. 2009) (reversing a jury finding awarding zero attorney’s fees when the plaintiff proved a suit on a sworn account). Since 2006, Tony Gullo Motors I, L.P., v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006), has been a “guiding light” that established easy to understand proof requirements necessary to support an award of fees. However, in 2012 the Texas Supreme Court parted company with the evidentiary showing Chapa teaches and supplanted in its place the more cumbersome process of mandating time records as a condition to recovering attorney’s fees. Compare Chapa, 212 S.W.3d at 314 (there is no requirement that a claimant 212 S.W.3d at 314 (there is no requirement that a claimant seeking attorney’s fees keep separate time records), with, Olivas, 370 S.W.3d at 765 (fee application was legally insufficient because it was not supported by time records). In Olivas, Myriam Olivas, an Applebee’s restaurant manager, sued her employer alleging sex discrimination and retaliation. See Olivas, 370 S.W.3d at 759. The jury found in Olivas’ favor, awarding $1,700 in back pay and $103,000 in compensatory damages. Id. Olivas was statutorily entitled to attorney’s fees. Id. Olivas’ attorneys testified that they spent 700 hours and 190 hours prosecuting the case, respectively. Id. The trial court approved hourly rates of $250 and $300 for the attorneys. The trial court applied a 2.0 multiplier to the lodestar that resulted in $464,000 in attorney’s fees. Id. at 759. The court of appeals affirmed. The Texas Supreme Court reversed, holding the fee application was insufficient because it was not based upon time records. Id. at 765. Justice Nathan Hecht stated in a concurrence that the attorneys “failure to produce any records supporting the hours they claimed to have spent on the case is fatal to their fee application.” Id. at 766 (emphasis added) (Hecht, J. concurring). In contrast to Olivas, in Chapa, the Texas Supreme Court stated that time records are not required to support an attorney’s fee award. Chapa, 212 S.W.3d at 314. The reasoning in Olivas is fundamentally at odds with Chapa. What is more problematic is that Olivas does not even cite to Chapa. Thus, if Chapa is distinguishable from Olivas— the court does not explain why. Given that Olivas is the most recent authority, attorneys should offer time records to support their attorney’s fees claim. Because Olivas creates new precedent, it is the most significant decision in commercial litigation in 2012. BRIAN LAUTEN of Sawicki & Lauten, L.L.P., in Dallas, is a trial lawyer who practices in the areas of commercial litigation, business litigation, trade secrets, non-competition agreements, contract and real estate disputes, fiduciary litigation, and partnership disputes.
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