Can a prevailing defendant recover attorney's fees in a breach-of-contract suit?

  
    
PREVAILING DEFENDANT MAY RECOVER ATTORNEY'S FEES IF AUTHORIZED BY CONTRACT
 
The trial court's decision to award attorney's fees and post-judgment interest is supported by the contract, which states:

If the services of an attorney are retained and/or if any action at law or in equity is brought to enforce or interpret the provisions of this Agreement or to collect any monies due hereunder, the prevailing party shall be entitled to reasonable attorney's fees together with interest thereon at the highest rate provided by law in addition to any other relief to which he may be entitled at law or in equity.

WHAT DOES 'PREVAILING' MEAN? WHAT DOES IT TAKE TO QUALIFY AS PREVAILING PARTY FOR FEE RECOVERY PURPOSES?

A "prevailing party" is a party who successfully prosecutes the action or successfully defends against it, prevailing on the main issue, even if not to the extent of its original contention. See Flagship Hotel, Ltd. v. City of Galveston, 117 S.W.3d 552, 564 (Tex. App.--Texarkana 2003, pet. denied); Dear v. City of Irving, 902 S.W.2d 731, 739 (Tex. App.--Austin 1995, writ denied).
 
Because ADC successfully defended against Hertzberg's suit by obtaining summary judgment on his claims, ADC is the prevailing party. See Robbins v. Capozzi, 100 S.W.3d 18, 27 (Tex. App.--Tyler 2002, no pet.). Thus, [Defendant] is entitled to "reasonable attorney's fees together with interest thereon" as provided by the contract. Accordingly, the trial court's decision to grant [Defendant's] requests for attorney's fees and post-judgment interest was not an abuse of discretion.

SOURCE: THIRD COURT OF APPEALS IN AUSTIN - 03-07-00072-CV - 9/11/2009  

Reasonable Attorney's Fees in Texas State Court: The Arthur Andersen Factors (not Anderson) per 1997 Texas Supreme Court Opinion

2019-05-21 UPDATE: See subsequent Texas Supreme Court opinion in Roormoos adopting the Lodestar framework for attorney fee valuation in the fee-shifting context in state courts. Rohrmoos Venture v. UTSW DVA Healthcare, LLP, No. 16-0006 (Tex. Apr. 26, 2019).

Also see commentary on new atttorney fee-shifting precedent: Texas Supreme Court Tells Bar and Bench to Follow the Lodestar: Post-Opinion Amicus Brief in Rohrmoos v. UTSW, No.16-0006 (Tex. 2019) (June 7, 2019). Available at SSRN: https://ssrn.com/abstract=3402040
Also see commentary on Hill v. Shamoun & Norman: Recovery of Attorney's Fees in the Absence of a Contract in Texas: Amicus Curiae Brief on Behalf of the Public in Hill v. Shamoun & Norman, LLP, 544 SW3d 724 (Tex. 2018) (January 23, 2018). 
Available at SSRN: https://ssrn.com/abstract=3152327 

FACTORS TO BE CONSIDERED BY THE TRIAL COURT IN AWARDING REASONABLE ATTORNEY'S FEES (Arthur Andersen Factors) 

Regarding the amount of attorney's fees the trial court awarded, there are several factors a fact finder should consider in determining the reasonableness of a fee. ⁽²⁾ Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997). The factors include:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
(2) the likelihood that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.

Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997).

STANDARD OF REVIEW OF ATTORNEY'S FEES AWARDS ON APPEAL

We review a trial court's decision to either grant or deny attorney's fees under an abuse-of-discretion standard, and we review the amount of attorney's fees awarded under a legal-sufficiency standard. See Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 2004); Aaron Rents, Inc. v. Travis Cent. Appraisal Dist., 212 S.W.3d 665, 671 (Tex. App.--Austin 2006, no pet.).
A trial court abuses its discretion if it acts without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). To determine whether a trial court abused its discretion, we must determine whether the trial court's action was arbitrary or unreasonable. Id. at 242.

Because we review the amount of attorney's fees awarded under a legal-sufficiency review, we must view the evidence in a light that tends to support the disputed finding and disregard evidence and inferences to the contrary. Wal-Mart Stores, Inc. v. Canchola, 121 S.W.3d 735, 739 (Tex. 2003). If more than a scintilla of evidence supports the challenged finding, the legal-sufficiency challenge must fail. Id.

SOURCE: AUSTIN COURT OF APPEALS - 03-07-00072-CV - 9/11/09 

THE SEMINAL CASE FROM 1997 WRITTEN BY JUSTICE CORNYN, WHO LATER BECAME A U.S. SENATOR REPRESENTING TEXAS  

945 S.W.2d 812 (1997) 

ARTHUR ANDERSEN & CO., Petitioner,

v.

PERRY EQUIPMENT CORPORATION, Respondent.

No. 95-0444.

Supreme Court of Texas.

Argued March 19, 1997.

Decided May 16, 1997.

Ben Taylor, Dallas, Thomas C. Godbold, Houston, for Petitioner.

Christopher B. Allen, Michael P. Cash, James W. Paulsen, Houston, for Respondent.

CORNYN, Justice.

We withdraw our opinion of January 10, 1997, and substitute the following in its place. The parties' motions for rehearing are overruled.

In this accounting malpractice case, Perry Equipment Corporation (PECO) sued the accounting firm of Arthur Andersen for a faulty audit, which PECO relied on to purchase another company, Maloney Pipeline Systems. The audit favorably reported Maloney's financial condition when, in fact, the company was suffering substantial losses. Fourteen months after the sale, Maloney filed for bankruptcy. PECO sued for violations of the Deceptive Trade Practice Act, fraud, negligence, negligent misrepresentation, gross negligence, and breach of implied warranty. Based on the jury's verdict, the trial court rendered judgment for PECO. The court of appeals affirmed. 898 S.W.2d 914.

We address three issues presented by Arthur Anderson's application for writ of error. First, Arthur Andersen challenges PECO's consumer status because Maloney, rather than PECO, actually paid for the audit. Second, Arthur Andersen claims that the trial court failed to instruct the jury on the correct measure of damages. Third, Arthur Andersen contests the attorney's fees award, arguing that the percentage of recovery method is not a proper measure of attorney's fees under the DTPA, and that even if such fees were recoverable, no evidence supports the award. For the reasons discussed below, we reverse the judgment of the court of appeals and remand this case to the trial court for further proceedings.

I

When PECO, a successful manufacturer of oil filters used in compressors for gas pipelines, decided to expand its business into the gas metering field, it looked into acquiring Maloney Pipeline Systems, one of three United States companies in the liquid metering market. In the mid-1980s, PECO began negotiating with Maloney's owner, Ramteck II. As a condition of the sale, PECO required an audit of Maloney's financial statements. Maloney retained Arthur Andersen to conduct the audit. Maloney eventually provided PECO financial statements audited by Arthur Andersen. The statements showed Maloney to be a profitable business. Relying upon this information, on August 23, 1985, PECO purchased the Maloney stock from Ramteck II, Inc. for $4,088,237.

Soon after the purchase, Maloney began to show signs of serious financial decline. For example, three months after the sale, Maloney ran out of cash and required a $400,000 advance from PECO to continue operating. PECO also attempted other emergency financial measures, but to no avail. Fourteen months after the sale, Maloney filed bankruptcy. PECO presented uncontradicted evidence at trial that the purchase price for Maloney was a total loss from which PECO realized no return and which PECO wrote off.

PECO's experts testified that Arthur Andersen's audit contained serious errors and otherwise failed to follow acceptable auditing procedures. One of the most significant errors, the evidence showed, was the failure to verify that contracts Maloney reported as complete were in fact complete or that Maloney's estimates of costs and percentage of completion for ongoing contracts were accurate. Maloney later incurred substantial losses on these contracts. One expert testified that the audit was one of the worst he had ever seen. Another expert, an auditing professor, stated that if a student submitted the work, he would have given the student a failing grade.

The jury found Arthur Andersen 51 percent at fault and PECO 49 percent at fault. The jury also found that Arthur Andersen had committed fraud, DTPA violations, and breach of warranty, but that it was not liable for negligent misrepresentation or gross negligence. The jury assessed damages of $5,449,468, including the $4,088,237 PECO paid for Maloney and $1,361,231 for other expenses incurred by PECO in its attempt to salvage the company. PECO elected to recover under the DTPA. The trial court credited Arthur Andersen with the two million dollars that Ramteck II had already paid PECO in settlement, and then awarded PECO a total of $9,297,601.20, including damages, prejudgment interest, DTPA additional damages, attorney's fees, and costs.

II

Arthur Andersen first contends that PECO is not a "consumer," a prerequisite to recovery under the DTPA. The DTPA defines a consumer as one "who seeks or acquires by purchase or lease, any goods or services." TEX. BUS. & COM.CODE § 17.45(4). In determining whether a plaintiff is a consumer, our focus is on the plaintiff's relationship to the transaction. Amstadt v. United States Brass Corp., 919 S.W.2d 644, 650 (Tex. 1996). As a condition of sale, PECO insisted that Maloney provide audited financial statements. Maloney hired Arthur Andersen for this specific purpose. PECO then relied on those statements in reaching its decision to purchase Maloney. Under these circumstances, we hold that PECO sought and acquired Arthur Andersen's services.

The next question is whether PECO sought and acquired these services by purchase or lease, inasmuch as it did not pay for the audit. Our decision in Kennedy v. Sale, 689 S.W.2d 890 (Tex.1985), controls this issue. There, we held that the DTPA does not require the consumer to be an actual purchaser or lessor of the goods or services, as long as the consumer is the beneficiary of those goods or services. Id.

The Texas Society of Certified Public Accountants, as amicus curiae, argues that a stock purchaser should not be considered a consumer simply because the corporation paid for an audit for the purchaser's benefit because virtually every external audit benefits third parties. Thus, any stock purchaser who reviews audited financial statements could bring a DTPA claim against the auditor.[1] Our holding is not so broad. In this case, the audit was rendered in connection with the sale of Maloney and was specifically required by PECO and intended to benefit PECO. Arthur Andersen was aware that PECO had required the audit and would rely on its accuracy and knew the specific purpose for which it was conducted. We accordingly hold that PECO is a consumer under the DTPA.

Arthur Andersen also urges us to reject PECO's consumer status based on the decision in Hand v. Dean Witter Reynolds Inc., 889 S.W.2d 483 (Tex.App.—Houston [14th Dist.] 1994, writ denied). In Hand, the plaintiff alleged that her stock broker failed to purchase certain commodity option contracts after she requested that he do so. Id. at 487-88. After deciding that a commodity option contract is a right, not a "good," under the DTPA, id. at 498, the court next considered whether the plaintiff was a consumer by virtue of her purchase of "services." The DTPA defines services as including "services furnished in connection with the sale or repair of goods." TEX. BUS. & COM.CODE § 17.45(2). The court reasoned that the omission of any reference in the definition to services in connection with the sale of something other than a good indicated that services furnished in connection with the sale of intangibles did not fall within the definition of services under the DTPA. Hand, 889 S.W.2d at 498. The court then concluded: "The key to the [consumer status] determination is whether the purchased goods or services are an objective of the transaction or merely incidental to it." Id. at 500.

We believe that Hand confirms, rather than defeats, PECO's consumer status. Arthur Andersen's audit was not merely incidental to the sale of Maloney to PECO; it was required by PECO and was central to PECO's decision to consummate the purchase. Determining Maloney's financial condition was PECO's primary objective in acquiring Arthur Andersen's services. We therefore reject Arthur Andersen's contention that Hand defeats PECO's status as a consumer under the DTPA.

III

Arthur Andersen next complains that the jury charge allowed the jury to award PECO the entire purchase price of Maloney, without instructing the jury to subtract the value of Maloney stock at the time of the sale.[2] Arthur 816*816 Andersen also contends that even if the court had properly instructed the jury, PECO failed to introduce any evidence that the stock was valueless at the time of sale, and thus failed to establish that it was entitled to the entire purchase price under either the "benefit-of-the-bargain" or the "out-of-pocket" measure of damages. PECO responds that in addition to direct damages, consequential damages are also recoverable under the DTPA. PECO thus argues that it is entitled to recover the purchase price as consequential damages.

Under the version of the DTPA in effect at the time PECO brought this action, a consumer could recover "the amount of actual damages" caused by the defendant's false, misleading, or deceptive conduct. Tex. BUS. & COM.CODE § 17.50(b)(1).[3] The amount of actual damages recoverable is "the total loss sustained as a result of the deceptive trade practice." Kish v. Van Note, 692 S.W.2d 463, 466 (Tex.1985)(citing Smith v. Baldwin, 611 S.W.2d 611, 617 (Tex.1980)).

Actual damages are those damages recoverable under common law. Brown v. American Transfer & Storage Co., 601 S.W.2d 931, 939 (Tex.), cert. denied, 449 U.S. 1015, 101 S.Ct. 575, 66 L.Ed.2d 474 (1980). At common law, actual damages are either "direct" or "consequential." Henry S. Miller Co. v. Bynum, 836 S.W.2d 160, 163 (Tex. 1992) (Phillips, C.J., concurring); see RESTATEMENT (SECOND) OF TORTS § 549 (1977) (outlining measure of damages for fraudulent misrepresentation). Direct damages are the necessary and usual result of the defendant's wrongful act; they flow naturally and necessarily from the wrong. See Southwind Aviation, Inc. v. Avendano, 776 S.W.2d 734, 736 (Tex.App.—Corpus Christi 1989, writ denied); Anderson Dev. Corp. v. Coastal States Crude Gathering Co., 543 S.W.2d 402, 405 (Tex.Civ.App.—Houston [14th Dist.] 1976, writ ref'd n.r.e.). Direct damages compensate the plaintiff for the loss that is conclusively presumed to have been foreseen by the defendant from his wrongful act. See Bynum, 836 S.W.2d at 163 (Phillips, C.J., concurring); Coastal States, 543 S.W.2d at 405; Anderson, Incidental and Consequential Damages, 7 J.L. & Com. 327, 328 (1987).

Consequential damages, on the other hand, result naturally, but not necessarily, from the defendant's wrongful acts. Haynes & Boone v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 182 (Tex.1995); Moore v. Anderson, 30 Tex. 224, 230 (1867). Under the common law, consequential damages need not be the usual result of the wrong, but must be foreseeable, see Mead v. Johnson Group, Inc., 615 S.W.2d 685, 687 (Tex.1981), and must be directly traceable to the wrongful act and result from it. Airborne Freight Corp., Inc. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 295 (Tex.App.—El Paso 1992, writ denied); El Paso Dev. Co. v. Ravel, 339 S.W.2d 360, 363 (Tex.Civ.App.—El Paso 1960, writ ref'd n.r.e.). Of course, foreseeability is not an element of producing cause under the DTPA. See Haynes & Boone, 896 S.W.2d at 182; Prudential Ins. v. Jefferson Assocs., 896 S.W.2d 156, 161 (Tex.1995). Still, if damages are too remote, too uncertain, or purely conjectural, they cannot be recovered. See White v. Southwestern Bell Tel. Co., Inc., 651 S.W.2d 260, 262 (Tex.1983); see also Bynum, 836 S.W.2d at 164 (Phillips, C.J., concurring).

Under Texas common law, direct damages for misrepresentation are measured in two ways. W.O. Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex.1988); Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex.1984). Out-of-pocket damages measure the difference between the value the buyer has paid and the value of what he has received; benefit-of-the-bargain damages measure the difference between the value as represented and the value received. Leyendecker, 683 S.W.2d at 373. Under the DTPA, a plaintiff may recover under the damage theory that provides the greater recovery. Id. Both measures of damages are determined at the time of sale. See id. at 373 (out-of-pocket damages are measured at the time of sale); see also Bullion, An Understanding of Damages Recoverable Under the DTPA, 20 ST. MARY'S L.J. 667, 670-72 (1989).

In this case, the jury was not asked to find direct damages at the time of the sale as well as consequential damages attributable to Arthur Anderson's misrepresentations. Rather, the jury was simply asked to consider the purchase price as part of the overall damages. PECO did present evidence that the purchase price was eventually a total loss. There was also evidence that Maloney was losing money at the time of the sale and continued to do so until it declared bankruptcy. What PECO did not establish, however, was how much of its loss occurred at the time of the sale and how much was attributable to subsequent events for which Arthur Anderson should bear legal responsibility. If subsequent losses were caused by Arthur Andersen's wrongful conduct and were not simply part of the risk a buyer of the business would have assumed, they may be part of PECO's consequential damages.

Subsequent losses, however, are recoverable only if the misrepresentation is a producing cause of the loss. See Haynes & Boone, 896 S.W.2d at 182. Without this limitation, an investor could shift the entire risk of an investment to a defendant who made a misrepresentation, even if the loss were unrelated to the misrepresentation. The basis of a misrepresentation claim is that the defendant's false statement induced the plaintiff to assume a risk he would not have taken had the truth been known. But to allow the plaintiff to transfer the entire risk of loss associated with his investment, even risks that the plaintiff accepted knowingly or losses that occurred through no fault of the defendant, would unfairly transform the defendant into an insurer of the plaintiff's entire investment.

Because the charge failed to instruct the jury on the proper measure of direct damages, the submission was reversible error. But, because we find some evidence that Arthur Andersen's misrepresentation was a producing cause of PECO's loss, we remand this case for a new trial. See Spencer v. Eagle Star Ins. Co., 876 S.W.2d 154, 157 (Tex.1994) (holding that remand is proper when defective liability question is submitted); Jackson v. Fontaine's Clinics, Inc., 499 S.W.2d 87, 90 (Tex.1973) (remanding for new trial when defective damages question submitted); Moulton v. Alamo Ambulance Serv., Inc., 414 S.W.2d 444, 449-50 (Tex.1967) (affirming remand for new trial when defective damages question submitted).

We emphasize that a plaintiff's recovery of damages is limited not only by his own evidence, but also by the defendant's evidence of the plaintiff's failure to reasonably mitigate losses or evidence of intervening causes. See Dubow v. Dragon, 746 S.W.2d 857, 860 (Tex.App.—Dallas 1988, no writ); EDGAR & SALES, TEXAS TORTS & REMEDIES § 43.04[1][b]; Tschoepe et al., Aspects of Defending A Texas Deceptive Trade Practices-Consumer Protection Act Claim, 20 St. Mary's L.J. 527, 561 (1989). If a plaintiff's losses are attributable to his own mistakes or factors outside either of the parties' control, the defendant may be entitled to an appropriate limiting instruction to the jury.

IV

Because we are remanding this case for a new trial, we turn now to Arthur Andersen's complaint that the trial court improperly awarded PECO attorney's fees calculated as a percentage of recovery.[4]

818*818 Attorney contingency fee contracts serve two main purposes. First, they allow plaintiffs who cannot afford to pay a lawyer up-front to pay the lawyer out of any recovery. See See, An Alternative to the Contingent Fee, 1984 UTAH L.REV. 485, 490 n. 14. Second, such contracts, because they offer the potential of a greater fee than might be earned under an hourly billing method, compensate the attorney for the risk that the attorney will receive no fee whatsoever if the case is lost. Id. The lawyer in effect lends the value of his services, which is secured by a share in the client's potential recovery. POSNER, ECONOMIC ANALYSIS OF LAW § 21.9 (4th ed.1992). Under some contingency fee contracts, the attorney also agrees to advance the out-of-pocket costs of the litigation. In such cases, the attorney not only risks loss of the fee, but also risks loss of actual expenditures.

Arthur Andersen complains that an award of contingency fees under a fee-shifting statute like the DTPA forces defendants to pay fees unrelated to the amount of work performed. While this is not always true, shifting these fees to the defendant presents two problems.

First, a contingent fee award based solely on evidence of a percentage fee agreement between a lawyer and client may be determined without regard to many of the factors that should be considered when determining reasonableness. The DTPA allows recovery of "reasonable and necessary attorneys' fees." TEX. BUS. & COM.CODE § 17.50(d). Factors that a factfinder should consider when determining the reasonableness of a fee include:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;(2) the likelihood ... that the acceptance of the particular employment will preclude other employment by the lawyer;(3) the fee customarily charged in the locality for similar legal services;(4) the amount involved and the results obtained;(5) the time limitations imposed by the client or by the circumstances;(6) the nature and length of the professional relationship with the client;(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.

TEX. DISCIPLINARY R. PROF. CONDUCT 1.04, reprinted in TEX. GOV'T CODE, tit. 2, subtit. G app. (STATE BAR RULES, art. X, § 9); see also Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 881 (Tex.1990); cf. General Motors Corp. v. Bloyed, 916 S.W.2d 949, 960-961 (Tex.1996) (discussing the relative strengths and weaknesses of the contingent fee and lodestar methods of awarding attorneys fees in the context of a court-approved class action settlement). While we do not doubt that many plaintiffs must contract for a contingent fee to secure the services of a lawyer, we do not believe that the DTPA authorizes the shifting of the plaintiff's entire contingent fee to the defendant without consideration of the factors required by the Rules of Professional Conduct. A contingent fee may indeed be a reasonable fee from the standpoint of the parties to the contract. But, we cannot agree that the mere fact that a party and a lawyer have agreed to a contingent fee means that the fee arrangement is in and of itself reasonable for purposes of shifting that fee to the defendant.

A party's contingent fee agreement should be considered by the factfinder, see Tex. Disciplinary R. Prof. Conduct 1.04(b)(8), and is therefore admissible in evidence, but that agreement cannot alone support an award of attorney's fees under Texas Business and Commerce Code section 17.50(d). See Brister, Proof of Attorney's Fees in Texas, 24 St. Mary's L.J. 313, 324 (1993). In other words, the plaintiff cannot simply ask the jury to award a percentage of 819*819 the recovery as a fee because without evidence of the factors identified in Disciplinary Rule 1.04, the jury has no meaningful way to determine if the fees were in fact reasonable and necessary.

Second, because the jury is not informed what the total amount of the judgment will be, the jury can only speculate about whether a percentage of that unknown recovery will represent a reasonable and necessary fee in that particular case. Rather than leave this question to speculation, the jury must decide the question of attorney's fees specifically in light of the work performed in the very case for which the fee is sought.

In light of these concerns, we hold that to recover attorney's fees under the DTPA, the plaintiff must prove that the amount of fees was both reasonably incurred and necessary to the prosecution of the case at bar, and must ask the jury to award the fees in a specific dollar amount, not as a percentage of the judgment.

For the foregoing reasons, we reverse the judgment of the court of appeals and remand this cause to the trial court for further proceedings consistent with this opinion.

[1] After PECO brought this action, the Legislature amended the DTPA to preclude consumers from suing under the DTPA for professional negligence or for claims arising from transactions involving consideration of more than $500,000. TEX. BUS. & COM.CODE § 17.49(c) & (g).

[2] The charge asked the jury:

What sum of money, if any, if paid now in cash, would fairly and reasonably compensate PECO for its losses which resulted from such conduct?

Do not increase or reduce the amount in one answer because of your answer to any other question about damages.

....

....

Consider the elements of damages listed below and none other. Consider each element separately. Do not include damages for one element in any other element. Do not include interest on any amount of damages you find.

....

a. Purchase price of MPSI [Maloney] _____________

b. Costs and expenses incurred by PECO as a result of its purchase and ownership of MPSI [listing 13 categories of costs and expenses]

[3] In 1995, the Legislature amended § 17.50(b)(1) to permit recovery of "economic damages" and, if the defendant acted knowingly, "damages for mental anguish," instead of "actual damages." Act of May 17, 1995, 74th Leg., R.S., ch. 414, 1995 Tex.Gen. Laws 2992.


[4] The jury charge requested the jury to calculate attorney's fees three ways: in dollars and cents, as a percentage of PECO's recovery, and as a combination of dollars and cents and percentage of recovery.

TRAP 45 Appellate Attorneys Fees as a Sanction for Frivolous Appeal

Attorney's Fees for bringing an unmeritorious appeal

[Appellee - Defendant] requests that we award it appellate attorney's fees as monetary sanctions against [Appellant - Plaintiff] for bringing a frivolous appeal. See Tex. R. App. P. 45 (authorizing appellate court to award prevailing party "just damages" upon determination that appeal is frivolous).

Standard for Award of Appellate Attorney's Fees as a Sanction

In determining whether an appeal is frivolous, we review the record from the appellant's viewpoint and decide whether the appellant had reasonable grounds to believe the judgment could be reversed. Smith v. Brown, 51 S.W.3d 376, 381 (Tex. App.--Houston [1st Dist.] 2001, pet. denied).

Whether to grant sanctions for a frivolous appeal is a matter of discretion that an appellate court exercises with prudence and caution and only after careful deliberation in truly egregious circumstances. Goss v. Houston Cmty. Newspapers, 252 S.W.3d 652, 657 (Tex. App.--Houston [14th Dist.] 2008, no pet.).

Although we have rejected [Appellant's] arguments on appeal, we cannot characterize the appeal as objectively frivolous. Accordingly, we overrule [Appellee's] request.

SOURCE: 03-07-00072-CV (9/11/09)

SoL and Accrual Date for Breach of Contract Actions

What is the limitations period for bringing suit for breach of contract in Texas? When does the claim accrue for purposes of starting the running of limitations? How long does the Plaintiff have time to file suit without running in limitations problems?

The statute of limitations for a breach-of-contract action is four years from the date the cause of action accrues. See Tex. Civ. Prac. & Rem. Code Ann. § 16.051 (West 2008); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002).

As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 211 (Tex. 2003 ). In most cases, a cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet occurred. Id.

In order to determine when [Plaintiff's] cause of action accrued, we must first look at the injury on which he based his cause of action and then determine when the facts underlying the cause of action came into existence. See id.

SOURCE: AUSTIN COURT OF APPEALS - 03-07-00072-CV (because there is no genuine issue of material fact that the Plaintiff filed suit more than four years after his cause of action accrued, the Austin Court of Appeals affirms the trial court's summary judgment in favor of the Defendant.)

Waiver Defense Can Be Waived (Non-Waiver Clause in Contract or Settlement Agreement)

HOW DOES THE LAW DEFINE THE AFFIRMATIVE DEFENSE OF WAIVER?

Waiver is an intentional relinquishment of a known right. Straus v. Kirby Court Corp., 909 S.W.2d 105, 109 (Tex. App.-Houston [14th Dist.] 1995, writ denied).

NON-WAIVER CLAUSE IN CONTRACT MAY PRECLUDE WAIVER DEFENSE

 Creech's entire argument is based on Christian's ultimate acceptance of Creech's untimely or replacement payments. But the parties' Agreement contains a non-waiver clause; Christian hired an attorney, and the attorney unequivocally demanded the entire amount due as a result of the default; and there is no evidence in the record that Christian intended to accept a lesser amount than what he had demanded. [...] We will not construe Christian's efforts to collect past-due amounts as a waiver of his right to a full recovery. We overrule Creech's second issue as well.

SOURCE: DALLAS COURT OF APPALS - 05-08-00952-CV

Defamation & Truth as Defense

The Elements of Defamation Cause of Action in Texas:

The elements of the [Plaintiff's] defamation claim are that: (1) [Defendant] published a statement, (2) the statement was defamatory concerning the [Plaintiff], and (3) [Defendant] acted with negligence regarding the truth of the statement. See WFAA-TV, Inc. v. McLemore, 978 S.W.2d 568, 571 (Tex. 1998).

When Is a Statement Actionable as Defamatory? Defamation defined:

A statement is defamatory if the words tend to injure a person's reputation, exposing the person to public hatred, contempt, ridicule, or financial injury. Colson v. Grohman, 24 S.W.3d 414, 421 (Tex. App.--Houston [1st Dist.] 2000, pet. denied).
 
Defense to Defamation Claim: The Statements Made the Basis of the Lawsuit Are Substantially True
 
Truth is an affirmative defense to a claim for defamation. See Associated Press v. Cook, 17 S.W.3d 447, 452 (Tex. App.--Houston [1st Dist.] 2000, no pet.). Similarly, a showing of substantial truth in a summary judgment case will defeat a defamation claim. McIlvain v. Jacobs, 794 S.W.2d 14, 15-16 (Tex. 1990). To determine substantial truth, we consider whether the defamatory statement was more damaging to the plaintiff in the mind of the average reader than a true statement would have been. McIlvain, 794 S.W.2d at 16; Barbouti v. Hearst Corp., 927 S.W.2d 37, 65 (Tex. App.--Houston [1st Dist.] 1996, writ denied). This evaluation involves looking at the "gist" of the statement. McIlvain, 794 S.W.2d at 16; KTRK Television v. Felder, 950 S.W.2d 100, 105 (Tex. App.--Houston [14th Dist.] 1997, no writ). If the underlying facts as to the gist of the libelous charge are undisputed, then we can disregard any variance with respect to items of secondary importance and determine substantial truth as a matter of law. McIlvain, 794 S.W.2d at 16; KTRK Television, 950 S.W.2d at 105-06. As stated previously, the truth of a statement is an absolute defense to a claim for defamation. See Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987). The defense of truth does not require proof that the alleged defamatory statement is literally true in every detail; substantial truth is sufficient. Howell v. Hecht, 821 S.W.2d 627, 631-32 (Tex. App.--Dallas 1991, writ denied). If [Defendant] Pohl established, as a matter of law, the substantial truth of the statements about which the Pedens [Plaintiffs] complain, he is entitled to summary judgment. McIlvain, 794 S.W.2d at 15; Gustafson v. City of Austin, 110 S.W.3d 652, 656 (Tex. App.--Austin 2003, pet. denied).

SOURCE: Appellate opinion in 01-08-00373-CV (9/10/09) 
RELATED CONCEPTS: libel, slander, business disparagement, derogatory statements, reputation and reputational damages, standing in the community, goodwill, tortious interference

Quasi-Estoppel defined

   
What is quasi-estoppel and when does it apply?

 "Quasi-estoppel precludes a party from asserting, to another's disadvantage, a right inconsistent with a position previously taken." Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex. 2000) "The doctrine applies when it would be unconscionable to allow a person to maintain a position inconsistent with one to which he acquiesced, or from which he accepted a benefit." Id.

SOURCE:  01-08-00373-CV (9/10/09)

Judicial Estoppel: Purpose and Applicability

Judicial Estoppel is an equitable doctrine Judicial estoppel generally prevents a party who has succeeded in maintaining a certain position in a proceeding from assuming a contrary position "simply because his interests have changed." New Hampshire v. Maine, 532 U.S. 742, 749, 121 S. Ct. 1808, 1814 (2001) (quoting Davis v. Wakelee, 156 U.S. 680, 689, 15 S. Ct. 555 (1895)). The purpose of judicial estoppel and the cirumstances when it is properly applied The purpose of judicial estoppel is "to protect the integrity of the judicial process." Id., 121 S. Ct. at 1814. Judicial estoppel is an equitable doctrine, and as such, all the circumstances of the case may be relevant. See id. at 750, 121 S. Ct. at 1815. The factors that "typically inform the decision whether to apply the doctrine" are: (1) a party's position must be "clearly inconsistent" with its earlier positions, (2) whether the parties urging of inconsistent positions threatens judicial integrity by creating a "risk of inconsistent court determinations," and (3) whether the party seeking to assert an inconsistent position would gain an unfair advantage or impose an unfair detriment on the opposing party. Id. at 750-51, 121 S. Ct. at 1815. SOURCE: 01-08-00373-CV (9/10/09)

The Elements of Collateral Estoppel

What are the Elements of Collateral Estoppel? When does collateral estoppel (not) apply? The elements of collateral estoppel are: (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action, (2) those facts were essential to the judgment in the first action, and (3) the parties were cast as adversaries in the first action. Case Funding Network, L.P. v. Anglo-Dutch Petroleum Int'l, Inc., 264 S.W.3d 38, 52 (Tex. App.--Houston [1st Dist.] 2007, pet. denied) (citing Tex. Dep't of Pub. Safety v. Petta, 44 S.W.3d 575, 579 (Tex. 2001)). It is undisputed that the Pedens were not "cast as adversaries" against South Texas and Lawton in the earlier suit. Therefore, collateral estoppel does not apply. The trial court erred if it granted summary judgment on this ground. SOURCE: 01-08-00373-CV (9/10/09)

Exemplary Damages: Which causes of action support award of punitive damages?

UNDER WHAT CIRCUMSTANCES MAY EXEMPLARY DAMAGES BE AWARDED?

Exemplary damages are "levied against a defendant to punish the defendant for outrageous, malicious, or otherwise morally culpable conduct." Tex. Civ. Prac. & Rem. Code Ann. § 41.001(5) (Vernon 2008); Transportation Ins. Co v. Moriel, 879 S.W.2d 10, 16 (Tex. 1994).
 
Unless otherwise provided by statute, exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the harm with respect to which the claimant seeks recovery of exemplary damages results from (1) fraud; (2) malice; or (3) gross negligence. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a) (Vernon 2008); see also In re Barnes, 369 B.R. 298 (Bankr. W.D. Tex. 2007).

Bastida v Aznaran - exemplary damages - malice

STANDARD OF REVIEW FOR EXEMPLARY DAMAGES 

Whenever the standard of proof at trial is elevated, the standard of appellate review must likewise be elevated. S.W. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 627 (Tex. 2004) (citing In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002)). In reviewing the evidence for legal sufficiency to support a finding that must be proved by clear and convincing evidence, we must look at all the evidence in the light most favorable to the finding to determine whether a reasonable trier of fact could have formed a firm belief or conviction that its finding was true. Diamond Shamrock Ref. Co v. Hall, 168 S.W.3d 164, 170 (Tex. 2005); Garza, 164 S.W.3d at 627. To give appropriate deference to the fact-finder's conclusions and the role of a court conducting a legal sufficiency review, we must assume that the fact-finder resolved any disputed facts in favor of its finding if a reasonable fact-finder could have done so. Hall, 168 S.W.3d at 170.

SOURCE: FIRST COURT OF APPEALS IN HOUSTON - 01-07-00792-CV (9/9/09)  
 

CITED TEXAS SUPREME COURT CASE 

Transportation Ins. Co. v. Moriel, 879 SW 2d 10 - (Tex. 1994)

How does fraudulent inducement differ from fraud plain and simple?

FRAUD CAUSE OF ACTION VS. FRAUDULENT INDUCEMENT Fraudulent inducement is a particular species of fraud that arises only in the context of a contract and requires the existence of a contract as part of its proof. Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001); Clark v. Power Mktg. Direct, Inc., 192 S.W.3d 796, 799 (Tex. App.--Houston [1st Dist.] 2006, no pet.). That is, with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties. Haase, 62 S.W.3d at 798-99. SOURCE: 01-07-00792-CV (9/10/09)

The Elements of Fraud (Common Law Cause of Action) | Proving Causation

The Elements of Common Law Fraud [per 1st CoA] Elements of common-law fraud are that (1) a material representation was made; (2) the representation was false; (3) when the speaker made it he knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion; (4) the speaker made it with the intention that it should be acted upon by the party; (5) the party acted in reliance on it ; and (6) he thereby suffered injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 759 (Tex. 2001). Proving the Element of Causation To establish the element of causation in a fraud claim, a plaintiff must show that the defendant's acts or omissions were a cause-in-fact of foreseeable losses. Prospect High Income Fund, ML CBO IV v. Grant Thorton, LLP, 203 S.W.3d 602, 618 (Tex. App.--Dallas 2006, pet. denied) (citing Marathon Corp. v. Pitzner, 106 S.W.3d 724, 727 (Tex. 2003)). The defendant's acts or omissions are a cause-in-fact if the plaintiff can show, beyond mere conjecture, guess, or speculation, that an act or omission was a substantial factor in bringing about an injury which would not otherwise have occurred. Id. A plaintiff establishes reliance in a fraud claim by showing that the defendant's acts and representations induced it to either act or refrain from acting, to its detriment. Id. SOURCE: 01-07-00792-CV (9/10/09)

Fraudulent Concealment as SoL Tolling Theory

Pleading and Proving Fraudulent Concealment to Avoid Limitations Although similar in effect to the discovery rule, the fraudulent-concealment doctrine is an affirmative defense to limitations that resembles equitable estoppel. Trousdale v. Henry, 261 S.W.3d 221, 235 (Tex. App.- Houston [14th Dist.] 2008, rule 53.7(f) motion granted); Autry v. Dearman, 933 S.W.2d 182, 192 (Tex. App.- Houston [14th Dist.] 1996, writ denied). This doctrine estops a defendant from relying on the defense of limitations if the defendant was under a duty to make a disclosure but fraudulently concealed the existence of a cause of action from the party to whom it belongs. Ponder v. Brice & Mankoff, 889 S.W.2d 637, 645 (Tex. App.- Houston [14th Dist.] 1994, writ denied). To prove fraudulent concealment, the plaintiff must demonstrate that the defendant had (1) actual knowledge that a wrong occurred, (2) a duty to disclose the wrong, and (3) a fixed purpose to conceal the wrong. McMahan v. Greenwood, 108 S.W.3d 467, 493 (Tex. App.- Houston [14th Dist.] 2003, pet. denied). The estoppel effect of fraudulent concealment ends when a party learns of facts, conditions, or circumstances that would cause a reasonably prudent person to make inquiry which, if pursued, would lead to the discovery of the concealed cause of action. Ponder, 889 S.W.2d at 645. This is the same standard that applies to the discovery rule. Trousdale, 261 S.W.3d at 235. SOURCE: Seureau v. Exxon Mobil Corp (Tex.App.- Houston [14th Dist.] Oct. 16, 2008) SEE ALSO: the discovery rule as a counterdefense to limitations, equitable tolling theories

The Discovery Rule as Counter-Defense to the Statute of Limitations

THE DISCOVERY RULE TO COUNTER ASSERTION OF LIMITATIONS BY THE OPPONENT

In rare cases where the nature of the injury is inherently undiscoverable and evidence of the injury is objectively verifiable, courts have recognized the discovery rule as an exception to the general accrual rule. See, e.g., Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996).

The discovery rule is a very limited exception to limitations and is construed strictly. See id.; S.V., 933 S.W.2d at 25 (noting that applications of discovery rule “should be few and narrowly drawn"). The rule has been limited to matters that are properly characterized as inherently undiscoverable. Johnson v. Abbey, 737 S.W.2d 68, 69-70 (Tex. App.-Houston [14th Dist.] 1987, no writ).

An injury is inherently undiscoverable if, by its very nature, it is unlikely to be discovered within the prescribed limitations period despite the exercise of due diligence. Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734-35 (Tex. 2001). Whether an injury is inherently undiscoverable is determined on a categorical basis, because such an approach “brings predictability and consistency to the jurisprudence." See Apex Towing Co. v. Tolin, 41 S.W.3d 118, 122 (Tex. 2001). Thus, the focus is on whether a type of injury, rather than a particular injury, was discoverable. Via Net v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006).

Where the discovery rule applies, the cause of action accrues when the plaintiff knows, or through the exercise of reasonable care and diligence should have discovered, the nature of his injury and the likelihood that it was caused by the wrongful acts of another. See Childs, 974 S.W.2d at 40. Thus, accrual is not delayed until the plaintiff learns of actual causes and possible cures for his injuries. PPG Indus., Inc. v. JMB/Houston Ctrs. Partners Ltd. P'ship, 146 S.W.3d 79, 93 (Tex. 2004). Instead, a plaintiff who invokes the discovery rule still must have sought information about his injuries and their likely cause once apprised of facts that would prompt a reasonably diligent person to make an inquiry that would lead to discovery of the cause of action. Pirtle v. Kahn, 177 S.W.3d 567, 571 (Tex. App.- Houston [1st Dist.] 2005, pet. denied).

 If, as here, the plaintiff pleads the discovery rule as an exception to limitations, the defendant moving for summary judgment must negate it. KPMG, 988 S.W.2d at 748. This may be done by demonstrating that the discovery rule does not apply or by proving, as a matter of law, that there is no genuine issue of material fact as to when the plaintiff discovered, or in the exercise of reasonable diligence should have discovered, the nature of his injury. Childs, 974 S.W.2d at 44.

SOURCE: Seureau v. Exxon Mobil Corp (Tex.App.- Houston [14th Dist.] Oct. 16, 2008)(Brown) SEE ALSO: fraudulent concealment as a basis for tolling running of limitations

Nature of Conversion and Elements of Claim

What is converson and how is a successful conversion claim established in court?

Conversion is the unauthorized and wrongful assumption and exercise of dominion and control over another's personal property to the exclusion of, or inconsistent with, the owner's rights. Small v. Small, 216 S.W.3d 872, 877 (Tex. App.-Beaumont 2007, pet. denied)(citing Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 447 (Tex.1971)). To prove a claim for personal property-conversion, a plaintiff must show that: (1) the plaintiff owned or legally possessed the property or was entitled to its possession; (2) the defendant unlawfully and without authorization assumed and exercised dominion and control over the property to the exclusion of, or inconsistent with, the plaintiff's ownership rights; (3) the plaintiff demanded the property's return; and (4) the defendant refused to return it." Small v. Small, 216 S.W.3d 872, 877 (Tex. App.-Beaumont 2007, pet. denied). The statute of limitations applicable to a conversion claim requires suits to be brought within two years. Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a).

SOURCE: 09-08-00433-CV (Beaumont Court of Appeals) (8/27/09) SEE ALSO: Texas Theft Liability Act (statutory civil cause of action for theft)