Opinion
Civil Action No. 3:00-CV-0017-L
April 5, 2002
MEMORANDUM OPINION AND ORDER
Before the court is Defendants' Motion for Summary Judgment, filed August 27, 2001. For the reasons stated herein, Defendants' Motion for Summary Judgment is denied.
I. Facts and Procedural Background
In May 1995, Defendant Brian C. Deuschle ("Deuschle") requested Mr. Michael Gruber ("Gruber") to assist him with a Florida lawsuit. Deuschle is a Florida attorney who was acting as plaintiff's counsel in the Florida suit. He wanted Gruber to act as a consultant. Gruber is a Dallas, Texas attorney who was associated with the Dallas firm Cowles Thompson, P.C. when Deuschle approached him.
Plaintiff's First Amended Complaint ("Amended Complaint") contains a statement that Deuschle requested Gruber's consultation assistance in 1999. Complaint at 2. This apparently is an error because all other facts indicate that the consultation agreement was executed in 1995. Deuschle necessarily would have requested Gruber's assistance before the agreement was executed. Accordingly, the court assumes that Plaintiff intended to state that Deuschle requested Gruber's help in 1995.
Gruber agreed to act as a consultant in the Florida suit. On May 25, 1995, Deuschle sent Gruber a consultation agreement that memorialized their arrangement. The agreement provided that "[a]s compensation for [Gruber's] consultation and assistance, [Deuschle] will share with [Gruber] the contingent fee in this matter to the extent of one-third (1/3rd) thereof." Appendix to Plaintiff's Response to Defendants' Motion for Summary Judgment at 10. The agreement was executed on June 22, 1995. See id.
Deuschle and his Florida client entered into an attorney client agreement on June 14, 1995. The agreement set Deuschle's compensation as follows:
As compensation for the services of [Deuschle's] firm, the Clients agrees [sic] to pay said firm from the proceeds of any recovery obtained by it on the Clients' behalf the following fee: . . . Forty percent (40%) of the gross recovery regardless of amount and regardless whether secured by settlement or collection of final judgment.Id. at ¶ (emphasis added). The agreement also contained an acknowledgment that Gruber, through Cowles Thompson, P.C., would work as a consultant in the litigation. The relevant language read as follows, "[Deuschle's] Firm has engaged, as consulting counsel in this matter, the firm of Cowles Thompson, P.C., . . . and has agreed to pay such counsel one-third (1/3rd) of any contingency fee received by the Firm. However, Cowles Thompson, P.C., shall not be counsel of record . . . ." Id. at 7 (emphasis added).
Deuschle settled the Florida lawsuit for $1,750,000. Under the attorney client agreement, he received $700,000, which was 40% of the settlement. Gruber left Cowles Thompson, P.C., and became affiliated with Plaintiff Godwin Gruber, P.C., f/k/a Godwin White Gruber, P.C. ("Plaintiff"). The right to receive payment under the consultation agreement was assigned to Plaintiff. Plaintiff contended that Gruber had fulfilled his obligations under the consultation agreement, and therefore requested that Deuschle pay one-third of his $700,000 contingency fee ($233,333), in accordance with the agreement. Deuschle refused. Plaintiff therefore filed an action in Texas state court for breach of contract and fraud. Plaintiff named as Defendants, Deuschle; Deuschle's law firm, Deuschle Associates; and a entity created by Deuschle, Deuschle Chartered (collectively "Defendants"). On January 5, 2000, Defendants removed the action to this court based on compete diversity of citizenship.
Defendants thereafter filed their summary judgment motion wherein they contend that: 1) Deuschle cannot be liable for breach of contract or fraud because he was discharged in bankruptcy, 2) Deuschle Chartered is not liable for breach of contract because it is not in privity of contract with Plaintiff, 3) Deuschle Associates is not liable for breach of contract because the consulting agreement is void as against public policy, and 4) Plaintiff's fraud claim is barred by the economic loss rule. After Defendants filed their summary judgment motion, Plaintiff filed its Amended Complaint on September 19, 2001. The Amended Complaint retained the breach of contract and fraud claim, and added claims for tortious interference with existing contract, conspiracy, quantum meruit, and constructive trust. The court sets forth the summary judgment standard before addressing Defendants' summary judgment motion.
II. Summary Judgment Standard
Swnmary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id.; see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23. In light of the summary judgment standard, the court evaluates Defendants' summary judgment motion.
III. Defendants' Motion for Summary Judgment
Defendants' Motion for Summary Judgment requires special consideration because Plaintiff filed its Amended Complaint and added new claims after the motion was filed. The court therefore sets out background information relevant to the summary judgment motion and Amended Complaint. Northern District of Texas Local Rule 7.1 provides that when a moving party files a motion, the nonmoving party may file a response, and the moving party may in turn file a reply to that response. Defendants' summary judgment motion was subject to this rule. Since Plaintiff's state court petition set forth only claims for breach of contract and fraud, Defendants' summary judgment motion only addressed those claims. Plaintiff filed its response to the motion in accordance with Rule 7.1, and limited the response to the claims for breach of contract and fraud. After Plaintiff filed the response, however, it filed its Amended Complaint and set forth the claims for tortious interference with contract, conspiracy, quantum meruit, and constructive trust. Defendants had not yet filed their reply when Plaintiff filed the Amended Complaint. In their reply, Defendants therefore asserted summary judgment arguments against Plaintiff's claims for tortious interference, conspiracy, and quantum meruit. Plaintiff did not address these summary judgment arguments in its response, as the response was filed prior to the reply. Plaintiff has not responded by way of a supplemental response or surreply to these arguments in the context of Defendants' summary judgment motion.
In Texas state courts, a plaintiff's original pleading is a petition, where in federal court it is a complaint.
Defendants did not address Plaintiff's constructive trust claim.
The court need not address the matter of Plaintiff not responding to Defendants' summary judgment arguments on its claims for tortious interference, conspiracy, and quantum meruit. Defendants do not contend that they are entitled to summary judgment on the claims by bringing forth evidence that there are no genuine issues of material fact regarding the claims, or by challenging the possible evidence upon which Plaintiff bases the claims. Defendants instead argue that for various reasons Plaintiff is not entitled to recover for these claims based on the legal theories it asserts. See generally Reply to Plaintiff's Response to Defendants' Motion for Summary Judgment ("Reply") at 5-6. Defendants' arguments, although characterized as summary judgment arguments, are more consistent with Rule 12(b)(6) arguments to dismiss for failure to state a claim upon which relief may be granted. This is further underscored because Defendants' Motion to Dismiss Plaintiff's First Amended Complaint ("Motion to Dismiss") contains arguments regarding Plaintiff's claims for tortious interference, conspiracy, and quantum meruit that are essentially identical to Defendants' summary judgment arguments on the claims.
The court therefore disregards the summary judgment arguments on tortious interference, conspiracy, and quantum meruit, and will address the arguments by separate order when it considers Defendants' Motion to Dismiss. This eliminates any procedural peculiarities associated with the timing of the arguments, and Defendants are not prejudiced by this since the court will address the arguments when it resolves the Motion to Dismiss. Accordingly, the court will limit its review of Defendants' summary judgment motion to the breach of contract and fraud claims.
A. Breach of Contract
Defendants move for summary judgment on Plaintiff's breach of contract claim on the grounds that: 1) Deuschle cannot be liable for breach of contract because he was discharged in bankruptcy, 2) Deuschle Chartered is not liable for breach of contract because it is not in privity of contract with Plaintiff, and 3) Deuschle Associates is not liable for breach of contract because the consulting agreement is void as against public policy. Memorandum in Support of Defendants' Motion for Summary Judgment ("Defendants' Memorandum") at 2-3. Pursuant to stipulation between the parties, Deuschle was dismissed from this lawsuit by order dated October 29, 2001. Accordingly, for purposes of this summary judgment analysis, arguments related to Deuschle are moot. The court therefore will not consider Defendants' contention that Deuschle was discharged in bankruptcy, and focuses only on Defendants' contentions that Deuschle Chartered is not in privity of contract with Plaintiff, and that the consultation agreement is void as against public policy.
i. Privity of Contract with Deuschle Chartered
Defendants contend that Deuschle Chartered "has no privity with the Plaintiff with respect to the [consultation agreement] herein sued upon as the Plaintiff is attempting to impose liability upon [Deusehle Chartered] ex post facto." Defendants' Memorandum at 4. Defendants continue, "[t]he Affidavit of [Deusehle] . . . and [a] Certificate from the Secretary of State of the State of Florida . . . conclusively establish that [Deuschle Chartered] was organized on February 2, 1998, or approximately two and one-half years after the [consultation agreement] herein sued upon was entered into . . . ." Defendants' Memorandum at 4-5. Plaintiff responds to this contention by alleging that it had a contract implied-in-fact with Deuschle Chartered, that it alternatively has an express contract with Deuschle Chartered, or that Deuschle chartered cannot challenge the existence of a contract because of estoppel, waiver, and laches. Plaintiff's Response to Defendants' Motion for Summary Judgment ("Plaintiff's Response") at 2-4.
The parties appear to debate whether Florida or Texas law governs this dispute. See generally id. at 5. The court need not address this issue because regardless of which law applies, the court reaches the same result. In Texas, privity is defined as a "mutual or successive relationship to the same rights of property." City of Dallas v. Brown, 150 S.W.2d 129, 131 (Tex.Civ.App.-Dallas 1941, writ dism'd). Texas law also recognizes that "[i]t is an elementary rule of law that privity of contract is an essential element of recovery in an action based on contractual theory." Republic Nat'l Bank v. National Bankers Life Ins. Co., 427 S.W.2d 76, 79 (Tex.Civ.App.-Dallas 1968, writ ref'd n.r.e.). "Thus generally in order to maintain an action to recover damages flowing from the breach of a written agreement it is ordinarily a necessary prerequisite that there be a privity existing between the party damaged and the party sought to be held liable for the repudiation of the agreement." Id. Florida law also recognizes this principle. See Baskerville-Donovan Eng'rs, Inc. v. Pensacola Executive House Condo. Ass'n, 581 So.2d 1301, 1302 (Fla. 1991) (holding that "[t]he term `privity' is a word of art that derives from the common law of contracts. It is commonly used to describe the relationship of persons who are parties to a contract. . . . At early common law, only those in direct privity to a contract could sue on a contract"); see also Elizabeth N. v. Riverside Group, Inc., 585 So.2d 376, 378 (Fla. 1st Dist.Ct.App. 1991) (recognizing that a"[a] contract cause of action requires privity."). Accordingly, whether Texas or Florida law governs, Defendants' summary judgment argument regarding privity fails for the following reasons.
Defendants attempt to establish that no privity exists by showing that Deuschle's affidavit and a certificate from the Florida Secretary of State show that Deuschle Chartered was not created until after the consultation agreement was entered. This is not sufficient to show that there is no evidence to support the breach of contract claim against Deuschle Chartered, because under Texas law "an entity yet incorporated will still be held liable for pre-incorporation acts that are ratified or from which the entity derives benefits." Costal Shutters and Insulation, Inc. v. Derr, 809 S.W.2d 916, 920 (Tex.App.-Houston [14th Dist.] 1991, no writ) (emphasis added). The law essentially is the same in Florida. See Meyer v. Nator Holding, Co., 136 So. 636, 638 (Fla. 1931) (holding that "[t]he rule appears to be general that after a corporation comes into being, it may make the contracts and agreements of its promoters its own by express agreement or by ratification or adoption; such ratification may be by express corporate acts or by any other legal means employed by the corporation to approve the unauthorized or officious acts of those made in its behalf, as where the corporation voluntarily accepts the benefits accruing to it from the engagement of its promoters . . . .") (emphasis added).
Defendants set forth no competent summary judgment evidence that Deuschle Chartered did not ratify the contract. Defendants completely ignore this issue. Moreover, even assuming that Defendants had submitted competent summary judgment evidence that Deuschle chartered was not in privity of contract with Plaintiff, Plaintiff provides evidence that "$1.75 million was wired into the bank account of [Deusehle Chartered]" and that Deuschle Chartered "accepted the benefit of the contract by accepting aid and consultation of [Gruber] . . . ." See Plaintiff's Response at 3. Plaintiff does not expressly refer to the ratification doctrine in setting forth this evidence, but references whether Deuschle Chartered "assumed the obligations or was an assignee . . . under the contract . . . ." See Plaintiff's Response at 3. The evidence is sufficiently consistent with the doctrine of ratification to place the issue in dispute. Accordingly, the court concludes that even if Defendants had submitted competent summary judgment evidence regarding lack of privity, Plaintiff's summary judgment evidence raises a genuine issue of material fact regarding whether Deuschle Chartered ratified the consultation agreement after the entity was created. Defendants' lack of privity argument therefore fails for summary judgment purposes. ii. Public Policy
Plaintiff has raised issues concerning an implied-in-fact contract, waiver, estoppel, and laches in response to Defendants' lack of privity argument. In light of the court's ruling, the court need not address these issues. If, however, the issues become relevant later in this case, the parties are directed to submit briefing directly addressing the issues.
Defendants contend that the consultation agreement is void as against public policy because it does not comply with Florida's requirements for a contingency fee agreement. Defendants' Memorandum at 5-6. The requirements for a contingency fee agreement are that:
(1) the agreement must be reduced to a written contract; (2) each participating attorney or law firm shall sign the contract or agree in writing to be bound by the terms of the contract with the client; (3) each attorney shall agree to assume the same legal responsibility to the client for the performance of the services in question; and (4) the client shall be furnished with a copy of the signed contract.Chandris v. Yanakakis, 668 So.2d 180, 185 (Fla. 1995) (emphasis added). Defendants contend that "Plaintiff did not assume the same degree of legal responsibility for the performance of services to the client in the Florida litigation [because] Plaintiff refused to appear as counsel in the Florida Litigation." Defendants' Memorandum at 5. According to Defendants, the consultation agreement therefore does not comply with the third requirement set forth in Chandris, and is void. Id. at 5-6.
Plaintiff in part responds to this contention by contending that even if the consultation agreement is subject to Chandris, it is not void as against public policy, because of the following language in the Chandris opinion:
We do state that a non-Florida attorney can join with a Florida attorney in a joint representation of a client in Florida on the basis of a contingent fee agreement that complies with the rules. Such a Florida contingent fee agreement for joint legal services in personal injury or tort cases has to be in writing, must be executed by the client(s), a Florida attorney, and the non-Florida attorney, and must state the division of fees to be applied.668 So.2d at 186 (emphasis added). This portion of Chandris appears to directly address Plaintiff and Defendants' contractual relationship. Defendants, however, have not even alleged, much less established, that evidence exists in the record to establish that the consultation agreement does not comply with the requirements set forth in this portion of the opinion. Defendants instead simply state:
Plaintiff's argue [sic] that the ruling in [ Chandris] is inapplicable citing language contained in the decision that non-Florida lawyers may join with a Florida attorney in joint representation of a client in Florida on the basis of a contingent fee agreement which complies with The Florida Bar Rules. The Plaintiff then, in a quantum leap of irrationality, maintains that this language somehow exculpates it from the [ Chandris] ruling.
Reply at 8 (emphasis added). This statement is conclusory and does not help the court resolve whether the consultation agreement is void as against public policy. Defendants do not explain why it is a quantum leap for Plaintiff to contend that the consultation agreement is subject to the portion of Chandris that deals with non-Florida attorneys joining with a Florida attorney. Further, the court cannot discern why it is irrational for Plaintiff to rely on that portion of the opinion. It appears that Defendants simply ignore this portion of Chandris, although it appears to directly address the parties' relationship, and could validate the consultation agreement.
Plaintiff further responds to Defendants' contention that the consultation agreement is void, by asserting that "Defendant[s] cite no authority for the proposition that an attorney retained only for assistance and consultation has not assumed the `same legal responsibility to the client' as the attorney hired to actually appear in court." Plaintiff's Response at 5. This argument appears to raise a valid issue regarding the proper application of Chandris, but Defendants once again simply ignore the argument. Defendants' failure to adequately brief these issues does not permit the court to conclude that no genuine issue of material fact exists regarding Defendants' argument that the consultation agreement is void as against public policy. Accordingly, summary judgment on Defendants' behalf is not appropriate on this claim.
B. Fraud
Defendants contend that "Plaintiff's fraud claim is a quintessential example of a claim precluded by both the Texas and the Florida Economic Loss Rule [because] Plaintiff's fraud claim requires the Court to enforce the [consultation agreement] by assessing damages for [Deuschle Associates's] alleged failure to carry out the terms [of the consultation agreement]." Defendants' Memorandum at 6. Under Texas law., the economic loss rule provides that "acts of a party may breach duties in tort or contract alone or simultaneously in both. The nature of the injury most often determines which duty or duties are breached. When the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone." Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). Under Florida law, the rule is the same. See AFM Corp. v. Southern Bell Tel. Tel. Co., 515 So.2d 180, 181-82 (Fla. 1987) (holding that "without some conduct resulting in personal injury or property damage, there can be no independent tort flowing from a contractual breach which would justify a tort claim solely for economic losses."). Defendants' argument regarding the economic loss rule fails, because Plaintiff contends that he is seeking to recover for fraudulent inducement. See Plaintiff's Response at 7. Fraudulent inducement claims are not subject to the economic loss rule under Texas or Florida law. See Formosa Plastics USA v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998); see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1996) (holding that "[t]he economic loss rule has not eliminated causes of action based upon torts independent of the contractual breach even though there exists a breach of contract action. Where a contract exists, a tort action will lie for either intentional or negligent acts considered to be independent from acts that breached the contract. . . . Fraudulent inducement is an independent tort in that it requires proof of facts separate and distinct from the breach of contract."). Defendants' Motion for Summary Judgment therefore is denied.
IV. Conclusion
For the reasons stated herein, Defendants' Motion for Summary Judgment is denied. As stated before, there is some dispute whether Texas or Florida law applies. The court does not believe that this issue has been adequately briefed. If this case proceeds to trial, it is necessary that the parties fully brief the issues as to the applicability or inapplicability of Texas or Florida law. Such briefing must include the arguments of the parties and applicable authority that supports their respective positions. In other words, the court desires to know the specific reasons that one state's law does or does not apply, and this will of course require adequate discussion of any subordinate issue necessary to determine which state's law applies.