David Gillespie and Michael O'Brien v. A.L. Hernden and Frederick R. Zlotucha

Fourth Court of Appeals
San Antonio, Texas
OPINION
No. 04-15-00405-CV
David GILLESPIE and Michael O’Brien,
Appellants
v.
A.L. HERNDEN and Frederick R. Zlotucha,
Appellees
From the 408th Judicial District Court, Bexar County, Texas
Trial Court No. 2013-CI-10278
Honorable Cathleen M. Stryker, Judge Presiding 1
Opinion by: Patricia O. Alvarez, Justice
Sitting: Karen Angelini, Justice
Marialyn Barnard, Justice
Patricia O. Alvarez, Justice
Delivered and Filed: December 14, 2016
AFFIRMED
This appeal involves a dispute between two clients and their two attorneys over a written
contingent fee contract and an oral fee-sharing agreement in an oil and gas case. In that case, the
attorneys obtained a settlement for the clients. Then, the clients sued the attorneys; the clients
argued the contingent fee contract was unconscionable and the attorneys should forfeit their fees.
1
The Honorable Larry Noll is the presiding judge of the 408th Judicial District Court. The Honorable Cathleen M.
Stryker, presiding judge of the 224th Judicial District Court, signed the final judgment.
04-15-00405-CV
The trial court denied the clients’ traditional motion for summary judgment and granted the
attorneys’ no-evidence and traditional motions. The clients appeal.
Because the clients did not meet their traditional motion’s burden or provide any competent
evidence in response to the attorneys’ no-evidence motion, we affirm the trial court’s order.
BACKGROUND
The two clients, David Gillespie and Michael O’Brien, signed a contingent fee contract
(CFC) with attorney A.L. Hernden, but not with attorney Frederick R. Zlotucha, to handle an oil
and gas lease dispute. The written CFC specified that Hernden’s fee would be 50% of any recovery
and the clients would pay all costs from their portion of any recovery. After the oil and gas case
began, Hernden asked Zlotucha to help him with the case, and Hernden informed the clients that
Zlotucha would be working on their case. The clients agreed to Zlotucha’s assistance, and they
met with Zlotucha a number of times including accompanying him as he represented them in court
proceedings.
After some discovery, the oil and gas dispute parties mediated and reached a settlement
agreement. The oil and gas defendant agreed to pay the clients $40,000.00 and give them a 1%
overriding royalty interest (ORRI) in an oil and gas lease. Subsequently, Zlotucha drafted a
settlement disbursement agreement which the clients and the attorneys signed. The agreement
deducted case expenses of $9,538.22 from the $40,000.00 which left a $30,461.78 remainder. The
remainder was divided into four equal amounts, and the two clients and the two attorneys each
received $7,615.44. The agreement also equally divided the 1% ORRI into four shares with
Gillespie, O’Brien, Hernden, and Zlotucha each receiving a 0.25% ORRI.
Thereafter, the clients sued the attorneys for fraud, breach of contract, breach of fiduciary
duty, barratry, and violations of the Deceptive Trade Practices Act. The clients contended that the
attorneys violated rules 1.04 and 1.08 of the Texas Disciplinary Rules of Professional Conduct,
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and those violations made the CFC unconscionable and the oral fee-sharing agreement
unenforceable. See, e.g., TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(f), reprinted in TEX.
GOV’T CODE ANN., tit. 2, subtit. G, app. A (West 2013) (Tex. State Bar R. art. X, § 9).
After some discovery, the clients moved for partial summary judgment on breach of
fiduciary duty by both Hernden and Zlotucha. The clients argued the CFC is unconscionable and
violates Hernden’s fiduciary duties to the clients by acquiring a proprietary interest in the cause of
action, entering into a business transaction with the clients without complying with Disciplinary
Rule 1.08(a), and charging an unreasonable fee. See id. Rs. 1.04, 1.08. The clients also argued
that Zlotucha breached his fiduciary duties by collecting a contingent fee without a CFC or a
written fee-sharing agreement, charging an unreasonable fee, and receiving benefits under an
unconscionable CFC. See id. R. 1.04(f). The trial court denied the clients’ motion.
Subsequently, the attorneys filed traditional and no-evidence motions for summary
judgment. In their no-evidence motion, the attorneys specifically identified each of the clients’
claims and asserted there was no evidence of one or more of the elements for each claim. In their
traditional motion, the attorneys argued the summary judgment evidence conclusively disproves
at least one essential element of each of the clients’ claims.
In response to the clients’ motion for reconsideration of their motion for partial summary
judgment, the trial court reconsidered the clients’ motion and again denied it. The trial court
granted the attorneys’ traditional and no-evidence motions.
On appeal, the clients raise two issues: (1) the trial court erred by denying the clients’
motion for partial summary judgment and (2) the trial court erred in granting the attorneys’ motions
for summary judgment and rendering a take-nothing judgment against the clients.
We begin by reciting the applicable standards of review.
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STANDARDS OF REVIEW
To prevail on a traditional motion for summary judgment, a plaintiff movant must show
“there is no genuine issue as to any material fact and the [movant] is entitled to judgment as a
matter of law.” See TEX. R. CIV. P. 166a(c); accord Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d
546, 548 (Tex. 1985). We take the evidence favoring the nonmovant as true and make every
reasonable inference and resolve any doubts in the nonmovant’s favor. Nixon, 690 S.W.2d at 548–
49.
A defendant moving for traditional summary judgment must conclusively disprove at least
one essential element of each of the plaintiff’s claims. Elliott-Williams Co. v. Diaz, 9 S.W.3d 801,
803 (Tex. 1999); Doe v. Boys Clubs of Greater Dall., Inc., 907 S.W.2d 472, 476–77 (Tex. 1995).
A defendant’s motion asserting there is no evidence of one or more elements of a plaintiff’s claims
must identify the challenged elements. See TEX. R. CIV. P. 166a(i); N. Tex. Mun. Water Dist. v.
Ball, 466 S.W.3d 314, 320 (Tex. App.—Dallas 2015, no pet.) (quoting Jose Fuentes Co., Inc. v.
Alfaro, 418 S.W.3d 280, 283 (Tex. App.—Dallas 2013, pet. denied) (en banc)).
We review a no-evidence summary judgment using a legal sufficiency standard. King
Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750–51 (Tex. 2003). “We review the evidence
presented by the motion and response in the light most favorable to the party against whom the
summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors
could, and disregarding contrary evidence unless reasonable jurors could not.” Mack Trucks, Inc.
v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006) (citing City of Keller v. Wilson, 168 S.W.3d 802, 827
(Tex. 2005)). If there is no evidence of one or more essential elements of a claim, we need not
examine the summary judgment evidence under the traditional standard. See Ford Motor Co. v.
Ridgway, 135 S.W.3d 598, 600 (Tex. 2004); BP Am. Prod. Co. v. Zaffirini, 419 S.W.3d 485, 509
(Tex. App.—San Antonio 2013, pet. denied).
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“Whether reviewing a traditional or a no-evidence summary judgment, we accept the non-
movant’s evidence as true and ‘indulge every reasonable inference and resolve any doubts in the
non-movant’s favor.’” Strandberg v. Spectrum Office Bldg., 293 S.W.3d 736, 738 (Tex. App.—
San Antonio 2009, no pet.) (quoting Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 157
(Tex. 2004)).
CIVIL LIABILITY AND THE DISCIPLINARY RULES OF PROFESSIONAL CONDUCT
The clients argue courts may consider Disciplinary Rules violations to determine that a
CFC is unconscionable, and an attorney who enters into an unconscionable CFC breaches his
fiduciary duty to the client. We briefly address the law for civil liability as it is affected by the
Disciplinary Rules.
The preamble to the Disciplinary Rules addresses how the Rules relate to civil liability for
lawyers:
These rules do not undertake to define standards of civil liability of lawyers for
professional conduct. Violation of a rule does not give rise to a private cause of
action nor does it create any presumption that a legal duty to a client has been
breached. . . . Accordingly, nothing in the rules should be deemed to augment any
substantive legal duty of lawyers or the extra-disciplinary consequences of
violating such a duty.
TEX. DISCIPLINARY RULES OF PROF’L CONDUCT pmbl.; accord Royston, Rayzor, Vickery, &
Williams, LLP v. Lopez, 467 S.W.3d 494, 503 (Tex. 2015) (“The Disciplinary Rules are not
binding as to substantive law regarding attorneys, although they inform that law.”); Joe, 145
S.W.3d at 158 n.2 (“[W]e note that the Rules do not define standards of civil liability of lawyers
for professional conduct.”).
Although the Rules “do not define standards of civil liability of lawyers,” the Texas
Supreme Court and our sister courts have looked to the Rules for guidance in determining whether
a specific situation violated the public policies—the client protections—embodied in the Rules.
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See Royston, Rayzor, Vickery, & Williams, LLP, 467 S.W.3d at 503 (“[P]ublic policy . . . may be
informed by the Disciplinary Rules.”).
The Texas Supreme Court considered the client protections incorporated in Rule 1.15 to
determine that a provision in a contingent fee contract was unconscionable as a matter of law. See
Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 563 (Tex. 2006) (concluding the law firm’s
contingent fee contract’s “termination fee provision violates public policy and is unconscionable
as a matter of law”). It also applied the requirements in Rules 1.04 and 1.08 to determine additional
reasons that a fee agreement provision was unenforceable. Id. at 563–64 (noting in a footnote that
the disciplinary rules “are persuasive authority outside the context of disciplinary proceedings, and
we have applied Rule 1.04 as a rule of decision in disputes concerning attorney’s fees”).
The Austin Court of Appeals has looked to the policies embedded in the Rules when
deciding whether CFCs were enforceable. In Enochs v. Brown and Garza v. Gray & Becker, P.C.,
the Austin court recognized the Government Code and the Rules require a CFC to be written and
signed by the attorney and the client. See Enochs v. Brown, 872 S.W.2d 312, 317–19 (Tex. App.—
Austin 1994, no writ), disapproved of on other grounds by Roberts v. Williamson, 111 S.W.3d 113(Tex. 2003); Garza v. Gray & Becker, P.C., No. 03-02-00136-CV, 2002 WL 31769034, at *8
(Tex. App.—Austin Dec. 12, 2002, pet. denied) (mem. op.). But the Austin court likened the lack
of a written, signed agreement to a statute of frauds question; it applied a quasi-estoppel theory
and enforced CFCs that did not fully comply with Rule 1.04’s and Texas Government Code section
82.065’s writing requirements. See TEX. GOV’T CODE ANN. § 82.065 (West Supp. 2016); Enochs,
872 S.W.2d at 319; Garza, 2002 WL 31769034, at *8. And in In re Estate of Arizola, this court
relied on Enochs. In re Estate of Arizola, 401 S.W.3d 664, 671–72 (Tex. App.—San Antonio
2013, pet. denied).
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The Houston First and Dallas Courts of Appeals have also recognized that a client may
avoid the enforcement of a CFC if the client instructs the attorney to stop work before the attorney
has fully or substantially performed under the contract. See Cobb v. Stern, Miller & Higdon, 305
S.W.3d 36, 42 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (“A client may void a contingent
fee contract that violates section 82.065 by expressing his intent to do so before the attorney has
fully or substantially performed.” (emphasis added)); Tillery & Tillery v. Zurich Ins. Co., 54
S.W.3d 356, 359 (Tex. App.—Dallas 2001, pet. denied) (same).
In sum, the Rules do not create standards of civil liability for attorneys, but courts may
examine the Rules to discern the policies and protections embodied in them as an aid in deciding
questions of attorney civil liability. See TEX. DISCIPLINARY RULES OF PROF’L CONDUCT pmbl.;
Hoover Slovacek, 206 S.W.3d at 563; Enochs, 872 S.W.2d at 317–19; see also Estate of Arizola,
401 S.W.3d at 671–72.
CONTINGENT FEE CONTRACT
Before we address the questions pertaining to the attorneys’ civil liability, we first present
the contingent fee contracts that lie at the heart of this appeal. It is undisputed that each client
signed a CFC with Hernden. The CFCs, for purposes of this appeal, are identical; in this section,
we will refer to Gillespie’s and O’Brien’s CFCs in the singular: the CFC and the client.
The CFC is a two-page, triple-spaced document. The document consists of two paragraphs:
the first identifies the oil and gas dispute as the claim for which Hernden will represent the client,
and the second contains the complained of terms. The second paragraph is recited in its entirety:
THIS IS THEREFORE TO EVIDENCE: That Client does hereby voluntarily
employ the LAW OFFICE OF A. L. HERNDEN, hereinafter called Attorney, to
represent Client in the prosecution and adjustment of said claim, cause of action,
and in consideration of such services rendered and to be rendered Client hereby
sells, transfers and assigns to the said attorney a FIFTY PER CENT (50%) interest,
in and to this matter, claim, and any property obtained through such demand, and/or
case, and any compromise, settlements, judgment, or recovery of any sort
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whatsoever and howsoever acquired relating thereto, that Client may recover or be
entitled to by reason of said matter, claim, demand, and/or case. No settlement or
compromise to be made without Client’s approval and Client agrees not to make
any settlement or compromise without the written approval and consent of
Attorney. Any expenses incurred by Attorney in this matter shall be deducted from
the client[’]s portion of the entire recovery, only in the event of any recovery.
Expenses which attorney may expend or become liable for in the assertion of this
matter and/or claim, including but not limited to, all costs of Court, depositions,
interrogatories, investigation, photographs, expert and lay witnesses, and case
related expenses. If no recovery is made client will not owe any expenses.
We turn now to the clients’ first issue—whether the trial court erred when it denied the
clients’ traditional motion.
CLIENTS’ TRADITIONAL MOTION
The clients moved for summary judgment on their requested declarations that Hernden
breached his fiduciary duty to the clients by entering into a CFC that was unconscionable. The
clients’ burden was to prove unconscionability as a matter of law. See Nixon, 690 S.W.2d at 548.
If the summary judgment evidence raised a genuine issue of material fact, the clients were not
entitled to judgment. See id.
A. Clients’ Complaints of Unconscionable CFC
The clients complain the CFC is unconscionable because the fee is unreasonable and the
CFC allows Hernden to recover more than the clients.
1. Unreasonable Fee
The clients argue the summary judgment evidence proves as a matter of law that the CFC
is unconscionable as to Hernden because no competent lawyer could believe the fee Hernden
obtained was reasonable and, by entering into that CFC, Hernden violated his fiduciary duties to
the clients.
In a deposition, Hernden acknowledged he had already received approximately $225,000
under the 0.25% ORRI he received as part of his fee, and he had worked approximately 100 hours
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on the case. But the summary judgment evidence also included expert witness affidavits averring
that a 50% contingency fee was reasonable under the circumstances including a common practice
of a 50% fee, a difficult case, an uncertain legal result, and an uncertain value of any settlement.
Taking the attorneys’ expert witness affidavits as true, we conclude they directly contradict
the clients’ assertions that the CFC was unconscionable due to an unreasonable fee, and we
necessarily conclude the affidavits raise genuine issues of material fact. See id. at 548–49.
2. Attorney’s Fee Exceeds Clients’ Recovery
The clients also argue the CFC is unconscionable as a matter of law because the CFC gives
Hernden a greater fee than the clients’ recovery. The CFC allows Hernden to recover a greater
amount than the clients because it deducts expenses from the clients’ portion of any recovery, but
the disbursement statement conclusively proves the expenses were shared equally by the clients
and Hernden. The Disbursement and Settlement Statement, included in the clients’ traditional
motion for partial summary judgment, states the cash recovery was $40,000.00, and expenses were
$9,538.22. The expenses were deducted from the gross cash recovery leaving a balance of
$30,461.78. Hernden’s fee (50% of $30,461.78 = $15,230.89) was deducted from the balance,
and the remaining cash recovery ($15,230.89) was divided essentially equally between Gillespie
and O’Brien. Gillespie received $7,615.45, and O’Brien received one penny less: $7,615.44. The
clients’ summary judgment evidence also conclusively proves the 1.0% ORRI was split equally
among the clients and the attorneys, with each receiving an ORRI of 0.25%.
Because the summary judgment evidence disproves as a matter of law the very facts the
clients had the burden to prove as a matter of law, the clients were not entitled to summary
judgment on the requested declaration that the CFC was unconscionable based on an unreasonable
fee or a recovery greater than the clients’ recovery, or that Hernden breached his fiduciary duty to
the clients on those bases. See TEX. R. CIV. P. 166a(c); Nixon, 690 S.W.2d at 548–49.
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B. Proprietary Interest; Self-Dealing, Improper Benefit; Business Transaction
The clients contend the summary judgment evidence proves as a matter of law that Hernden
violated aspects of Rules 1.04 and 1.08.
1. Proprietary Interest
First, they argue Hernden created an irreconcilable conflict of interest by taking an
impermissible proprietary interest in the cause of action. See TEX. DISCIPLINARY RULES PROF’L
CONDUCT R. 1.08(h) (“A lawyer shall not acquire a proprietary interest in the cause of action or
subject matter of litigation the lawyer is conducting for a client, except that the lawyer may . . .
contract in a civil case with a client for a contingent fee that is permissible under Rule 1.04.”).
A lawyer may not “acquire a proprietary interest in the cause of action or subject matter of
litigation” except in a civil case where the lawyer uses a CFC that complies with Rule 1.04. See
id.; In re Slusser, 136 S.W.3d 245, 249 (Tex. App.—San Antonio 2004, no pet.) (allowing an
attorney “to acquire a lien on the property to secure his contingent fee”).
The summary judgment evidence conclusively proves that Gillespie and O’Brien each
signed a written CFC with Hernden. See TEX. GOV’T CODE ANN. § 82.065 (West Supp. 2016) (“A
contingent fee contract for legal services must be in writing and signed by the attorney and
client.”); In re Polybutylene Plumbing Litig., 23 S.W.3d 428, 436 (Tex. App.—Houston [1st Dist.]
2000, pet. dism’d). The CFC states the fee the client owes Hernden in the event of a recovery:
[I]n consideration of such [legal] services rendered and to be rendered Client hereby
sells, transfers and assigns to [Hernden] a FIFTY PER CENT (50%) interest, in and
to this matter, claim, and any property obtained through such demand, and/or case,
and any compromise, settlements, judgment, or recovery of any sort whatsoever
and howsoever acquired relating thereto, that Client may recover or be entitled to
by reason of said matter, claim, demand, and/or case.
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The summary judgment evidence also conclusively proves the CFC provides for a contingent fee
of 50% in “any property obtained” in a recovery. The remaining question on whether Hernden
took an impermissible proprietary interest is whether the CFC is permissible under Rule 1.04.
2. Self-Dealing, Improper Benefit
Rule 1.04(d) provides guidance for a CFC; it states the following:
A fee may be contingent on the outcome of the matter for which the service is
rendered, except in a matter in which a contingent fee is prohibited by paragraph
(e) or other law. A contingent fee agreement shall be in writing and shall state the
method by which the fee is to be determined. If there is to be a differentiation in
the percentage or percentages that shall accrue to the lawyer in the event of
settlement, trial or appeal, the percentage for each shall be stated. The agreement
shall state the litigation and other expenses to be deducted from the recovery, and
whether such expenses are to be deducted before or after the contingent fee is
calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide
the client with a written statement describing the outcome of the matter and, if there
is a recovery, showing the remittance to the client and the method of its
determination.
TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(d); see Hoover Slovacek LLP v. Walton, 206
S.W.3d 557, 563 (Tex. 2006). The summary judgment evidence conclusively proves the CFC was
in writing, and the CFC “state[d] the method by which the fee [was] to be determined.” See TEX.
DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(d). Further, the lawyers provided the clients with
a Disbursement and Settlement Statement. The written statement described the outcome of the
matter including the total amount of the cash settlement, the amount of expenses deducted from
the recovery, the adjusted cash amount paid to the clients, and the disposition of the 1.0% ORRI
included in the recovery. See id. The ORRI was allocated as one-half to the lawyers and one-half
to the clients; each client and each lawyer received a 0.25% ORRI.
The clients argue Hernden engaged in self-dealing and obtained an improper benefit
because he did not explain the potential value of the ORRI to the clients, and thus neither client
understood what he was giving up when he signed his CFC. But Rule 1.04(d)’s guidance only
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calls for the CFC to “state the method by which the fee is to be determined.” See id.; Celmer v.
McGarry, 412 S.W.3d 691, 700 (Tex. App.—Dallas 2013, pet. denied). The Rule’s plain language
does not require an attorney to explain the monetary value of a contingent fee, and the clients cite
no case law to support their assertion to the contrary.
Taking the summary judgment evidence favoring the attorneys as true and making every
reasonable inference in the attorneys’ favor, we conclude that the clients failed to prove as a matter
of law that the CFC and resultant disbursement were instances of self-dealing and bestowed an
improper benefit on Hernden. See TEX. R. CIV. P. 166a(c); Nixon, 690 S.W.2d at 548–49.
3. Business Transaction
The clients also argue they are entitled to judgment as a matter of law on their requested
declarations that the CFC is unconscionable and violates the fiduciary duties Hernden owed to the
clients because the CFC’s terms were not “fair and reasonable to the client,” Hernden did not
explain the value of the contingent fee, and Hernden did not advise the clients to seek the advice
of independent counsel before they signed the CFC. They claim the CFC and Hernden’s conduct
violated Rule 1.08(a). Rule 1.08(a) states the following:
A lawyer shall not enter into a business transaction with a client unless:
(1) the transaction and terms on which the lawyer acquires the interest
are fair and reasonable to the client and are fully disclosed in a manner
which can be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of
independent counsel in the transaction; and
(3) the client consents in writing thereto.
TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.08(a).
By its plain language, Rule 1.08(a) applies when a lawyer “enter[s] into a business
transaction with a client.” See id.; Rosas v. Comm’n for Lawyer Discipline, 335 S.W.3d 311, 316
(Tex. App.—San Antonio 2010, no pet.). But “the establishment of a lawyer-client relationship is
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not a ‘business transaction with a client’ within the meaning of Rule 1.08(a).” TEX. COMM. ON
PROF’L ETHICS, Op. 586, 72 TEX. B.J. 128, 128 (2009). When the clients executed the CFC with
Hernden, they contracted with him to provide legal services, see Rosas, 335 S.W.3d at 316 (“An
attorney-client relationship is a contractual relationship whereby an attorney agrees to render
professional services for a client.”), they did not enter into a business transaction with him, see
TEX. COMM. ON PROF’L ETHICS, Op. 586, 72 TEX. B.J. 128, 128 (2009).
There is no evidence that Hernden entered into any other business transaction with the
clients, and we conclude Rule 1.08(a) does not apply in this case. See id. Thus, the clients’
arguments that Hernden breached his fiduciary duty to them because the CFC’s terms were not
“fair and reasonable to the client,” Hernden did not explain the value of the contingent fee, and
Hernden did not advise the clients to seek the advice of independent counsel before they signed
the CFC are inapt. See TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.08(a); Rosas, 335 S.W.3d
at 316.
C. Zlotucha Fee Illegal, Unconscionable
The clients argue neither Hernden nor Zlotucha are entitled to attorney’s fees from the
clients’ settlement because the clients did not consent in writing to a fee-sharing agreement before
Zlotucha joined in the representation, the settlement disbursement agreement did not comply with
Rule 1.08, and Zlotucha had no written CFC with the clients as required by section 82.065 of the
Government Code.
1. No Written CFC with Zlotucha
Section 82.065 requires a contingent fee agreement to be in writing:
(a) A contingent fee contract for legal services must be in writing and signed by
the attorney and client.
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TEX. GOV’T CODE ANN. § 82.065(a); see Celmer, 412 S.W.3d at 700. Although the statute does
not state any consequence or remedy for failure to comply with its requirement, we may look to
case law for guidance.
In Enochs v. Brown and Garza v. Gray & Becker, P.C., the Austin Court of Appeals
recognized that section 82.065 and Rule 1.04(f) require a CFC to be written and signed by the
attorney and the client. See Enochs, 872 S.W.2d at 317–19; Garza, 2002 WL 31769034, at *8.
But the Austin court still enforced the CFCs that did not fully comply with the writing
requirements. It did so by likening the lack of a written, signed agreement to a statute of frauds
question; it applied a quasi-estoppel theory and enforced CFCs that did not fully comply with
section 82.065. See Enochs, 872 S.W.2d at 319; Garza, 2002 WL 31769034, at *8; see also Estate
of Arizola, 401 S.W.3d at 671–72 (relying on Enochs).
Here, the summary judgment evidence establishes the following:
• Gillespie and O’Brien signed CFCs with Hernden;
• Hernden told both clients Zlotucha would assist Hernden in representing the clients;
• both clients knew Zlotucha would share Hernden’s fee;
• Zlotucha met with the clients on numerous occasions, including appearing on their
behalf (with them present) in court proceedings;
• the clients never instructed Zlotucha to stop representing them; and
• the clients accepted the benefits Zlotucha helped obtain on their behalf.
See Enochs, 872 S.W.2d at 319 (refusing to void a contingent fee contract that the client signed
but the attorney did not after the attorney performed on the contract); Garza, 2002 WL 31769034,
at *8 (refusing to allow clients “to challenge the fee agreements only after they have accepted the
benefits of those agreements”).
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We conclude the clients received the protections the legislature intended clients to receive
under section 82.065. See TEX. GOV’T CODE ANN. § 82.065; Enochs, 872 S.W.2d at 319; Garza,
2002 WL 31769034, at *8; see also Estate of Arizola, 401 S.W.3d at 671–72 (relying on Enochs).
We turn now to the clients’ complaint that there was no signed fee-sharing agreement.
2. No Written Fee-Sharing Agreement
Rule 1.04(f) states requirements for how attorneys who are not in the same firm are to
divide a fee.
(f) A division or arrangement for division of a fee between lawyers who are not in
the same firm may be made only if:
(1) the division is:
(i) in proportion to the professional services performed by each lawyer; or
(ii) made between lawyers who assume joint responsibility for the
representation; and
(2) the client consents in writing to the terms of the arrangement prior to the
time of the association or referral proposed, including:
(i) the identity of all lawyers or law firms who will participate in the fee-
sharing agreement, and
(ii) whether fees will be divided based on the proportion of services
performed or by lawyers agreeing to assume joint responsibility for the
representation, and
(iii) the share of the fee that each lawyer or law firm will receive or, if the
division is based on the proportion of services performed, the basis on
which the division will be made; and
(3) the aggregate fee does not violate paragraph (a).
TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(f).
It is undisputed that the clients did not consent in writing to a fee-sharing agreement
concerning Zlotucha before Zlotucha began representing the clients. Contra id. (requiring the
client’s written consent to a fee sharing agreement); Johnson v. Brewer & Pritchard, P.C., 73
S.W.3d 193, 205 (Tex. 2002) (“A fee sharing agreement between lawyers who are not in the same
firm violates public policy and is unenforceable unless the client is advised of and consents to the
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sharing arrangement.”). But the undisputed evidence, including the clients’ own depositions,
proves the clients knew that Zlotucha would represent them, that Hernden would share his fee with
Zlotucha, and the clients agreed to the fee sharing. At a minimum, the summary judgment
evidence establishes that both attorneys maintained responsibility for the representation, the clients
knew the identity of all the lawyers who participated in the fee-sharing agreement, and the clients
knew, not later than when they signed the settlement disbursement agreement, what share of the
fee each lawyer received. See TEX. DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(f); Johnson,
73 S.W.3d at 205.
Having reviewed the summary judgment evidence, we conclude the clients received the
protections Rule 1.04(f) seeks to provide; we also conclude that the clients failed to prove as a
matter of law that the oral fee-sharing agreement was unconscionable. See Hoover Slovacek, 206
S.W.3d at 561; Enochs, 872 S.W.2d at 319 (enforcing a CFC that did not comply with Rule
1.04(f)’s and section 82.065’s writing requirements); Garza, 2002 WL 31769034, at *8.
D. Barratry
The clients also argue the attorneys engaged in barratry by “entering into the illegal fee-
sharing agreement.” The clients insist that because they did not have a written CFC or fee-sharing
agreement with Zlotucha, his representation of them constitutes barratry. 2 Penal Code section
38.12 proscribes barratry, and it was in effect at the relevant times. The clients argue the attorneys
committed violations under sections 38.12(a)(1), (b)(1), and (b)(2). These subsections read as
follows:
2
The clients argue the attorneys engaged in barratry under section 82.0651. See TEX. GOV’T CODE ANN. § 82.0651
(West Supp. 2016). The clients signed the CFCs in 2009; section 82.0651 became effective on September 1, 2011.
See Act of May 5, 2011, 82d Leg., R.S., ch. 94, § 4, 2011 Tex. Gen. Laws 534, 535 (amended 2013) (current version
at TEX. GOV’T CODE ANN. § 82.0651 (West Supp. 2016)). Section 82.0651 was not yet in effect when the clients
signed the CFCs or when Zlotucha began representing them. See Neese v. Lyon, 479 S.W.3d 368, 385 (Tex. App.—
Dallas 2015, no pet.). Therefore, section 82.0651 does not apply to the CFCs.
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(a) A person commits an offense if, with intent to obtain an economic benefit
the person:
(1) knowingly institutes a suit or claim that the person has not been
authorized to pursue;
...
(b) A person commits an offense if the person:
(1) knowingly finances the commission of an offense under Subsection (a);
(2) invests funds the person knows or believes are intended to further the
commission of an offense under Subsection (a) . . . .
TEX. PENAL CODE ANN. § 38.12 (West Supp. 2015).
It is undisputed and the summary judgment evidence conclusively proves that the clients
signed CFCs with Hernden. Their signatures authorized Hernden to institute a suit or claim on
their behalf. See id. § 38.12(a)(1). Further, with respect to the alleged illegal fee-sharing
agreement, Hernden averred that he asked Zlotucha to assist him with the case, and he told the
clients that Zlotucha would be brought into the case. See Johnson, 73 S.W.3d at 205 (“A fee
sharing agreement between lawyers who are not in the same firm violates public policy and is
unenforceable unless the client is advised of and consents to the sharing arrangement.” (emphasis
added)). In their depositions, the clients acknowledge they knew Zlotucha would assist Hernden
in handling the case, they willingly consented to Zlotucha’s participation in the suit, they attended
court proceedings with Zlotucha in which he represented them, and, until after the settlement
disbursement agreement was signed, they never instructed Zlotucha to stop representing them. See
id.
Taking the evidence favoring the attorneys as true, we conclude the clients failed to prove
as a matter of law that the attorneys “knowingly institute[d] a suit or claim that the [attorneys had]
not been authorized to pursue.” See TEX. PENAL CODE ANN. § 38.12; TEX. R. CIV. P. 166a(c);
Nixon, 690 S.W.2d at 548–49.
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Having reviewed the summary judgment evidence under the appropriate standard and the
law pertaining to each basis in the clients’ traditional motion, we conclude the clients failed to
prove as a matter of law that the CFC was unconscionable or that Hernden or Zlotucha breached
their fiduciary duties to the clients. See TEX. R. CIV. P. 166a(c); Nixon, 690 S.W.2d at 548–49.
Thus, the clients were not entitled to summary judgment on their declarations.
ATTORNEYS’ NO-EVIDENCE AND TRADITIONAL MOTIONS
We turn now to the attorneys’ motions for summary judgment. The attorneys filed no-
evidence and traditional motions against the clients’ claims of breach of fiduciary duty, fraud,
negligence, barratry, and DTPA violations. For each of the clients’ claims, we address the no-
evidence motion first. See Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004)
(recognizing that a no-evidence review should be conducted first); BP Am. Prod. Co. v. Zaffirini,
419 S.W.3d 485, 509 (Tex. App.—San Antonio 2013, pet. denied) (same).
A. Breach of Fiduciary Duty
The clients claim there is some evidence that the attorneys breached their fiduciary duty to
the clients by charging an unconscionable fee, “by failing to make full disclosure of material facts
to the [clients] regarding the requirements of a written employment contract and the settlement of
the case, by engaging in self-dealing, and by failing to account to the [clients].” The attorneys
allege there is no evidence that they breached their fiduciary duties to the clients. It is undisputed
that the clients signed CFCs with Hernden, and the CFCs were part of the summary judgment
evidence.
1. Unconscionable CFC
The clients argue there is some evidence of the attorneys’ alleged breach of fiduciary duty
because the CFC is unconscionable as a matter of law because the CFC gives Hernden a greater
fee than the clients’ recovery. But the disbursement statement conclusively proves the expenses
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were shared equally by the clients and the attorneys, and under the settlement disbursement
agreement, the attorneys did not and will not receive a fee greater than the clients’ recovery.
Nevertheless, the clients point to their expert witness’s opinion that “a 50% contingency fee was
excessive and unreasonable under the circumstances” as some evidence of an unconscionable
CFC.
Because the clients were the nonmovants for the attorneys’ no-evidence motion, we take
the clients’ evidence as true if it is competent evidence. See Ryland Grp., Inc. v. Hood, 924 S.W.2d
120, 122 (Tex. 1996); Nixon, 690 S.W.2d at 548–49. To be competent evidence, an expert’s
opinion must offer a factual basis that actually supports the opinion. See Hous. Unlimited, Inc.
Metal Processing v. Mel Acres Ranch, 443 S.W.3d 820, 829 (Tex. 2014). If the expert offers “little
more than his credentials and a subjective opinion,” see Merrell Dow Pharms., Inc. v. Havner, 953
S.W.2d 706, 712 (Tex. 1997), his opinion is not competent summary judgment evidence, see
Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 726 (Tex. 1998); see also City of
Keller, 168 S.W.3d at 813 (“[A]n appellate court conducting a no-evidence review cannot consider
only an expert’s bare opinion, but must also consider contrary evidence showing it has no scientific
basis.”).
Here, the clients’ expert opined that “50% contingency fee contracts are seen as the
absolute maximum allowed and are only rarely justified.” To support his opinion, he cited a
personal injury attorney’s article from an advanced personal injury continuing legal education
course. But the clients’ expert did not opine that such a fee was never justified or offer any
supporting evidence to show how a maximum contingent fee in a personal injury suit was
applicable to a CFC for an oil and gas case in general or to the clients’ oil and gas case in particular.
Contra Hous. Unlimited, 443 S.W.3d at 829 (requiring an expert opinion to provide a basis that
actually supports the expert’s conclusion). The expert did not provide a factual basis to show how
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he concluded that “this litigation was a fairly typical case,” or that the “evidence was fairly
straightforward.” Contra id. Instead, he merely stated that the case contained no “arcane
regulatory or public policy issues” or any “complex scientific or medical issues.”
The client’s expert stated what attributes the clients’ oil and gas case did not have, but that
opinion provides no basis to establish that any attributes the case actually has are not complex.
See Gammill, 972 S.W.2d at 726 (analytical gap). Further, the clients’ expert did not explain how
his conclusion—that a fee of greater than 50% was unreasonable—applied to the reasonableness
of the CFC’s 50% fee. See id.
For these reasons, we conclude there was too great an analytical gap between the evidence
and the expert’s opinion; the clients’ expert witness’s opinion on unconscionability of the CFC
and fee was not competent evidence. See id. Thus, there was no competent summary judgment
evidence that the fee was unconscionable. See City of Keller, 168 S.W.3d at 813.
2. Full Disclosure of Material Facts
The clients also claim there is some evidence of breach of fiduciary duty because the
attorneys did not advise the clients that the attorneys were obligated to have a written CFC and a
written fee-sharing agreement. The clients extrapolate from Chappell’s statement that a fiduciary
must “make a full and accurate confession of all his fiduciary activities, transactions, profits, and
mistakes” to require the attorneys to teach the clients about the Disciplinary Rules or law that
applied to the CFC or the fee-sharing agreement. See Jackson Law Office, P.C. v. Chappell, 37
S.W.3d 15, 22 (Tex. App.—Tyler 2000, pet. denied).
But Chappell’s attorney’s fee facts are readily distinguishable. In Chappell, the attorneys
had an hourly fee agreement with the client, but the attorneys “were vague about their fee
arrangement, and did not reduce the fee agreement to writing.” Id. The Chappell attorneys “failed
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to maintain billing records, failed to record services rendered, and failed to provide billing
statements to Chappell.” Id.Here, unlike Chappell, the CFC was written, signed by the clients, and expressly described
the fee arrangement; further, the disbursement statement clearly described the fee, the recovery,
and the apportioned distribution of the recovery. See id. Chappell requires attorneys to comply
with the applicable laws, but we conclude Chappell did not create any duty for the attorneys to
advise the clients about the Disciplinary Rules or Government Code sections that govern attorney-
client contingent fee contracts or fee-sharing agreements. In this case, the existence of signed,
written CFCs is undisputed, and the CFCs describe the scope of work and how the attorney’s fee
is determined. See TEX. GOV’T CODE ANN. § 82.065 (contingent fee contract requirements); TEX.
DISCIPLINARY RULES PROF’L CONDUCT R. 1.04(d) (same). The written settlement disbursement
agreement described and documented how the recovery was divided, including explaining the
moneys recovered and how they were disbursed. See TEX. DISCIPLINARY RULES PROF’L CONDUCT
R. 1.04(f) (fee-sharing agreement); Johnson, 73 S.W.3d at 205.
We conclude there is no evidence that the attorneys breached any duty to the clients to
disclose material facts. See City of Keller, 168 S.W.3d at 813.
3. Self-Dealing
The clients also argue there is some evidence the attorneys breached their fiduciary duties
to the clients because the lawyers engaged in self-dealing in the settlement of the clients’ oil and
gas case. The clients contend the CFCs were self-dealing because the CFCs allow the attorney to
deduct case expenses from the clients’ share of any recovery. But the settlement disbursement
statement conclusively proves the case expenses were shared equally by the clients and the
attorneys. Further, bare allegations of misconduct without any supporting evidence are merely
conclusory statements and are not competent evidence. See Mar. Overseas Corp. v. Ellis, 971
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S.W.2d 402, 421 (Tex. 1998) (“[B]are conclusions and assertions unsupported by facts of record
. . . are no evidence to support a finding of fact.”); Dolcefino v. Randolph, 19 S.W.3d 906, 918
(Tex. App.—Houston [14th Dist.] 2000, pet. denied) (noting “a conclusory statement is no
evidence”).
We conclude there is no evidence that the attorneys engaged in self-dealing as a result of
the fee specified in the CFC. See City of Keller, 168 S.W.3d at 813.
Given the clients’ asserted bases for their claims of breach of fiduciary duty against the
attorneys, and having reviewed the evidence in the light most favorable to the clients, we
nevertheless conclude there was no evidence that the attorneys breached their fiduciary duties to
the clients. See id.
B. Fraud
In their fraud claims, the clients allege there is some evidence that the attorneys committed
common law fraud by representing that the CFC and settlement disbursement statement were valid
and enforceable agreements.
Two of the essential elements of a common-law fraud claim are “(1) that a material
representation was made [and] (2) that it was false . . . .” T.O. Stanley Boot Co. v. Bank of El Paso,
847 S.W.2d 218, 222 (Tex. 1992); accord Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51
S.W.3d 573, 577 (Tex. 2001).
The attorneys argue there is no evidence (1) that they made any materially false
representation to the clients or (2) that either the CFC or settlement disbursement statements were
not valid, enforceable contracts. It is undisputed that Hernden offered the CFCs to the clients and
the clients signed them, both clients signed the Disbursement and Settlement Statement, and both
Gillespie and O’Brien received benefits under the statement.
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We already addressed the clients’ complaints about the agreements’ writing deficiencies
under Rule 1.04(d) and section 82.065, and determined that the agreements were enforceable.
Construing these unambiguous documents as a matter of law, we again conclude the CFCs and the
disbursement agreement were valid, enforceable agreements. Thus, there is no evidence that the
attorneys made any materially false representation to the clients when they offered the CFCs and
the disbursement agreements as valid, enforceable contracts. See City of Keller, 168 S.W.3d at
813.
C. Negligence, Legal Malpractice
In their fifth amended petition, the clients claim the attorneys “negligently advised [clients]
to settle [the clients’] claims for sums far below their worth since they failed in their duty to
appraise and determine the value of [the clients’] claims” in the oil and gas dispute. However, in
their brief the clients state they “withdrew the legal malpractice and negligence claims,” and
neither negligence nor legal malpractice was briefed. See TEX. R. APP. P. 38.1(i) (requiring
adequate briefing); In re Blankenship, 392 S.W.3d 249, 259 (Tex. App.—San Antonio 2012, no
pet.) (same). We conclude the clients waived any appellate review of any claim for legal
malpractice or negligence.
D. Barratry
The clients argue there is some evidence of barratry because Government Code section
82.0651 was in effect when the allegedly illegal fee-sharing agreement was executed, and section
82.0651 allows them to void the fee-sharing agreement and settlement disbursement agreement.
See TEX. GOV’T CODE ANN. § 82.0651. We disagree.
Section 82.0651 allows a client to “bring an action to void a contract for legal services that
was procured as a result of conduct violating Section 38.12(a).” See TEX. GOV’T CODE ANN.
§ 82.0651; Neese v. Lyon, 479 S.W.3d 368, 385 (Tex. App.—Dallas 2015, no pet.). Here, it is
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undisputed that the CFCs were signed before section 82.0651 was in effect and we have already
concluded section 82.0651 does not apply to the CFCs. See TEX. GOV’T CODE ANN. § 82.0651;
Neese, 479 S.W.3d at 385.
The clients also argue that section 82.0651 applies to the settlement disbursement
agreement, but we conclude it does not. The disbursement agreement was not a contract to procure
legal services; it was a statement describing how the recovery proceeds would be distributed and
an agreement to those terms. See Neese, 479 S.W.3d at 386 (concluding a settlement agreement
was not a contract for legal services).
We conclude section 82.0651 does not apply to the fee-sharing agreement or the settlement
disbursement agreement. See id. We further conclude there is no evidence that the attorneys
“knowingly institute[d] a suit or claim that the [attorneys had] not been authorized to pursue.” See
TEX. PENAL CODE ANN. § 38.12 (barratry); TEX. GOV’T CODE ANN. § 82.0651 (civil liability for
barratry).
E. DTPA Violations
The clients also claim there is some evidence that the attorneys violated multiple sections
of the DTPA because the CFC was unconscionable, and the attorneys did not explain to the clients
the value of the interest, did not advise the clients to seek independent legal advice before signing
the CFC, and did not explain the applicable Disciplinary Rules required the clients’ written consent
for a fee-sharing agreement. We have already addressed each of these points and concluded there
was no evidence of at least one essential element of each overlying claim.
F. Traditional Motion
After reviewing all the evidence pertaining to each of the clients’ claims in the light most
favorable to the clients, we have nevertheless determined the clients failed to produce any
competent evidence of at least one essential element of each of their claims. See Mack Trucks,
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Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006) (citing City of Keller, 168 S.W.3d at 827).
Therefore, we need not examine the summary judgment evidence under the traditional standard.
See Ford Motor Co., 135 S.W.3d at 600; BP Am. Prod. Co., 419 S.W.3d at 509.
CONCLUSION
In reviewing the clients’ motion for partial summary judgment as a matter of law, we
examined the summary judgment evidence in the light most favorable to the attorneys. We
conclude the clients failed to meet their burden to prove as a matter of law that the CFCs or
Disbursement Settlement Statement agreement were unconscionable or that the attorneys breached
their fiduciary duties to the clients. Thus, the trial court did not err when it denied the clients’
motion for summary judgment as a matter of law.
In reviewing the attorneys’ no-evidence motion for summary judgment, we examined the
evidence in the light most favorable to the clients. We conclude the clients failed to produce any
evidence of at least one essential element of each of their claims.
Because the clients did not meet their traditional motion’s burden or provide any competent
evidence on at least one essential element of each of their claims in response to the attorneys’ no-
evidence motion, we affirm the trial court’s order.
Patricia O. Alvarez, Justice
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