in Re Anchor, Inc.

Petition for Writ of Mandamus Conditionally Granted and Majority and Dissenting Opinions filed September 27, 2002

Petition for Writ of Mandamus Conditionally Granted and Majority and Dissenting Opinions filed September 27, 2002.

In The

Fourteenth Court of Appeals

____________

NO. 14-02-00760-CV

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IN RE ANCHOR, INC., Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

M A J O R I T Y  O P I N I O N

In this original proceeding, relator, Anchor, Inc. (AAnchor@), seeks a writ of mandamus ordering the trial court to vacate its order of April 18, 2002, which ordered that Anchor=s counsel, Michael Donovan, be disqualified from representing Anchor. We conditionally grant the writ.

FACTUAL AND PROCEDURAL HISTORY: 

Anchor was working on a construction project for the Diocese of GalvestonBHouston (Athe Diocese@) at St. Raphael=s Catholic Church.  In March of 1999, Anchor entered into a subcontract with Wood Electrical Services, Inc. (AWood@). Wood contracted to perform electrical services on the project as Anchor=s subcontractor.  A controversy arose between Anchor and Wood.  Anchor contended Wood was liable for non-performance and defective performance of the electrical work it subcontracted to perform.  Anchor alleged breach of contract, negligence, and violations of the DTPA.  Wood countered that Anchor was liable for breach of contract or unjust enrichment for non-payment. 

On June 27, 2000, Anchor and Wood entered into a written agreement by which they agreed to arbitrate any and all disputes relating to and arising under the original contract. In September of 2001, arbitration proceedings were conducted and the next month an award was made.  A corrected award was entered soon thereafter in which Wood was awarded $41,741.39 plus pre- and post-judgment interest.  Wood then filed suit seeking to have the award confirmed.  Anchor filed a counterclaim against Wood seeking to have the award vacated or, alternatively, modified on the grounds that the award was tainted by Avarious improprieties and misconduct on the part of the arbitrator.@  Wood subsequently moved to have Anchor=s counsel, Michael Donovan, disqualified from representing Anchor.  Donovan has represented Anchor in this suit since its inception, and has been Anchor=s general counsel for several years.  Anchor naturally opposed the motion.  After an oral hearing, the trial court entered an order on April 18, 2002, disqualifying Donovan from representing Anchor.  Anchor then filed this petition for writ of mandamus. 

STANDARD OF REVIEW: 

Mandamus is an extraordinary remedy available only in limited circumstances.  In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001). A court should issue mandamus only to correct a clear abuse of discretion or the violation of a legal duty when there is no other adequate remedy at law.  Id.; In re Daisy Mfg. Co., 17 S.W.3d 654, 658 (Tex. 2000).         Mandamus has long been accepted as an appropriate method to review alleged improper disqualification of counsel.  E.g., National Medical Enterp., Inc. v. Godbey, 924 S.W.2d 123, 133 (Tex. 1996) (orig. proceeding); Schwartz v. Jefferson, 930 S.W.2d 957, 959 (Tex. App.CHouston [14th Dist.] 1996, orig. proceeding).  The courts have held mandamus relief is available because disqualification is a severe remedy resulting in an immediate and palpable harm that disrupts the trial court proceedings and deprives a party of the right to have counsel of choice.  Schwartz, 930 S.W.2d at 959.  Thus, because there is no adequate remedy by appeal, mandamus is available in this case. The only remaining issue is whether the trial court clearly abused its disqualifying Anchor=s counsel. 

A trial court clearly abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.  Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992).  When the trial court=s decision rests on the resolution of factual issues or matters committed to the court=s discretion, A[t]he relator must establish that the trial court could reasonably have reached only one decision.@ In re Rangel, 45 S.W.3d 783, 786 (Tex. App.CWaco 2001, orig. proceeding) (quoting Walker, 827 S.W.2d at 839-40). This burden is a heavy one. Canadian Helicopters, 876 S.W.2d at 305.  If the trial court has held an evidentiary hearing and has resolved disputed issues of fact, we may not substitute our judgment on the facts for that of the trial court.  Dallas Morning News v. Fifth Court of Appeals, 842 S.W.2d 655, 660 (Tex. 1992); Rangel, 45 S.W.3d at 786 (citing Walker, 827 S.W.2d at 839). In other words, an appellate court may not deal with disputed matters of fact in an original mandamus proceeding. Hooks v. Fourth Court of Appeals, 808 S.W.2d 56, 60 (Tex. 1991); Brady v. Fourteenth Court of Appeals, 795 S.W.2d 712, 714 (Tex. 1990); Shell Oil Co. v. Smith, 814 S.W.2d 237, 241 (Tex. App.CHouston [14th Dist.] 1991, orig. proceeding). 

Our review is much less deferential with respect to a trial court=s determination of the legal principles controlling its ruling because a trial court has no discretion in determining what the law is or in applying the law to the facts.  Walker, 827 S.W.2d at 840.  Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion and may result in mandamus.

RELATOR=S ARGUMENTS: 

Anchor argues Wood completely failed to provide the proof necessary to disqualify its counsel. Moreover, it contends the trial court failed to apply the proper standard and legal test in determining the motion to disqualify.  Specifically, Anchor contends, among other things, that Wood failed to demonstrate any prejudice it would suffer if Donovan were allowed to continue; rather, Wood=s only suggestion of prejudice related to that which Anchor might suffer if Donovan were called as a witness, which is not the proper showing.

REAL PARTY IN INTEREST=S RESPONSE: 

In response, Wood argues the disqualification is proper because Donovan voluntarily filed an affidavit in response to a special appearance filed by the National Arbitration Forum (Athe Forum@), named by Anchor as a third-party defendant for alleged wrongful acts the Forum performed in administering the arbitration.  In his affidavit, Donovan averred that the Forum made several misrepresentations to him through its Code, advertisements, web-sites, conversations, and other communications.  The misrepresentations included the amount of fees the Forum would charge and the qualifications of its arbitrators.  According to Wood, in seeking to vacate the arbitration award and in its third-party claim against the Forum, Anchor alleges the arbitrator provided by the Forum acted unlawfully, that his actions were governed by the Forum=s Code, which he violated, and that the Forum failed to comply with its own Code and over charged Anchor.  According to Wood, these allegations are based on Donovan=s affidavit in which he testified regarding representations the forum made to him.  Wood contends that based on this affidavit, the trial court could have determined that it should disqualify Donovan because he may be a witness necessary to establish an essential fact on behalf of Anchor.  In conclusion, Wood points out that there was no evidence submitted by Anchor that it had consented to Donovan=s representation after full disclosure pursuant to rule 3.08(b).  Wood wholly fails to address the argument that it failed to establish any prejudice it would suffer if Donovan were called as a witness. 

ANALYSIS:  

Disqualification is a severe remedy.  In re Users Sys. Servs., Inc., 22 S.W.2d 331, 337 (Tex. 1999) (citing Spears v. Fourth Court of Appeals, 797 S.W.2d 654, 656 (Tex. 1990); NCNB Tex. Nat=l Bank v. Coker, 765 S.W.2d 398, 400 (Tex. 1989)); In re Bahn, 13 S.W.3d 865, 873 (Tex. App.CFort Worth 2000, orig. proceeding).  Accordingly, the courts must adhere to an exacting standard when considering motions to disqualify so as to discourage their use as a dilatory trial tactic.  Id.  In order to prevent such misuse of the rule, the trial court should require the party seeking disqualification to demonstrate actual prejudice to itself resulting from the opposing lawyer=s service in the dual roles. Ayres v. Canales, 790 S.W.2d 554, 558 (Tex. 1990) (citing Tex. Disciplinary R. Prof=l Conduct 3.08, reprinted in Tex. Gov=t Code Ann., tit. 2, subtit. G app. A (Vernon Supp. 2002) (Tex. State Bar. R. art. X, ' 9)); Bahn, 13 S.W.3d at 873; In re A.M., 974 S.W.2d 857, 864 (Tex. App.CSan Antonio 1998, no pet.); see also House v. State, 947 S.W.2d 251, 253 ((Tex. Crim. App. 1997) (applying actual prejudice in context of criminal case); Gonzalez v. State, 63 S.W.2d 865, 876 (Tex. App.CHouston [14th Dist.] 2001, no pet.) (same) (emphasis added).

In this case, Wood failed to allege, much less prove, it would suffer actual prejudice as a result of Donovan testifying as a witness.  In its motion to disqualify, Wood merely alleged that certain testimony by Donovan would be Aadverse to Anchor.@  At the hearing, Wood argued that it would call Donovan as a witness and his testimony would be adverse to Anchor.  Wood never argued that Donovan=s service in the dual roles of advocate-witness would cause actual prejudice to Wood. Anchor specifically pointed out to the trial court that Wood was required to show the prejudice Wood would suffer if Donovan was called as a witness and that Wood had failed to do so. Despite specific reference to this omission, Wood failed to argue or prove it would suffer actual prejudice if Donovan were called as a witness.  Because Wood wholly failed to allege or prove it would suffer actual prejudice if Donovan were to act as both witness for Wood and counsel for Anchor, the trial court abused its discretion in granting the motion to disqualify.^[1]  Accordingly, we conditionally grant the petition for writ of mandamus and order the trial court to vacate its order disqualifying Donovan.  The writ will issue only if the trial court refuses to vacate its order of April 18, 2002, which orders Michael Donovan disqualified as counsel for Anchor.  Given our disposition, it is unnecessary to address the other grounds raised by Anchor in its petition. 

/s/        J. Harvey Hudson

Justice

Petition Conditionally Granted and Majority and Dissenting Opinion filed September 27, 2002.

Panel consists of Justices Hudson, Fowler, and Edelman. (Edelman, J., dissenting). 

Publish C Tex. R. App. P. 47.3(b).

Petition for Writ of Mandamus Conditionally Granted and Majority and Dissenting Opinions filed September 27, 2002.

In The

Fourteenth Court of Appeals

_______________

NO. 14-02-00760-CV

_______________

IN RE ANCHOR, INC., Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

D I S S E N T I N G O P I N I O N

As the parties= respective motion and response in the trial court both acknowledge, Anchor seeks to vacate the arbitration award in this case on the grounds that the arbitrator: denied Anchor an additional hearing session; unduly rushed Anchor and excluded evidence at the arbitration hearing; and precluded Anchor from being able to subpoena material witnesses.  It is also undisputed that Donovan was the lawyer who presented Anchor=s case at the arbitration hearing.  Although Anchor plans to use other witnesses who were present at the hearing to support its allegations, Wood plans to call Donovan to testify to refute Anchor=s claims.  As the person who seemingly knows best what he hoped to accomplish by the things the arbitrator refused to allow him to do, Donovan unquestionably possesses knowledge to be a, if not the, material witness in this case.

The majority opinion concludes that it was an abuse of discretion for the trial court to disqualify Donovan because Wood failed to show that Donovan=s dual role as advocate and witness would cause prejudice to Wood.¹  A testifying attorney is prohibited from acting as an advocate before the same tribunal. Tex. Disciplinary R. Prof=l. Conduct 3.08.  The rationale for this rule is that it may not be clear to a fact finder whether a statement by an advocate witness should be taken as proof or as an analysis of the proof.  Anderson Producing Inc. v. Koch Oil Co., 929 S.W.2d 416, 422 (Tex. 1996).  Therefore, the rule reflects the concern that an opposing party may be handicapped in challenging the credibility of a testifying attorney.  Id.

In this case, the trial court faced the decision whether to allow trial to proceed with Donovan acting as both an advocate and a material witness whose testimony could ultimately be favorable to either or both parties.²  Although it was obviously impossible to assess before the trial was conducted just how prejudicial this dual participation might be to either party,³ there could be no question that it would be precisely the situation that rule 3.08 was intended to prohibit, that the potential handicap Wood would face in challenging Donovan=s credibility could be as great as in any dual participation case, and that the safer course to avoid the likelihood of a needless retrial was to disqualify Donovan.⁴  Under these circumstances, I do not believe the trial court=s decision can be considered an abuse of discretion.  Accordingly, I would overrule Anchor=s petition for writ of  mandamus.

/s/        Richard H. Edelman

Justice

Petition Conditionally Granted and Majority and Dissenting Opinions filed September 27, 2002.

Panel consists of Justices Hudson, Fowler, and Edelman.

Publish C Tex. R. App. P. 47.3(b).

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^[1]              If the dissent=s interpretation of rule 3.08 is correct, a party could disqualify opposing counsel by merely calling him or her as a witness, or, as in this case, stating an intention to call opposing counsel as a witness.  This is not the law.  The dissent ignores the supreme court=s mandate that courts, because disqualification is a severe remedy, adhere to an exacting standard and require the party seeking disqualification to demonstrate actual prejudice to itself before disqualifying opposing counsel.  Any less exacting standard would encourage misuse of the motion to disqualify. 

¹See, e.g., In re Nitla S.A. de C.V., 45 Tex. Sup. Ct. J. 571, 573, 2002 WL 534089, at *3 (April 11, 2002) (per curiam) (orig. proceeding) (AEven if a lawyer violates a disciplinary rule, the party requesting disqualification must demonstrate that the opposing lawyer=s conduct caused actual prejudice that requires disqualification.@).

²Once Wood calls Donovan to testify, can there be any doubt that Anchor will fully avail itself of the opportunity to elicit favorable testimony from Donovan?

³For that matter, where an attorney is also a material witness, how can the potential prejudice from his dual participation ever be meaningfully measured before the trial is conducted and the lawyer actually testifies, is cross-examined, and makes arguments?

⁴Clearly, disqualification should not be used as a dilatory tactic.  Nitla, 45 Tex. Sup. Ct. J. at 573.  However, contrary to footnote 1 of the majority opinion, rule 3.08 does not allow a party to disqualify an opposing attorney merely by calling him as a witness where the attorney is not truly a material witness, as Donovan is in this case.  Instead, rule 3.08 prevents the represented party from gaining an advantage by having its lawyer participate in the trial as both an advocate and material witness, regardless whether the represented party calls its lawyer to testify or puts the opposing party in a position of having to do so.