RIVERWALK CY HOTEL v. AKIN GUMP STRAUSSNo. 04-11-00926-CV.
391 S.W.3d 229 (2012)
RIVERWALK CY HOTEL PARTNERS, LTD., Appellant
AKIN GUMP STRAUSS HAUER & FELD, LLP, Appellee.
AKIN GUMP STRAUSS HAUER & FELD, LLP, Appellee.
Court of Appeals of Texas, San Antonio.
November 14, 2012.
Robert W. Johnson Jr., Corpus Christi, TX, for Appellant. George H. Spencer, Kathryn A. Stephens, Clemens & Spencer, P.C., San Antonio, TX, for Appellee.
Sitting: CATHERINE STONE, Chief Justice, KAREN ANGELINI, Justice, MARIALYN BARNARD, Justice.
Opinion by: CATHERINE STONE, Chief Justice.
Riverwalk CY Hotel Partners, Ltd. sued Akin Gump Strauss Hauer & Feld, LLP for legal malpractice, asserting both breach of fiduciary duty and negligence claims. The trial court granted Akin Gump's motion for a partial summary judgment on Riverwalk's breach of fiduciary duty claim. The motion asserted that Riverwalk could not "fracture" its legal malpractice claim into an additional cause
Riverwalk contends the trial court erred in granting the summary judgments because: (1) Akin Gump's motion did not address all of the grounds alleged as a basis for Riverwalk's breach of fiduciary duty and negligence claims; (2) the breach of fiduciary duty claim did not "fracture" Riverwalk's legal malpractice claim; (3) the only evidence submitted in support of the breach of fiduciary duty claim was inadmissible; and (4) Akin Gump did not establish its limitations defense as a matter of law because limitations was tolled by the discovery rule or the Hughes tolling rule. We reverse the trial court's judgment as to Riverwalk's negligence claim and portions of Riverwalk's breach of fiduciary duty claim, and we remand those claims to the trial court for further proceedings. We affirm the remainder of the trial court's judgment.
In 2005, Akin Gump began representing Riverwalk in connection with Riverwalk's acquisition of a tract of land upon which Riverwalk intended to build a hotel. After acquiring the land, Riverwalk contracted with Lyda Swinerton Builders, Inc. for the hotel's construction.
In July of 2006, Lyda and Riverwalk were sued by Auburn Investments, Inc., the owner of an adjacent hotel, for trespass, tortious interference with prospective relations, and nuisance. The claims were based on allegations pertaining to the dust, debris, and noise generated by the construction. Akin Gump was retained to represent both Riverwalk and Lyda in the lawsuit, and Riverwalk signed a conflicts waiver in relation to the joint representation.
In October of 2008, Riverwalk was represented by a different attorney, David Peden, in connection with a mediation between Riverwalk and Lyda regarding the completion of the hotel construction project. On October 2, 2008, Peden and Riverwalk's principal, Richard Finvarb, called Janie Shannon, one of the Akin Gump attorneys representing Riverwalk in the Auburn lawsuit. Peden demanded to know why Akin Gump had not tendered the defense of the Auburn lawsuit to Lyda's insurance carrier under the terms of the construction agreement between Riverwalk and Lyda. A few months after this phone call, the defense of the Auburn lawsuit was tendered to Lyda's insurance carrier, and the lawsuit eventually settled sometime after Riverwalk sued Akin Gump for legal malpractice.
In its lawsuit against Akin Gump, Riverwalk alleged claims for negligence and breach of fiduciary duty. As previously noted, the trial court granted summary judgment as to all of Riverwalk's claims.
STANDARD OF REVIEW
We review a summary judgment de novo. Provident Life & Acc. Ins. Co. v. Knott,
Riverwalk contends the trial court erred in granting summary judgment with regard to its negligence claim because: (1) the motion did not address each act of
A. Whether Negation of the Discovery Rule and the Hughes Tolling Rule Was Properly Raised by Akin Gump
Before addressing the merits of the Hughes tolling rule, Riverwalk asserts Akin Gump procedurally failed to negate the application of either the discovery rule or the Hughes tolling rule because Akin Gump did not amend or supplement its motion after Riverwalk raised these defenses in a supplemental petition filed after Akin Gump filed its motion. Therefore, Riverwalk asserts the defenses were not properly addressed in the summary judgment proceeding.
A defendant's motion for summary judgment based on limitations need not negate the discovery rule unless the plaintiff has pleaded it. Via Net v. TIG Ins. Co.,
In this case, Riverwalk raised the discovery rule and Hughes tolling rule in its summary judgment response and in a supplemental petition that were simultaneously filed. Akin Gump addressed the merits of both rules in its reply to Riverwalk's response. Therefore, Akin Gump responded on the merits, and the issue was tried by consent. Id. Accordingly, the applicability of both rules was placed squarely before the trial court and this court. Id.
B. Hughes Tolling Rule
Riverwalk contends the Hughes tolling rule applies whenever the alleged malpractice occurs in connection with litigation. Akin Gump counters that the Hughes tolling rule applies only when the attorney's alleged error results in litigation or directly affects the client's position in pending litigation.
In Hughes v. Mahaney & Higgins,
On May 21, 1987, the Hughes sued Mahaney for legal malpractice, alleging they would have had standing if they had been named temporary managing conservators in the affidavit. Id. Mahaney filed a motion for summary judgment based on limitations, arguing the malpractice cause of action accrued as early as February 17, 1983, the date the biological mother revoked her affidavit of relinquishment. Id. at 157. The Texas Supreme Court concluded that the statute of limitations was tolled until all of the Hughes' appeals in the termination action were exhausted regardless of when the cause of action accrued. Id. at 156.
The court held "when an attorney commits malpractice in the prosecution or defense of a claim that results in litigation, the statute of limitations on the malpractice claim against the attorney is tolled until all appeals on the underlying claim are exhausted." Id. at 157. The court gave two justifications or policy reasons for its holding. Id. First, requiring the Hughes to file the malpractice lawsuit while the termination/adoption proceeding was still pending would require the Hughes to take "inherently inconsistent positions" by arguing that Mahaney's actions were negligent in the malpractice case while also arguing that the affidavit and Mahaney's actions did not affect their standing in the termination/adoption case. Id. Second, limitations must be tolled for the malpractice cause of action because the viability of the malpractice cause of action was dependent on the outcome of the termination/adoption proceeding. Id. If the courts ultimately held that the affidavit did not affect the Hughes' standing, the Hughes would not have a malpractice claim.
Akin Gump focuses on the use of the phrase "that results in litigation" in the holding in Hughes to contend that the tolling rule applies only when the attorney's alleged error results in litigation. Two subsequent cases decided by the Texas Supreme Court in 2001, however, demonstrate that the Hughes tolling rule is not so limited.
In Apex Towing Co. v. Tolin,
When Apex sued the attorney for malpractice, the attorney contended that limitations began to run at least by the date of the settlement. Id. The Texas Supreme Court, however, held that limitations was tolled until the court of appeals issued its order on May 19, 1995, dismissing the pending appeal based on the settlement. Id. at 123. Since Apex filed its malpractice lawsuit within two years of that date, the lawsuit was timely filed. Id.
In reaching its holding in Apex, the Texas Supreme Court noted the two policy considerations articulated in Hughes to support tolling, namely: (a) a client should not have to adopt inherently inconsistent
Thus, in reaching its holding in Apex, the court did not analyze whether the alleged malpractice resulted in litigation, noting only that the malpractice was committed while defending the client in the underlying litigation. Similarly, in Underkofler v. Vanasek, decided the same day as Apex, the court held, "Vanasek's malpractice claims arise out of the underlying litigation on the note. Under Hughes, limitations was therefore tolled until the underlying litigation was concluded...."
In the instant case, we hold the Hughes tolling rule applies because: (1) Riverwalk alleges Akin Gump "committed malpractice while defending" Riverwalk in the Auburn lawsuit; (2) Riverwalk's malpractice claims "arise out of" the Auburn lawsuit; and (3) Akin Gump allegedly "committed legal malpractice while providing legal services in the context of litigation." Akin Gump also argues that the alleged malpractice was not committed in the prosecution or defense of a claim because the failure to tender the defense to Lyda's insurance carrier did not affect Riverwalk's legal posture with regard to Auburn. As pronounced by the Texas Supreme Court, the Hughes rule contains no requirement that the alleged malpractice adversely affect the client's position in the pending litigation, and we refuse to add such a requirement to the rule.
Based on the applicability of the Hughes tolling rule, the trial court erred in granting summary judgment as to Riverwalk's negligence claim. Accordingly, we reverse the summary judgment as to the negligence claim.
BREACH OF FIDUCIARY DUTY
With regard to its breach of fiduciary duty claim, Riverwalk contends that it amended its pleading after Akin Gump filed its motion for summary judgment, adding additional acts that resulted in a breach of fiduciary duty that Akin Gump's motion did not address. Riverwalk also contends that the trial court erred in concluding
A. Amendment of Pleadings/Fracturing of Legal Malpractice Claim
1. General Law Regarding Fracturing of Legal Malpractice Claim
"The rule against dividing or fracturing a negligence claim prevents legal-malpractice plaintiffs from opportunistically transforming a claim that sounds only in negligence into other claims." Deutsch v. Hoover, Bax & Slovacek, L.L.P.,
If, however, the claim is more appropriately classified as another claim, then the client can assert a claim other than negligence. Deutsch, 97 S.W.3d at 189. For example, if the claim focuses on an attorney obtaining an improper benefit, as opposed to the attorney failing to adequately represent the client, then the claim may appropriately be classified as a breach of fiduciary duty claim. Murphy, 241 S.W.3d at 693; Aiken, 115 S.W.3d at 28. A breach of fiduciary duty occurs when an attorney, among other things, subordinates his client's interest to his own, retains the client's funds, engages in self-dealing, improperly uses client confidences, fails to disclose conflicts of interest, or makes misrepresentations to achieve these ends. Kimleco Petroleum, Inc. v. Morrison & Shelton,
"Whether allegations against a lawyer, labeled as breach of fiduciary duty, fraud, or some other cause of action, are actually claims for professional negligence or something else is a question of law to be determined by the court." Murphy, 241 S.W.3d at 692. "Our review of a decision of a question of law is de novo." Id.
2. Unaddressed Allegations
Riverwalk initially contends that its amended pleadings added additional breach of fiduciary duty allegations that were not addressed in Akin Gump's motion. As a general rule, granting a summary judgment on a claim not addressed in the summary judgment motion is reversible error. G & H Towing Co. v. Magee,
3. Intentionally Failing to Tender Defense to Insurance Carrier
Riverwalk contends that its claim that Akin Gump intentionally failed to tender the defense of the Auburn lawsuit to the insurance carrier is separate from its claim that Akin Gump's failure to tender the defense fell below the applicable standard of care, constituting negligence. In its petition, Riverwalk specifically alleged that "Akin Gump was aware of the contractual provisions requiring Lyda to indemnify Riverwalk, and was aware of the existence of insurance coverage, and that the defense of the Auburn suit could have, and should have, been tendered to Lyda's insurance carrier; however, Akin Gump intentionally withheld tendering this case to the insurance company because it would have deprived them of an extremely lucrative employment arrangement." Riverwalk alleged "Akin Gump put its interest in collecting excessive legal fees above its client's interest" and improperly benefitted by "subordinating the client's interests of utilizing the insurance coverage it had paid for."
In Latham v. Castillo,
Id. at 69.
This same logic applies in the instant case. If Riverwalk had only alleged that Akin Gump negligently failed to recognize that insurance coverage existed and therefore negligently failed to tender the defense of the Auburn lawsuit to the insurance carrier, Riverwalk's claim would have been simply a claim for legal malpractice. However, Riverwalk alleged that Akin Gump knew about the insurance coverage and intentionally failed to tender the defense. Like in Latham, this "is the difference between negligent conduct and deceptive conduct." Id.; see also Trousdale v. Henry,
Therefore, we hold the trial court erred in granting summary judgment as to Riverwalk's breach of fiduciary duty claim alleging that Akin Gump intentionally withheld tendering the defense of the Auburn lawsuit to the insurance company, despite its knowledge of the existence of insurance coverage, in order to collect legal fees.
4. Excessive Fees
In its amended pleading, Riverwalk specifically alleged that some of the legal fees charged by and paid to Akin Gump were "almost double the hourly rates set forth in Riverwalk's only written fee agreement with Akin Gump, and were excessive and unreasonable." Riverwalk also alleged that "Akin Gump grossly overworked this file, and that its fees were unreasonable." Riverwalk further alleged, "Akin Gump charged Riverwalk excessive fees, billed Plaintiff for work that was not necessary, [and] provided legal services in a manner intended to unnecessarily increase the scope of litigation and related activities to increase its billings...." Finally, Riverwalk asserted that it was alleging "a separate claim regarding the integrity of Akin Gump's billing practices."
In Sullivan v. Bickel & Brewer,
Akin Gump relies on the Austin court's holding in Beck v. Law Offices of Edwin J. (Ted) Terry, Jr., P.C.,
The Austin court disagreed that the mere fact that the attorneys "might have
We find the Beck opinion to be distinguishable. In Beck, unlike in Sullivan, no allegation was made that the fees charged by the attorneys were excessive or that fees were charged for unnecessary services. In the instant case, Riverwalk's pleadings contain an allegation similar to Sullivan challenging the integrity of Akin Gump's billing practices. Therefore, we hold Riverwalk's allegations challenging the integrity of Akin Gump's billing practices can be brought as a separate breach of fiduciary duty claim.
4. Other Breach of Fiduciary Duty Allegations
With the exception of the two breach of fiduciary allegations previously addressed involving Akin Gump's intentional failure to tender Riverwalk's defense to the insurance carrier and Akin Gump's excessive billing, we have been unable to identify any other breach of fiduciary duty allegations that are not based on Akin Gump giving bad legal advice or otherwise improperly representing Riverwalk. Allegations that an attorney has given bad legal advice or otherwise improperly represented the client are encompassed within Riverwalk's negligence claim. See Aiken, 115 S.W.3d at 28; see also Murphy, 241 S.W.3d at 698 (allegations relating to improper legal advice regarding conflicts of interest between jointly represented clients relate to quality of representation and constitute a professional negligence claim). Accordingly, the trial court properly granted summary judgment as to the breach of fiduciary duty allegations with the exception of those allegations involving Akin Gump's intentional failure to tender the defense and its excessive billing.
B. Interrogatory Answer
Riverwalk also asserts that summary judgment was improper because Akin Gump attached an interrogatory answer to its motion as evidence which Riverwalk amended before the hearing. First, as previously noted, the issue of whether Riverwalk impermissibly fractured its negligence claim is a question of law based on the pleadings, not based on any evidence attached to Akin Gump's motion. Murphy, 241 S.W.3d at 692. Second, Akin Gump accurately responds that Riverwalk did not object to the evidence, so any objection was waived. Accordingly, this issue is overruled.
The trial court's judgment is reversed as to Riverwalk's negligence claim and its breach of fiduciary duty claim alleging that Akin Gump: (1) intentionally withheld tendering the defense of the Auburn lawsuit to the insurance carrier; and (2) overworked the file and charged excessive fees, and
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