Opinion
No. 01-08-00969-CV
Opinion issued May 12, 2011.
On Appeal from the 157th District Court, Harris County, Texas, Trial Court Case No. 2005-59482.
Panel consists of Chief Justice RADACK and Justices MASSENGALE and NUCHIA.
The Honorable Sam Nuchia, Senior Justice, Court of Appeals for the First District of Texas, sitting by assignment.
Justice SHARP called for en banc consideration of this case. See TEX. R. APP. P. 41.1, 41.2(c).
A majority of the Court voted to deny en banc consideration.
Justice SHARP dissents from the denial of en banc consideration. A dissenting opinion is to follow.
OPINION
Gary Pitts and Pitts Collard, LLP sued Arthur L. Schechter, Arthur L. Schechter, P.C. d/b/a Schechter Associates, Schechter Marshall, L.L.P., and Schechter, McElwee Shaffer, L.L.P. for breach of contract. The contract claim was based upon an allegation that the Schechter parties failed to pay referral fees from nearly a thousand lawsuits that Pitts referred by way of nine letter agreements. Pitts also sued the Schechter parties for breach of a subsequent 1995 agreement, which also pertained to fees and expenses from certain referred cases.
Pitts Collard's interest in this case was assigned to Pitts because the firm closed its business except to wind up these pending cases, and Collard settled with Schechter on his own behalf and on behalf of his one-half interest in the partnership. For simplicity, some references to "Pitts" in this opinion denote both the individual and the partnership. Similarly, because of the unity of interests, Schechter's law firms may be referred to as "the Schechter parties" or "Schechter."
Schechter raised several affirmative defenses, countersued for breach of contract based on the nine letter agreements, and sued for defamation and abuse of process. He alleged that as retribution for the dispute over referral fees, Pitts made slanderous statements to the Houston City Council before approval of his nomination to serve as the Chairman of the Metropolitan Transit Authority of Harris County. Schechter also alleged that Pitts slandered him to professional colleagues, interfered with his client relationships by sending letters informing the clients they were being charged interest on their litigation expenses and informing them how to file a grievance, and abused the litigation process by failing to file certain exhibits under seal as the trial court had ordered. Both parties raised various affirmative defenses, and the case was tried to a jury.
After considering the jury's verdict, numerous post-trial motions, and the applicable law as provided by the parties, the trial court entered judgment as follows:
• take-nothing judgment against Pitts on the breach-of-contract claim pertaining to the nine letter agreements, based on the jury's answers to questions about Pitts's prior breach, prior repudiation, and the commercial impracticability of the agreements;
• judgment for the Schechter parties, including attorney's fees, on their breach-of-contract claim pertaining to the letter agreements;
• judgment for Pitts on the breach-of-contract claim pertaining to the 1995 contract;
• take-nothing judgment against Schechter on his claims pertaining to Pitts's communication with the clients;
• judgment for Schechter for compensatory and punitive damages on the abuse-of-process claim;
• judgment for Schechter for compensatory and punitive damages on the defamation claim that alleged Pitts slandered him to his colleagues; and
• judgment not withstanding the verdict in favor of Pitts on Schechter's defamation claim relating to statements made before the Houston City Council because these claims were barred by limitations.
Both Pitts and Schechter filed notices of appeal addressing both the contract and tort parts of the underlying case. We affirm the trial court's judgment pertaining to the contract claims, and we reverse and render a take-nothing judgment on Schechter's abuse of process and professional colleague defamation causes of action.
I. Background
In the early 1990s, attorney Gary Pitts and his law partner, Ed Collard, advertised about the product liabilities associated with silicone breast implants. As a result of their advertising campaign, over a thousand women retained Pitts Collard to pursue possible claims. The major manufacturers of silicone breast implants announced a global settlement in September 1993, after negotiations with a plaintiffs' steering committee in a federal lawsuit filed in Alabama. Any woman with silicone breast implants could opt into this settlement. One feature of this settlement was that an opt-in claimant's attorney's contingency fee would be reduced to 25%. The settlement was approved by the federal district court in early 1994.
From late 1993 through 1994, in a series of nine letter agreements, Pitts Collard referred approximately 1,000 clients to the law firm of attorney Arthur L. Schechter. Each such agreement referred to the lawyers' prior agreements and course of dealing, which included a 60/40 split of attorney's fees on a fees-recovered basis, with the larger amount going to Schechter's firm and the balance to Pitts Collard. After the second such letter agreement was signed, the lawyers jointly sent a letter to their clients stating that they would share the work and share the fee received from their cases. The client letter indicated that Richard Melancon, an attorney associated at that time with Schechter, would have day-to-day responsibility for their cases.
Initially, the lawyers thought this would be a lucrative arrangement because of the global settlement. But in the summer of 1995, one of the largest manufacturers of silicone breast implants, Dow Corning, sought bankruptcy protection. The global settlement was revised to apply only to claims against the other major implant manufacturers. The lawyers continued to advocate actively for the clients in cases that did not involve Dow Corning.
A dispute arose in 1995, and Pitts sued Schechter, alleging that the cases were being mismanaged. That lawsuit settled after mediation. As part of the settlement, the parties referred almost 400 of the breast-implant cases to attorney Richard Laminack. However, Laminack refused to take any cases against Dow Corning.
Schechter argues that Pitts stopped working on the cases in 1996, although Schechter continued to represent the clients and pay Pitts referral fees until late 1997. The revised global settlement ended in 1999. At that time, only the Dow Corning cases remained from the cases referred by Pitts to Schechter. But the Dow Corning bankruptcy court had dramatically reduced the fees recoverable by claimants' attorneys, and in some types of cases, the federal court had disallowed attorney's fees entirely. This resulted in a financial loss to the attorneys, particularly Schechter, who had fronted expenses in the cases. In 2001, Pitts sought arbitration under the 1995 settlement agreement, alleging that Schechter was not properly sharing fees. In March 2002, the parties arbitrated the dispute, which was resolved in Schechter's favor.
Meanwhile, by April 2002, Schechter had been appointed to the board of directors of the Metropolitan Transit Authority of Harris County, and he was under consideration to become the chairman. On April 2, 2002, approximately two weeks after the arbitration, Pitts spoke at a public meeting of the Houston City Council, insinuating that Schechter was difficult, dishonest, and unethical in the conduct of his business and political affairs. These comments were recorded and broadcast through local-access cable television. Pitts implored the city council to investigate Schechter and to begin by speaking to his former colleagues and law partners. Pitts also spoke to some of Schechter's former associates and partners about his appointment to the METRO board and the consideration of him for its chairmanship. He told Melancon and other former colleagues of Schechter that someone from city council might contact them to discuss their private opinions about Schechter.
Pitts became aware in 2004 that Schechter had begun charging the clients interest on the expenses paid on the contingent-fee cases. Pitts informed the clients that this practice was not part of their contingent-fee arrangement. He also told them how to file a grievance with the State Bar. Subsequently, Schechter stopped charging the clients interest.
Pitts sued Schechter in 2005 for breach of contract and other claims, alleging that Schechter owed him attorney's fees from the nine letter agreements. Pitts generally contended that he was entitled to share in the attorney's fees recovered, and that Schechter was not entitled to an offset for losses in those cases resulting only in a loss. Schechter took the opposite position, arguing that the losses in some cases should be offset against the attorney's fees collected in other cases. Schechter also countersued for breach of contract, alleging that Pitts did not share the litigation work and that Schechter had to hire other people to do the work. Finally, Schechter sued for defamation related to the comments that Pitts made before city council in 2002 and repeated to Schechter's professional colleagues. During the course of litigation, Pitts repeatedly filed a recording of the statements he made before city council, but he did not file them under seal as required by a protective order entered by the trial court at the agreement and request of the parties. As a result, Schechter added a claim for abuse of process.
II. Claims arising from joint representation
Both parties appeal from various aspects of the judgment relating to disputes over their joint representation of the breast-implant clients. Pitts challenges the judgment against him for breach of contract. Schechter challenges the rejection of some of his contract claims on limitations grounds as well as the rejection of his claim that the parties had a joint venture which gave rise to a duty of good faith and fair dealing that was allegedly breached by Pitts. Both parties raise issues relating to attorney's fees.
A. Pitts's appeal concerning the nine letter agreements
The jury found that Pitts was first to breach the nine letter agreements and that Schechter's breach was excused by Pitts's repudiation and by commercial impracticability. The trial court entered judgment on the jury's verdict in Schechter's favor. Pitts raises numerous appellate issues pertaining to his contract claim, arguing that the trial court erred in failing to render judgment in his favor. He disputes the legal and factual sufficiency of the evidence supporting three affirmative defenses asserted by Schechter: prior breach, prior repudiation, and commercial impracticability. He also asserts that the trial court should not have set aside the jury's finding that Schechter failed to pay fees because Schechter elected to continue the contract and thereby waived his opportunity to have his obligations discharged.
1. Prior breach by Pitts
Pitts argues that there was no evidence, or legally and factually insufficient evidence, to support the jury's verdict that he was first to breach the nine letter agreements by not sharing the litigation work. In a legal sufficiency, or "no-evidence" review, we determine whether the evidence would enable reasonable and fair-minded people to reach the verdict under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In making this determination, we credit favorable evidence if a reasonable fact-finder could, and we disregard contrary evidence unless a reasonable fact-finder could not. Id. We consider the evidence in the light most favorable to the finding under review and indulge every reasonable inference that would support it. Id. at 822. So long as the evidence falls within the zone of reasonable disagreement, we may not substitute our judgment for that of the fact-finder. Id. The trier of fact is the sole judge of the credibility of the witnesses and the weight accorded to their testimony. Id. at 819. Although we consider the evidence in the light most favorable to the challenged findings, indulging every reasonable inference that supports them, we may not disregard evidence that allows only one inference. Id. at 822.
Schechter contends that the issue of legal sufficiency of the evidence was not preserved. To preserve a complaint for appellate review, a party must first demonstrate that the complaint was made to the trial court by a timely request, objection, or motion. TEX. R. APP. P. 33.1. A "no-evidence" issue is raised in the trial court and preserved for appellate review in one of five ways: (1) a motion for instructed verdict, (2) a motion for judgment n.o.v., (3) an objection to the submission of the issue to the jury, (4) a motion to disregard the jury's answer to a vital fact issue, or (5) a motion for new trial. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 220 (Tex. 1992); Cecil v. Smith, 804 S.W.2d 509, 510-11 (Tex. 1991); El-Khoury v. Kheir, 241 S.W.3d 82, 86 (Tex. App.-Houston [1st Dist.] 2007, pet. denied). Pitts filed five motions for judgment n.o.v., in which he argued that there was no evidence or jury finding that he breached the nine letter agreements, that there was no evidence that the alleged breach was material, and that Schechter waived the excuse of prior repudiation by not promptly suing Pitts and instead waiting for Pitts's performance under the contract. In addition, Pitts argued at length in his initial motion for judgment n.o.v. that the nine letter agreements were an integrated contract and were not ambiguous, therefore the jury should not have been permitted to consider parol evidence in determining whether Pitts breached the contract and whether his breach preceded Schechter's contractual breach. Pitts also filed a motion for new trial, in which he argued, among other things, that the evidence was legally and factually insufficient to support the jury's answers on these issues. Pitts's motions for judgment n.o.v. and his motion for new trial were sufficient to inform the trial court of the complaints he now raises on appeal, i.e., that there was no evidence to support Schechter's affirmative defenses and that he did not breach the nine letter agreements because they unambiguously do not require him to share the work. Thus, we conclude that these issues are preserved for our review.
In a factual-sufficiency review, the court must examine both the evidence supporting and contrary to the judgment. See Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001); Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). In reviewing a factual-sufficiency challenge to a jury finding on an issue on which the party did not have the burden of proof, we consider and weigh all of the evidence and set aside the verdict only if the evidence that supports the jury finding is so weak as to make the verdict clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Raw Hide Oil Gas, Inc. v. Maxus Exploration Co., 766 S.W.2d 264, 275 (Tex. App.-Amarillo 1988, writ denied). The fact-finder is the sole judge of the witnesses' credibility and the weight to be given their testimony, and the fact-finder may choose to believe one witness over another. See Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). Because it is the fact-finder's province to resolve conflicting evidence, we must assume that the fact-finder resolved all evidentiary conflicts in accordance with its decision if a reasonable person could have done so. See id. An appellate court may not impose its own opinion to the contrary of the fact-finder's implicit credibility determinations. Id. a. Ambiguity of agreements
In his motion for new trial, as on appeal, Pitts argued that the evidence was factually insufficient to support the jury's finding as to Schechter's affirmative defenses. The standard of review of the denial of a motion for new trial is abuse of discretion. Champion Int'l Corp. v. Twelfth Court of Appeals, 762 S.W.2d 898, 899 (Tex. 1988) (orig. proceeding). A trial court abuses its discretion when it acts in an arbitrary or unreasonable manner, or if it acts without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985).
Pitts's legal argument that he had no obligation to share the litigation work relies upon the text of the nine letter agreements, which he contends was unambiguous in that regard. "When construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent." Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); see Tellepsen Builders, L.P. v. Kendall/Heaton Assocs., Inc., 325 S.W.3d 692, 695 (Tex. App.-Houston [1st Dist.] 2010, pet. denied). Whether a contract is ambiguous is a question of law, which we review de novo. See Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); Tellepsen Builders, 325 S.W.3d at 696.
A contract is not ambiguous if its wording permits a definite or certain legal meaning. DeWitt Cnty. Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 100 (Tex. 1999); Nat'l Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 520 (Tex. 1995). A contract is ambiguous if, after applying established rules of construction, its meaning is uncertain and doubtful or the writing is reasonably susceptible to more than one meaning. DeWitt Cnty. Elec. Coop., 1 S.W.3d at 100; Coker, 650 S.W.2d at 393. In determining whether a contract is ambiguous, courts construe and harmonize all provisions of the contract to discern the parties' intent. Coker, 650 S.W.2d at 393-94; Tellepsen Builders, 325 S.W.3d at 695. This inquiry also considers the context of the agreement of the parties and the circumstances present when the agreement arose. Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996). To discern the contracting parties' intent, courts may properly consider all writings pertaining to the same transaction, even if the writings were executed at different times and do not expressly refer to one another. DeWitt Cnty. Elec. Coop., 1 S.W.3d at 102; see also Miles v. Martin, 159 Tex. 336, 341, 321 S.W.2d 62, 65 (1959) ("It is well settled that separate instruments executed at the same time, between the same parties, and relating to the same subject matter may be considered together and construed as one contract. This undoubtedly is sound in principle when the several instruments are truly parts of the same transaction and together form one entire agreement." (citation omitted)).
A writing is not ambiguous merely because it lacks clarity or because a disagreement in interpretation arises. DeWitt Cnty. Elec. Coop., 1 S.W.3d at 100; Tellepsen Builders, 325 S.W.3d at 696. "The parties' interpretation of a contract is parol evidence, and parol evidence is not admissible to create an ambiguity." Zurich Am. Ins. Co. v. Hunt Petroleum (AEC), Inc., 157 S.W.3d 462, 465 (Tex. App.-Houston [14th Dist.] 2004, no pet.) (citing Friendswood Dev. Co., 926 S.W.2d at 283). Likewise, parol evidence of the parties' intent is not admissible to vary the terms of an otherwise unambiguous instrument. See Estes v. Rep. Nat'l Bank, 462 S.W.2d 273, 275 (Tex. 1970). For parol evidence of the parties' intent to be admissible, the contract must first be ambiguous as a matter of law. See id.
On appeal, as in the trial court, Pitts argues that the jury should have been restricted to considering only the written language in the nine letter agreements. The charge asked the jury to determine if either Arthur L. Schechter, P.C. or Pitts Collard, L.L.P. failed to comply with the nine letter agreements. The jury was instructed that it could consider parol evidence. All the letter agreements were substantially the same, and provided as follows:
1. November 5, 1993. "This letter will confirm that we are referring the attached one hundred (100) cases to be handled by Richard Melancon, Esq. of your law firm on our usual 60%/40% split of attorney's-fees-recovered basis, with the larger amount to your firm, and the balance to our firm. . . . We would also like to be copied in on significant pleadings and correspondence and have the option of attending the trial of any of these cases in a `second chair' status. Our referral of these cases and this agreement are irrevocable, and we appreciate your firm's assistance in this matter. . . . Again, we thank you for your involvement and look forward to working with you on these cases and additional cases in the future."
2. December 31, 1993. "This letter will confirm that we are referring the attached five hundred seventy-one cases to Richard Melancon, Esq. of your law firm on our usual 60%/40% split of attorney's-fees-recovered basis, with the larger amount to your firm, and the balance to our firm. . . . Our referral of these cases and this agreement are irrevocable, and we appreciate your firm's assistance in this matter. . . . Again, we thank you for your involvement and look forward to working with you on these cases and additional cases in the future."
3. March 10, 1994. The letter retracted 13 files that were mistakenly referred and referred an additional 298 cases "on the same 60%-40% referral basis as set out in our December 31, 1993, letter regarding the previous 571 cases." It concluded, "We look forward to working with you on these cases and on other matters in the future."
4. March 26, 1994. This letter referred an additional 114 cases, again referred to the letter of December 31, 1993, and stated: "We look forward to working with you on these cases and on other matters in the future."
5. May 5, 1994. This letter referred an additional 17 cases, again referred to the letter of December 31, 1993, and stated: "We look forward to working with you on these cases and on other matters in the future."
6. May 19, 1994. This letter referred an additional 21 cases, again referred to the letter of December 31, 1993, and stated: "We look forward to working with you on these cases and on other matters in the future."
7. June 10, 1994. This letter referred an additional 9 cases, referred to the letter of December 31, 1993, and stated: "Thank you for your attention and assistance in these and other matters."
8. August 19, 1994. This letter referred 3 cases and referred to the December 31, 1993 letter. It concluded, "Thank you for your attention and cooperation in these and other matters."
9. September 9, 1994. This letter referred one case and referred to the December 31, 1993 letter. It concluded, "Thank you for your attention and cooperation in these and other matters."
On January 31 1994, Pitts and Melancon sent a joint letter, on Pitts Collard, L.L.P. letterhead, to the clients whose cases had been referred to Schechter. This letter stated:
A lawsuit has been filed in Federal Court on your behalf by the Law Offices of Pitts Collard, LLP, in association with the Law Offices of Schechter Associates. Our two offices will work together on your case, but Schechter Associates and its staff will do most of the day-to-day work with you and you should report important events to them and cooperate with their staff as fully as you have to date with Pitts Collard, LLP. . . . Both our firms will share the work and share the fee in your case. . . .
(Emphasis supplied.)
Under the Rules of Disciplinary Conduct, a client must consent in writing to a referral agreement to give it effect. See Tex. Disciplinary R. Prof'l Conduct 1.04(f)(2), reprinted in TEX. GOV'T CODE ANN., tit. 2, subtit. G app. A (West 2005) (Tex. State Bar R. art X, § 9). In particular, Rule 1.04(f) states:
A division or arrangement for division of a fee between lawyers who are not in the same firm may be made only if . . . the client consents in writing to the terms of the arrangement prior to the time of the association or referral proposed, including . . . whether fees will be divided based on the proportion of services performed or by lawyers agreeing to assume joint responsibility for the representation. . . .
Id. The letter that Pitts and Melancon sent on January 31, 1994 was the mechanism by which the lawyers solicited the clients' consent, which was required to effectuate the referral and fee-sharing agreement. Therefore this letter pertains to the same transaction as the nine letter agreements, and we must consider it in determining the parties' intent and whether the contracts were ambiguous. See DeWitt Cnty. Elec. Coop., 1 S.W.3d at 102. Based on the nine letter agreements and the letter that the lawyers sent to their clients, we find that their meaning is uncertain and doubtful with respect to the disputed questions of whether and to what extent the two law firms would divide professional responsibilities for the preparation of cases on behalf of their joint clients. While the letters stated that referred cases would be "handled by" Melancon, they also referenced the two firms "working" together, Pitts reserved the option to act as second-chair counsel, and the letter to clients stated that the firms would "work together" and "share the work."
Because the agreement was reasonably susceptible to more than one meaning, we hold that the nine letter agreements were ambiguous in regard to this question and that the trial court did not err by permitting the jury to consider parol evidence in answering the breach-of-contract question. See id. at 100; Coker, 650 S.W.2d at 393-94.
b. Sufficiency of evidence
Agreement to share work. As noted above, the nine letter agreements and the letter to clients soliciting their consent to the referrals contain statements suggesting an intent for the lawyers to continue working together on the clients' cases. For example, the first six letters from Pitts to Schechter stated, "We look forward to working with you on these cases." The letter to the clients said, "Both our firms will share the work and share the fee in your case."
Because the parties' agreement was ambiguous about the division of work responsibilities, the jury was entitled to consider parol evidence, such as the parties' testimony about the agreement. Schechter testified that their "deal at the time" was that they would handle the cases jointly. Regarding the client letter, Schechter testified:
To me that meant that we were going to jointly handle this mass-tort case as a project, that we were going to work on it together, that I was going to be responsible for setting up what needed to be done, Richard Melancon and Gary Pitts were going to be the lead counsel in the litigation; and then there was an understanding that if the case actually had to be litigated at some point down the line, that I would become involved in the active litigation, that as far as the project itself goes, you know, it was going to be a joint deal.
In March 1994, Pitts and Melancon (on behalf of Schechter's firm), sent a joint litigation update to their clients, on Pitts Collard letterhead, which suggests that the parties were working together on the cases. The same month, a memorandum from Pitts to Collard, Schechter, and Melancon detailed a litigation plan, which specified how the four lawyers should share the work of interviewing their clients.
Two months later, Pitts sent a memo to "Task Force Leader Schechter" about the referred implant cases. Pitts requested a change to the affidavits they were asking their clients to sign. The memo stated: "At the bottom of the affidavit we ask that you change it to: `This will further ratify that my attorneys, Pitts Collard, L.L.P. have associated Arthur Schechter Associates in my case.'" In addition, Pitts stated, "We appreciate your trying to set up modem ability between our computers. This will save everyone a lot of time." Based on this and other parts of the record, we conclude that the evidence is legally sufficient to support the jury's verdict that the parties agreed to share the litigation work. See City of Keller, 168 S.W.3d at 827.
Prior breach by Pitts. Two breast-implant clients testified. One testified that based on the January 1994 letter, she expected both law firms to work together on her case, but she received no regular correspondence from Pitts or his firm. She testified that from 1994 through 2004, she had no indication that Pitts was working on her case, and she believed he had simply stopped working on it. She testified that she believed Pitts abandoned her case around 1994 or 1995, stating: "I thought they fell off the edge of the world."
Another client also testified that based on the January 1994 letter, she believed the law firms would work together to represent her. However, she testified that Pitts had done no work on her case since around the time Dow Corning filed for bankruptcy, approximately mid-1995. Regarding Pitts Collard's involvement, she said, "[T]hey never called me after the initial visit. . . . They didn't do any work. They never contacted me."
Schechter testified that he was the only attorney handling these cases since 2002 and that Pitts stopped working with him years before that. He testified that "after 1995 basically there really wasn't any reason for me to assert much of anything to try to get their help. And after 1996, they continued to give instructions on the file but would not do anything to help or participate." Schechter paid Pitts 40% of the attorney's fees received in the referred cases until October 1997, at which time Schechter instructed his staff to set the fees due to Pitts aside in a separate account. A paralegal who worked for Schechter testified that Schechter sent at least one additional check to Pitts after 1997, but Pitts did not cash it. Schechter testified that he continued to communicate with Pitts and send him copies of client settlement statements through 1998. Even Pitts acknowledged that the letter he sent the clients in 2004 regarding Schechter's assessment of interest was his first communication with the clients in approximately eight years.
Viewing the evidence in the light most favorable to the verdict, we conclude that the evidence was legally sufficient to enable reasonable jurors to conclude that Pitts agreed to share the litigation work, Pitts stopped sharing the litigation work in approximately 1996, and Schechter continued to pay Pitts under the agreement through 1997. We hold that the evidence was therefore legally sufficient to show that Pitts breached the contract first. See City of Keller, 168 S.W.3d at 827.
We also hold that the evidence was factually sufficient to support the jury's verdict as to Pitts's prior breach and that the trial court did not abuse its discretion in denying Pitts's motion for new trial. Central to Pitts's factual-sufficiency issue are his contentions that he never agreed to share the work and that the writings between the parties did not evidence any agreement or obligation for him to share the litigation work. Pitts testified to this throughout the trial. The jury's determination about Pitts's prior breach depended heavily on its interpretation of the contract, which, in turn, depended on an evaluation of the credibility of the witnesses. Simply put, the parties disagreed about the meaning of their agreement. We may not overrule the jury's implicit credibility determinations. Golden Eagle Archery, 116 S.W.3d at 761. For this reason, and based on the evidence in the record, we conclude that the evidence supporting the jury's finding as to prior breach was not so weak as to make the verdict clearly wrong and manifestly unjust. See Cain, 709 S.W.2d at 176.
Because we must affirm the trial court's judgment on any legal theory that is supported by the evidence and the jury's verdict, we need not consider Pitts's arguments about the legal and factual sufficiency of the evidence to support Schechter's other affirmative defenses. See Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990).
2. Effect of Schechter's continuing representation of the joint clients
Despite legally sufficient evidence supporting the jury's verdict on Schechter's affirmative defense of prior breach, Pitts contends that Schechter waived his right to assert prior breach by electing to continue the contract. The argument is that if Schechter believed Pitts had breached the agreements first, he could have ceased performance and sued for breach of contract in 1996 or found substitute counsel. Under this theory, because Schechter chose to continue, Pitts contends that he remained obligated to share the fees he collected. See, e.g., Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708 (Tex. 1982) ("A party who elects to treat a contract as continuing deprives himself of any excuse for ceasing performance on his own part."); Henry v. Masson, No. 01-07-00522-CV, 2010 WL 5395640, at *14 (Tex. App.-Houston [1st Dist.] Dec. 30, 2010, no pet.). In response, Schechter argues that his continued representation of the clients should not be given any such effect because he owed duties arising from the attorney-client relationship independent of the fee arrangement with Pitts.
Pitts also contends that Schechter receives a double-recovery windfall if he is permitted to keep the full measure of attorney's fees he collected from the breast-implant clients and also recover damages from Pitts for out-of-pocket expenses to hire extra employees to do the work that Pitts failed to perform. This argument does not directly support the issue raised by Pitts, i.e. that Schechter had a continuing contractual obligation to split the fees collected. The windfall complaint instead goes to the measure of damages awarded for Pitts's breach — a matter not contested through an issue challenging the legal or factual sufficiency of the evidence to support the amount of the award.
Pitts wrongly assumes that Schechter treated his failure to share work as a partial breach (which, by his conduct, Schechter purportedly elected to waive) rather than a total breach of their agreement (terminating Schecter's obligation to perform and giving rise to the claim for damages). Pitts identifies no actions by Schechter that constituted a continuation of the agreement between them other than continuing to "operate" under the letter agreements and "accept the benefits of the agreements," meaning that he continued to render services to the joint clients and collect a fee. Just as a landowner exercising his independent rights over his property may move into a defective home without thereby waiving complaints against the builder who breached a construction contract, see E. ALLAN FARNSWORTH, CONTRACTS § 8.19, at 598 (3d ed. 1999) (citing Cawley v. Weiner, 140 N.E. 724, 725 (N.Y. 1923)), we decline to hold that Schechter waived his claims against Pitts by continuing to honor his independent obligations to his clients. The Texas Disciplinary Rules of Professional Conduct do not authorize Pitts or Schechter to terminate representation of their joint clients based upon a dispute between them about division of labor or sharing of fees. See generally Tex. Disciplinary R. Prof'l Conduct 1.15, reprinted in TEX. GOV'T CODE ANN., tit. 2, subtit. G app. A (West 2005) (Tex. State Bar R. art. X, § 9). We therefore conclude that Schechter's continued representation of the joint clients did not, in and of itself, constitute an election to treat the fee-sharing agreement as a continuing contract or otherwise absolve Pitts of the consequences of his breach. We hold that the trial court did not err in rendering judgment on the jury's verdict, which found that Schechter's breach of the nine letter agreements was excused.
* * *
Having found that the evidence is legally and factually sufficient to support Schechter's affirmative defense of prior breach, we hold that the trial court did not err by rendering a take-nothing judgment against Pitts on his breach of contract claim pertaining to the letter agreements.
B. Schechter's appeal concerning existence of joint venture and duties of good faith and fair dealing
In Schechter's appeal, he argues that the trial court erred by refusing to submit jury questions regarding the existence of a joint venture and whether, in the event a joint venture existed, Pitts breached his resulting duty of good faith and fair dealing. Schechter tendered to the court requested jury instructions on joint venture and breach of the duty of good faith and fair dealing, in substantially correct wording. The issue therefore is preserved for our review. TEX. R. CIV. P. 278; ASEP USA, Inc. v. Cole, 199 S.W.3d 369, 376 (Tex. App.-Houston [1st Dist.] 2006, no pet.).
We review a trial court's decision to submit or refuse a particular question for an abuse of discretion. Tex. Dep't of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990); ASEP USA, 199 S.W.3d at 376. "The test for abuse of discretion is not whether, in the opinion of the reviewing court, the facts present an appropriate case for the trial court's actions. Rather, the question is whether the trial court acted without reference to any guiding principles and law." ASEP USA, 199 S.W.3d at 376 (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985)). A trial court must submit a jury question if it is supported by some evidence, but it may refuse to do so if it is not supported by any evidence. See TEX. R. CIV. P. 278 ("The court shall submit the questions . . . which are raised by the written pleadings and the evidence."); Elbaor v. Smith, 845 S.W.2d 240, 243 (Tex. 1992). If there is some evidence to support a jury question and the trial court does not submit the question, the trial court commits reversible error. See Elbaor, 845 S.W.2d at 243. In determining whether a trial court should have submitted a question to the jury, the reviewing court must examine the record for evidence supporting submission of the question and ignore all evidence to the contrary. See id. Conflicting evidence presents a fact question for the jury. See Brown v. Goldstein, 685 S.W.2d 640, 641-42 (Tex. 1985).
A joint venture is similar to a partnership, but it is ordinarily limited to a particular transaction or enterprise. See Adams v. Petrade Int'l, Inc., 754 S.W.2d 696, 713 (Tex. App.-Houston [1st Dist.] 1988, writ denied); Harrington v. Harrington, 742 S.W.2d 722, 724 (Tex. App.-Houston [1st Dist.] 1987, no writ). A joint venture must be based upon an agreement, either express or implied. Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 287 (Tex. 1978). A joint venture exists if the parties concerned have: (1) a community of interest in the venture; (2) an agreement to share profits; (3) an agreement to share losses; and (4) a mutual right of control or management of the venture. St. Joseph Hosp. v. Wolff, 94 S.W.3d 513, 535 (Tex. 2002); Knowles v. Wright, 288 S.W.3d 136, 147 (Tex. App.-Houston [1st Dist.] 2009, pet. denied). "Whether a joint venture exists is a question of law for the court's determination." Swinehart v. Stubbeman, McRae, Sealy, Laughlin Browder, Inc., 48 S.W.3d 865, 879 (Tex. App.-Houston [14th Dist.] 2001, pet. denied).
"A joint venture does not exist if any one of the four elements is missing." Brazosport Bank of Tex. v. Oak Park Townhouses, 889 S.W.2d 676, 683 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (citing State v. Houston Lighting Power Co., 609 S.W.2d 263, 268 ((Tex. Civ. App.-Corpus Christi 1980, writ ref'd n.r.e.)). These elements cannot be established by implication. Id. at 683. If the parties do not agree to share losses, no joint venture will be implied. See Coastal Plains Dev. Corp., 572 S.W.2d at 288. Thus, "[n]o joint venture exists as a matter of law where an agreement includes a provision for sharing profits, but no express provision for sharing losses." Arthur v. Grimmett, 319 S.W.3d 711, 721 (Tex. App.-El Paso 2009, pet. denied) (citing Gutierrez v. Yancey, 650 S.W.2d 169, 172 (Tex. App.-San Antonio 1983, no writ)); see Brazosport Bank, 889 S.W.2d at 683 ("Where the issue before the trial court is whether a joint venture exists, proof of an agreement to share profits does not also constitute proof of an agreement to share losses.").
On appeal, Schechter argues that there was evidence of each of the four elements of joint venture, and therefore the trial court erred by refusing to submit the requested jury instruction. Pitts argues that there is no evidence of an agreement to share the losses; he does not contest that there is some evidence on the other elements of joint venture. This issue was disputed at trial, and Schechter contends that his testimony and that of attorney Richard Laminack constitute some evidence of an agreement to share the losses involved in the breast-implant litigation.
Laminack testified that he had no personal knowledge of the usual fee-splitting arrangement employed by the parties to this lawsuit. He also testified, however, that it was common practice among plaintiffs' lawyers to share losses in mass-tort litigation. Although Laminack's testimony about what he and other lawyers do is no evidence of what Pitts and Schechter agreed to do, Schechter referred to Laminack's testimony in explaining the agreement he had with Pitts. Schechter testified, "[W]e agreed to share the profits and losses in these cases in the manner that Mr. Laminack described basically. That's what I understood was happening."
Schechter relies entirely upon parol evidence of his own interpretation of the letter agreements to demonstrate an agreement to share losses. However the letter agreements are not ambigious as to this point, and we cannot rely upon parol evidence to create an ambiguity when none exists on the face of the agreement. See Nat'l Union Fire Ins., 907 S.W.2d at 520. The letters refer to the parties' agreement to share fees on a "fees-recovered basis," and they are silent on the subject of losses. An agreement to share profit and an agreement to share losses are separate elements necessary to the creation of a joint venture. St. Joseph Hosp., 94 S.W.3d at 535. Thus, the existence of a joint venture cannot be based on an inference that the parties agreed to share losses in some cases, when that inference arises only from an agreement to share fees in other cases. See, e.g., Arthur, 319 S.W.3d at 721 ("No joint venture exists as a matter of law where an agreement includes a provision for sharing profits, but no express provision for sharing losses."); Brazosport Bank, 889 S.W.2d at 683; Gutierrez v. Yancey, 650 S.W.2d 169, 172 (Tex. App.-San Antonio 1983, no writ) (holding that no joint venture existed as matter of law when contract explicitly provided for allocation of potential profits but made no provision for sharing of losses); see also W. H. Hodges Co. of Alexandria, Inc. v. Donley Cnty. State Bank of Clarendon, 407 S.W.2d 221, 224 (Tex. 1966).
Because Schechter presented no evidence demonstrating an agreement to share losses, the trial court correctly declined to submit a jury question on the existence of a joint venture. Accordingly, the instruction about the duty of good faith and fair dealing was also correctly declined, and we overrule Schechter's issue.
C. Schechter's appeal concerning limitations as applied to contract claim
Schechter also argues that the trial court erred by concluding that the four-year statute of limitations applied to his contract claim and by granting judgment n.o.v. barring his recovery of $85,610 in contract damages which accrued more than four years before he filed suit.
A judgment notwithstanding the verdict is proper when a directed verdict would have been proper. TEX. R. CIV. P. 301; Fort Bend Cnty. Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex. 1991). The motion should be granted (1) when the evidence is conclusive, and one party is entitled to recover as a matter of law or (2) when a legal principle precludes recovery. See Spencer v. Eagle Stars Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994). A motion for judgment n.o.v. based on a legal principle is appropriately granted when it is conclusively established that recovery is precluded even though all the allegations are proven. Schindley v. Ne. Tex. Cmty. Coll., 13 S.W.3d 62, 65 (Tex. App.-Texarkana 2000, pet. denied); see John Masek Corp. v. Davis, 848 S.W.2d 170, 173 (Tex. App.-Houston [1st Dist.] 1992, writ denied). Although appellate courts ordinarily review a trial court's ruling on a motion for judgment n.o.v. under a no-evidence standard of review, Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709 (Tex. 2003) (per curiam), whether a cause of action is barred by limitations is a question of law that appellate courts review de novo. Provident Life Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). Because the trial court granted Pitts's motion for judgment n.o.v. based on the statute of limitations, we review this issue de novo. See id.
The limitations period for breach of contract claims is four years. TEX. CIV. PRAC. REM. CODE ANN. § 16.051 (West 2008); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002). "Limitations begins to run upon accrual of the cause of action." Barker v. Eckman, 213 S.W.3d 306, 311 (Tex. 2006). A breach of contract claim accrues when the contract is breached. Stine, 80 S.W.3d at 592; Ambulatory Infusion Therapy Specialist, Inc. v. N. Am. Adm'rs, Inc., 262 S.W.3d 107, 119 (Tex. App.-Houston [1st Dist.] 2008, no pet.). Thus, "[w]hen recovery is sought on an obligation payable in installments, the statute of limitations runs against each installment from the time it becomes due." Hollander v. Capon, 853 S.W.2d 723, 726 (Tex. App.-Houston [1st Dist.] 1993, writ denied). But if the parties' agreement contemplates a continuing contract for performance, the limitations period does not usually commence until the contract is fully performed. See, e.g., Lyle v. Jane Guinn Revocable Trust, No. 01-09-00081-CV, 2010 WL 1053060, at *10 (Tex. App.-Houston [1st Dist.] Mar. 11, 2010, pet. filed); Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex. App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.).
Schechter argues that the trial court erred in applying the statute of limitations. He contends that the nine letter agreements comprised a continuing contract because the parties contemplated that Pitts would share the litigation work and because the final amount of attorney's fees could not be distributed until all losses and unrecoverable expenses had been offset from the total amount of attorney's fees.
The parties anticipated that the shared litigation work would occur over an extended period of time, but that does not convert the agreement into a continuing contract. This was not a class-action lawsuit in which all of the work had to be substantially completed before any recovery could be received. Rather, this was a mass-tort project that involved individual claims. Cf. Authorlee v. Tuboscope Vetco Int'l, Inc., 274 S.W.3d 111, 121 (Tex. App.-Houston [1st Dist.] 2008, pet. denied) (explaining that mass-tort settlement involved individual negotiations on individual cases). Therefore, Schechter's cause of action for breach of contract, based on Pitts's failure to perform by sharing the litigation work, accrued at the time of Pitts's breach. See, e.g., Dell Computer Corp., 390 F.3d at 392 (holding that employment agreement was not continuing contract) (citing Sun Med. Inc. v. Overton, 864 S.W.2d 558, 560-61 (Tex. App.-Fort Worth 1993, writ denied)). Because we have already held that there was no evidence that the parties agreed to share losses, we reject Schechter's argument that the need to offset losses against total attorney's fees supports the conclusion that the parties had a continuing contract.
Accordingly, we conclude that Schechter's contract claims were barred by limitations to the extent they accrued more than four years before suit was filed. We hold that the trial court did not err by granting Pitts's motion for judgment n.o.v. on this issue. We overrule this issue in Schechter's appeal.
D. Attorney's fees
Both parties raised issues relating to attorney's fees. Pitts argues that the trial court erred by not reducing the attorney's fees awarded to Schechter because of a partial settlement and because part of Schechter's claim was barred by the statute of limitations. Texas law does not allow for recovery of attorney's fees unless authorized by statute or contract. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). "As a result, [attorney's] fee claimants have always been required to segregate fees between claims for which they are recoverable and claims for which they are not." Id. at 311. However, the party opposing an award of attorney's fees must make a timely objection. Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 389 (Tex. 1997) ("[I]f no one objects to the fact that the attorney's fees are not segregated as to specific claims, then the objection is waived."); Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988). Such an objection must be made before the trial court renders judgment. See TEX. R. APP. P. 33.1(a)(1) (providing that party must make "timely request, objection, or motion" to present complaint for appellate review); cf. Donihoo v. Lewis, No. 01-08-00277-CV, 2010 WL 1240970, at *14 (Tex. App.-Houston [1st Dist.] Mar. 25, 2010, pet. denied) (mem. op.) (holding that segregation of attorney's fees must be raised before trial court renders judgment).
At the charge conference, Pitts did not object to the failure to segregate attorney's fees or request an instruction thereon. Pitts first raised his objection to the failure to segregate attorney's fees in his motion for new trial and in his fourth supplemental motion for judgment n.o.v. However these two motions were filed nearly a full month after the trial court rendered judgment. Because Pitts's objection to the failure to segregate attorney's fees was not raised before the trial court rendered judgment, Pitts has waived this objection on appeal. See TEX. R. APP. P. 33.1(a), Donihoo, 2010 WL 1240970, at *14. We overrule Pitts's issues relating to the award of attorney's fees.
In his appeal, Schechter argues that the jury's award of no attorney's fees for his cause of action pertaining to the interpretation of the 1995 agreement was against the great weight and preponderance of the evidence. This is a complaint about factual sufficiency. Griffin v. Carson, No. 01-08-00340-CV, 2009 WL 1493467, at *2 (Tex. App.-Houston [1st Dist.] May 28, 2009, pet. denied) (mem. op.). A motion for new trial is a prerequisite to bringing a complaint on appeal alleging either that the evidence is factually insufficient to support a jury finding or that a jury finding is against the great weight and preponderance of the evidence. See TEX. R. CIV. P. 324(b)(2), (3). Schechter did not file a motion for new trial. Therefore, this issue is not preserved for our review. See id.; Griffin, 2009 WL 1493467, at *2. We overrule Schechter's issue.
III. Defamation and abuse of process claims
Having resolved all the issues pertaining to the parties' contract claims, we now consider the issues pertaining to Schechter's defamation and abuse of process claims. In response to Pitts's lawsuit, Schechter countersued for defamation based on statements Pitts made to the Houston City Council and to Schechter's professional colleagues. Schechter later added a cause of action for abuse of process based on the filing of a video recording of Pitts's remarks to city council in the underlying litigation. Although the trial court had ordered the parties to keep the recording confidential, on three separate occasions Pitts filed it without placing it under seal. On appeal we must determine whether the defamation claims were barred by limitations, whether the finding of liability on the professional colleague defamation claim was supported by sufficient evidence, and whether there was legally sufficient evidence to support the liability finding and damages awarded on Schechter's claim for abuse of process.
A. Defamation claim based on statements to city council
Schechter raises numerous appellate issues related to his defamation claim based on statements Pitts made to the Houston City Council before it confirmed Schechter's nomination to serve as METRO Chairman. He contests the trial court's determination that his cause of action was barred by limitations and not revived by the Civil Practice and Remedies Code. He also addresses the sufficiency of the evidence to support the jury's verdict as to defamation and actual malice relating to Pitts's statements to city council. Finally, he argues that no absolute privilege applied to Pitts's statements before city council.
"A trial court may disregard a jury's verdict and render a [judgment n.o.v.] if there is no evidence to support the jury's findings or if a directed verdict would have been proper." Williams v. Briscoe, 137 S.W.3d 120, 124 (Tex. App.-Houston [1st Dist.] 2004, no pet.) (citing Brown v. Bank of Galveston, 963 S.W.2d 511, 513 (Tex. 1998)). "When a trial court specifies the ground upon which it is granting a judgment notwithstanding the verdict, an appellant need only challenge the ground relied upon by the trial court." Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786, 795 (Tex. App.-Houston [1st Dist.] 2008, pet. denied) (citing Voskamp v. Arnoldy, 749 S.W.2d 113, 118 (Tex. App.-Houston [1st Dist.] 1987, writ denied)). In granting judgment n.o.v. in favor of Pitts on the city council defamation claims, the trial court expressly relied on the statute of limitations and non-revival under section 16.069 of the Civil Practice and Remedies Code. Therefore Schechter need only challenge this ground on appeal.
A defamation cause of action ordinarily accrues on the date the defamatory matter is published or circulated. See, e.g., Newsom v. Brod, 89 S.W.3d 732, 736 (Tex. App.-Houston [1st Dist.] 2002, no pet.). The limitations period for slander is one year after the day the cause of action accrues. TEX. CIV. PRAC. REM. CODE § 16.002 (West 2002); see Newsom, 89 S.W.3d at 735-36. However, Civil Practice and Remedies Code section 16.069 provides an exception to the statute of limitations applicable to compulsory counterclaims:
(a) If a counterclaim or cross claim arises out of the same transaction or occurrence that is the basis of an action, a party to the action may file the counterclaim or cross claim even though as a separate action it would be barred by limitation on the date the party's answer is required.
(b) The counterclaim or cross claim must be filed not later than the 30th day after the date on which the party's answer is required.
TEX. CIV. PRAC. REM. CODE ANN. § 16.069 (West 2008). The statute is a savings clause, "intended to prevent a plaintiff from waiting until an adversary's valid claim arising from the same transaction was barred by limitations before asserting his own claim." Hobbs Trailers v. J.T. Arnett Grain Co., 560 S.W.2d 85, 88 (Tex. 1977) (interpreting predecessor statute substantially similar to section 16.069); accord Leasure v. Peat, Marwick, Mitchell Co., 722 S.W.2d 37, 38 (Tex. App.-Houston [1st Dist.] 1986, no writ); Wells v. Dotson, 261 S.W.3d 275, 280-81 (Tex. App.-Tyler 2008, no pet.). "We apply a logical relationship test to determine whether counterclaims arise out of the same transaction or occurrence." Commint Technical Servs., Inc. v. Quickel, 314 S.W.3d 646, 653 (Tex. App.-Houston [14th Dist.] 2010, no pet.) (citing Jack H. Brown Co. v. Nw. Sign Co., 718 S.W.2d 397, 400 (Tex. App.-Dallas 1986, writ ref'd n.r.e.); accord Wells, 261 S.W.3d at 281. The logical relationship test is met when the same facts, which may or may not be disputed, are significant and logically relevant to both claims. Commint Technical Servs., 314 S.W.3d at 653.
On April 2, 2002, Pitts spoke negatively about Schechter during the non-agenda portion of the Houston City Council meeting. The gist of Pitts's remarks was an expression of his opinion that Schechter's business and political affairs suggest that he is a dishonest and unethical person. Over three years later, on August 10, 2005, Schechter asserted defamation as a counterclaim to Pitts's lawsuit alleging breach of contract. Because Schechter first asserted this claim more than one year after the day that Pitts allegedly slandered Schechter at the city council meeting, Schechter's claim was barred by limitations. See TEX. CIV. PRAC. REM. CODE § 16.002; Wheeler v. Methodist Hosp., 95 S.W.3d 628, 636 (Tex. App.-Houston [1st Dist.] 2002, no pet.). Nevertheless, Schechter argues that Pitts's statements were motivated by his disappointment about the outcome of their failed contractual and business relationship, and that the defamation action based on these allegations was therefore revived by section 16.069 because it arises from the same transaction as Pitts's breach of contract claim.
As discussed above, Pitts sued for breach of contract alleging that he had referred certain personal-injury cases to Schechter. Under the referral agreements, Schechter was to share attorney's fees, and Pitts alleged that Schechter failed to pay his share from the successful claims. Schechter's defamation claim alleged that Pitts caused him harm by slandering him before the Houston City Council. Accordingly, Pitts's causes of action arise from the contract between the parties, and Schechter's causes of action arise from statements Pitts made about Schechter's fitness to serve in an appointed position. We conclude that the logical relationship test is not met here and that Schechter's defamation claims do not arise out of the same transaction or occurrence that was the basis of Pitts's contract action. See Commint Technical Srvs., 314 S.W.3d at 653. Therefore, Schechter's city-council defamation claims were barred by limitations, and we hold that the trial court properly rendered a take-nothing judgment on this claim.
B. Defamation claim based on statements to professional colleagues
Pitts challenges the trial court's judgment in Schechter's favor on the defamation claim based on statements to Schechter's professional colleagues. Pitts argues that any claims based upon his statements to Melancon were barred by limitations. Pitts also contends that Schechter should have obtained a jury finding on actual malice and, in any event, the evidence is legally and factually insufficient to establish actual malice. He further argues that the evidence is legally and factually insufficient to support the damages award.
1. Limitations
Pitts argues that the professional colleague defamation claim is barred by limitations for the same reasons that the city council defamation claim is time-barred. Because limitations is an affirmative defense, see TEX. R. CIV. P. 94, Pitts had the burden to "plead, prove, and secure findings to sustain [his] plea of limitations." Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988). Unlike his statements made to city council, Pitts's statements to Melancon were not known to Schechter at the time they were made, and the discovery rule applies to a defamation claim if the matter is not public knowledge. Wheeler, 95 S.W.3d at 636. Pitts did not seek or obtain a determination from the jury as to when the professional colleague statements were made. No issue on limitations was submitted to the jury, and Pitts did not object to this omission or request that a question on limitations be submitted. He has therefore waived his limitations defense. See TEX. R. CIV. P. 279; see also Wise v. Anderson, 359 S.W.2d 876, 880-81 (Tex. 1962) (holding that plaintiff waived issue by failing to request jury issues and obtain fact findings on whether defendant's absence from state tolled statute of limitations); Roberts v. Holmes, 412 S.W.2d 947, 949 ((Tex. Civ. App.-Eastland 1966, no writ) (holding that appellants waived limitations defense by failing to request jury question or object to trial court's failure to submit limitations issue).
2. Actual malice
In connection with the professional-colleague defamation claim, the jury found that Schechter was harmed as a result of Pitts's malice. In a question predicated upon a finding that Pitts made statements to professional colleagues of Schechter that were defamatory per se, the jury was specifically asked whether any harm resulted from malice. The jury was instructed that "malice" meant:
(a) a specific intent by Gary Pitts to cause substantial injury to Arthur L. Schechter; or
(b) an act or omission by Gary Pitts,
(i) which, viewed objectively from the standpoint of Gary Pitts at the time of its occurrence, involved an extreme degree of risk, considering the probability and magnitude of the potential harm to others; and
(ii) of which Gary Pitts had actual, subjective awareness of the risk involved, but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others.
Pitts argues that Schechter was a public figure during all times relevant to the defamation claims, and therefore a jury finding of actual malice was required to support the claims. See, e.g., New York Times Co. v. Sullivan, 376 U.S. 254, 279-80, 285-86, 84 S. Ct. 710, 726, 728-29 (1964); Turner v. KTRK Television, Inc., 38 S.W.3d 103, 119-20 (Tex. 2000). Pitts also argues that the evidence is legally and factually insufficient to prove actual malice by clear and convincing evidence.
a. Schechter's public-figure status
As a threshold matter, we must resolve the question of whether Schechter was a public figure for purposes of this claim, which he denies. Schechter contends that although he had been publicly identified as one of several possible nominees to the METRO board, there was no controversy about his nomination at the time of Pitts's defamatory statements. Moreover, Schechter points out that city council had not yet been asked to confirm him as of the time Pitts made his presentation.
"The question of public-figure status is one of constitutional law for courts to decide." WFAA-TV, Inc. v. McLemore, 978 S.W.2d 568, 571 (Tex. 1998). As opposed to general-purpose public figures, "who have achieved such pervasive fame or notoriety that they become public figures for all purposes and in all contexts," a limited-purpose public figure, is only a public figure "for a limited range of issues surrounding a particular public controversy." Id. (citing Gertz v. Robert Welch, Inc., 418 U.S. 323, 351, 94 S. Ct. 2997, 3012 (1974)). We apply a three-part test to determine whether Schechter qualified as a limited-purpose public figure:
(1) the controversy at issue must be public both in the sense that people are discussing it and people other than the immediate participants in the controversy are likely to feel the impact of its resolution;
(2) the plaintiff must have more than a trivial or tangential role in the controversy; and
(3) the alleged defamation must be germane to the plaintiff's participation in the controversy.
Id. Schechter easily satisfies this standard. His nomination to chair the METRO board was a matter of public concern that impacted the entire Houston area. Pitts's comments and the resulting controversy concerned Schechter's fitness to serve in that role. Accordingly, Schechter had a central role. Contrary to Schechter's suggestion, no preexisting "controversy" was required, and we therefore hold that he was a public figure for this purpose. Cf. Monitor Patriot Co. v. Roy, 401 U.S. 265, 277, 91 S. Ct. 621, 628 91971)("a charge of criminal conduct no matter how remote in time or place, can never be irrelevant to an official's or a candidate's fitness for office" for purposes of applying New York Times v. Sullivan); Foster v. Laredo Newspapers, Inc., 541 S.W.2d 809, 814 (Tex. 1976).
b. Waiver
Schechter contends that Pitts waived his complaint about the absence of an instruction on actual malice. Pitts did not object to the malice instruction that was submitted to the jury, which constitutes a waiver under application of the ordinary procedural rules. See TEX. R. CIV. P. 272 274; TEX. R. APP. P. 33.1(a). He did not request that the jury be instructed on actual malice, offer a substantially correct question, or in any other way indicate that he thought the charge was improper because Schechter was a public figure. See TEX. R. CIV. P. 278 ("Failure to submit a question shall not be deemed a ground for reversal of the judgment, unless its submission, in substantially correct wording, has been requested in writing and tendered by the party complaining of the judgment. . . ."). In an ordinary case, the lack of an objection by Pitts would require us to evaluate the sufficiency of the evidence with respect to the court's charge, and not some other law that was not identified to the trial court. See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000). Even when fundamental constitutional rights are at stake, the rules of appellate procedure bar review of unpreserved error except in very narrow circumstances. See, e.g., In re B.L.D., 113 S.W.3d 340, 352 (Tex. 2003).
However, the free-speech implications of this case require that we find waiver only in circumstances that are "clear and compelling." Osterberg, 12 S.W.3d at 40 (quoting Curtis Publ'g Co. v. Butts, 388 U.S. 130, 145, 87 S. Ct. 1975, 1986 (1967)). Our research has not uncovered a single example after the landmark case of New York Times v. Sullivan in which a procedural waiver at trial of a First Amendment right was found to be so clear and compelling as to preclude appellate review. See, e.g., Erie Telecomms., Inc. v. City of Erie, 659 F. Supp. 580, 585 (W.D. Pa. 1987) (declining to find waiver in light of ambiguity and uncertainty relating to First Amendment rights of cable companies), aff'd, 853 F.2d 1084 (3d Cir. 1988); Woodruff v. Bd. of Trs. of Cabell Huntington Hosp., 319 S.E.2d 372, 380 (W. Va. 1984) (union members had not made "clear and compelling" waiver of First Amendment rights to engage in "picketing or patrolling" by collective bargaining agreement prohibiting strike); Nat'l Polymer Prods., Inc. v. Borg-Warner Corp., 641 F.2d 418, 424 (6th Cir. 1981) (agreement to form of protective order did not unambiguously waive right to disclose discovery information later revealed at trial). To the extent such a waiver is even possible by procedural inaction, Pitts's complete failure to expressly raise the issue of actual malice after a three-week jury trial may represent the strongest possible case. But even "[i]f we conclude that waiver has occurred," we still must "consider whether those procedural grounds are adequate as a matter of substantive federal constitutional law to protect the constitutional interests at stake." Osterberg, 12 S.W.3d at 39-40. And here, as in other First Amendment cases, this court is obligated to "make an independent examination of the whole record" so as to ensure that "the judgment does not constitute a forbidden intrusion on the field of free expression." E.g., Snyder v. Phelps, 131 S. Ct. 1207, 1216 (2011); Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 499, 104 S. Ct. 1949, 1958 (1984); New York Times, 376 U.S. at 285, 84 S. Ct. at 728. Accordingly, we proceed to review de novo the sufficiency of the evidence to show actual malice.
c. Sufficiency of the evidence
Despite the jury's verdict in Schechter's favor, there is very little evidence in the record pertaining to the statements Pitts allegedly made to Schechter's professional colleagues. Melancon did not testify. Harold Eisenman, a former Schechter colleague, testified primarily about referrals, and the part of his testimony about the defamation claims related only to the statements Pitts made to city council. At trial, Schechter did not testify as to any specific statements he alleges Pitts made to his professional colleagues. He did not identify any professional colleagues to whom Pitts spoke.
The only evidence pertaining to the professional-colleague defamation claim came in the form of Pitts's answers to Schechter's first set of interrogatories. One of the interrogatories inquired about individuals to whom Pitts had spoken about Schechter. Pitts identified the following people with whom he communicated about Schechter before he became chairman of METRO: (1) members of Houston City Council and anyone watching the proceedings on television; (2) his secretary, who was present at the city council meeting; (3) his wife; (4) his law partner; and (5) nine of Schechter's former partners and associate attorneys. Pitts stated that he communicated with three of the named attorneys within the year preceding the interrogatory response about the fact that he was suing Schechter for unpaid referral fees. Pitts stated in his responses that his communications occurred within a few days before or after the April 2002 city council meeting. He also stated that he had spoken to Melancon several times since the city council meeting. Among these individuals, the only ones Pitts identified as those to whom he relayed the allegedly defamatory comments were his wife, his law partner, and Melancon.
In order to analyze the issues presented by the judgment entered in Schechter's favor awarding him damages for defamation, it is necessary for us to set forth the following relevant excerpts from Pitts's interrogatory responses, which constitute the only evidence of the substance of what Pitts communicated to Melancon:
I did not think he was worthy of high public office based on what he bragged to me about. . . . Schechter told me that while working for the Clinton for President campaign he had bought and had destroyed a tape that showed Bill Clinton present at a party where illegal drugs were being used. Whether Mr. Schechter was lying when he told me this, in order to puff his importance in my eyes, or he had actually had this done, I believed either was despicable, and showed a moral blindness that makes him unworthy of high public office, in my opinion. . . .
I was aware that there have been a large number of attorneys that have left working for Schechter. . . . All of this concerned me that Houston City Council should talk to Mr. Schechter's former partner and attorney employees, confidentially, before they appointed Schechter to high governmental office.
Schechter is an ingrained part of the Hilary [sic] and Bill Clinton political cliche [sic] and culture. Especially since 9/11, I do not believe that our country needs their anti-military, ultra-liberal, scandal-ridden, racially divisive and discriminatory (against Asians and Caucasians) politics. None of them should be in high public office, in my humble opinion.
After we had referred over 1,000 breast implant clients to him, in a conversation with me, Schechter made reference to the fact that he had had grievances filed against him by clients. I was concerned that regardless of whether the grievances were upheld, the fact of grievances, showed a lack of concern for his clients. It was thus also part of my concern for him being appointed to high public office.
In general, I believe that the history of grievances and lawsuits against an attorney should be a concern and investigated, and be considered and known about by the appointing body, before an attorney is appointed to high public office.
He told Melancon and other former colleagues of Schechter that someone from City Council might contact them to discuss their private opinions about Schechter.
Pitts contends that the only potentially actionable statements were ones he made to Melancon described in his interrogatory responses, and the evidence presented by Schechter only suggests a malevolent motivation or a failure to investigate before speaking, but nothing rising to the level of actual malice. In response, Schechter contends that Pitts falsely stated that he was "immoral because he allegedly obtained a videotape that showed drug use at a party that Bill Clinton attended." Schechter characterizes Pitts's statement as a lie, and he asserts that Pitts knew the statement was false because he fabricated it. Schechter also points to statements about which he contends Pitts had serious doubts, including his statements that Schechter (1) lacked concern for his clients because grievances had been filed against him, (2) engaged in "scandal-ridden, racially divisive and discriminatory (against Asians and Caucasians) politics," and (3) was dishonest because he was involved in lawsuits. He says Pitts's actual malice was established by his motive and lack of care.
"Actual malice in a defamation case is a term of art." Huckabee v. Time Warner Entm't Co. L.P., 19 S.W.3d 413, 420 (Tex. 2000). "Unlike common-law malice, it does not include ill-will, spite, or evil motive." Id. (citing Casso v. Brand, 776 S.W.2d 551, 558 (Tex. 1989)). "Rather, to establish actual malice, a plaintiff must prove that the defendant made the statement `with knowledge that it was false or with reckless disregard of whether it was true or not.'" Id. (citing New York Times, 376 U.S. at 279-80, 84 S. Ct. 710). "Reckless disregard is also a term of art," and "[t]o establish reckless disregard, a public official or public figure must prove that the publisher `entertained serious doubts as to the truth of his publication.'" Id. (citing St. Amant v. Thompson, 390 U.S. 727, 731, 88 S. Ct. 1323, 1325 (1968)). "Finally, to prevail at trial, a plaintiff must establish actual malice by clear and convincing evidence." Id. (citing Bose Corp., 466 U.S. at 511, 104 S. Ct. at 1965; Casso, 776 S.W.2d at 558).
Schechter contends that Pitts's statements relating to a videotape of drug use at a party were false. He reasons that Pitts knew the statement was false because he made up the story. If supported by clear and convincing evidence, that assertion could support a deemed finding of actual malice, despite the fact that no question about actual malice was presented to the jury. See TEX. R. CIV. P. 279. However, the evidence at trial was neither clear nor convincing that Pitts lied. Schechter's brief refers to only two passages of supposedly supporting testimony. Pitts testified that "someone that Mr. Schechter was aware of had been able to get the tape; and so it couldn't be used." Schechter's counsel, on cross-examination, attempted to impeach Pitts by comparing his trial testimony with his interrogatory response, which stated "Schechter told me that . . . he had bought and had destroyed a tape. . . ." Later in the trial, Schechter categorically denied Pitts's account, stating that it was "a complete lie."
Although the jury's verdict reflects its conclusion that it found Schechter to be the more credible witness under a preponderance-of-the-evidence standard, that verdict alone is not adequate to support the judgment. "It is not enough for the jury to disbelieve defendant's testimony. Rather, the plaintiff must offer clear and convincing affirmative proof to support a recovery." Casso, 776 S.W.2d at 558. Schechter's disputed testimony that Pitts's accusation was "a lie" does not establish the required clear and convincing evidence that Pitts knew the substance of his accusation was actually false. "Difference of opinion as to the truth of a matter — even a difference of 11 to 1 — does not alone constitute clear and convincing evidence that the defendant acted with a knowledge of falsity or with a `high degree of awareness of . . . probable falsity.'" Harte-Hanks Commc'ns, Inc. v. Connaughton, 491 U.S. 657, 681, 109 S. Ct. 2678, 2693 (1989) (quoting Garrison v. State of La., 379 U.S. 64, 74, 85 S. Ct. 209, 215 (1964)). Moreover, the difference between whether Pitts allegedly was told that Schechter personally destroyed the tape or that he arranged for its destruction by another also does not constitute clear and convincing evidence of the falsity of the underlying allegation. See Casso, 776 S.W.2d at 558-59 ("While it is conceivable that a defendant's trial testimony, under the rigors of cross-examination, could provide that requisite proof, it is more likely that plaintiff will have to secure that evidence elsewhere.").
The other statements identified by Schechter as being ones about which Pitts allegedly had serious doubts are not statements that support a claim for defamation. "[A] statement on matters of public concern must be provable as false before there can be liability under state defamation law." Milkovich v. Lorain Journal Co., 497 U.S. 1, 19, 110 S. Ct. 2695, 2706 (1990); Bentley, 94 S.W.3d at 580. This principle applies not only to media defendants but also to a private citizen such as Pitts. After all, "it is a prized American privilege to speak one's mind, although not always with perfect good taste, on all public institutions," Bridges v. State of Cal., 314 U.S. 252, 270, 62 S. Ct. 190, 197 (1941) (footnote omitted), and First Amendment standards "must give the benefit of any doubt to protecting rather than stifling speech." Citizens United v. Fed. Election Comm'n, 130 S. Ct. 876, 891 (2010).
The undisputed evidence at trial was that Schechter has acknowledged being named in grievances filed by clients. Pitts's opinion that this matter, along with lawsuits filed against Schechter, ought to be investigated before Schechter was appointed to public office is not a statement susceptible to being proven as false. See Milkovich, 497 U.S. at 19; Bentley, 94 S.W.3d at 580. Pitts's opinion that Schechter's political activity was scandalous, divisive, or discriminatory is likewise not provable as false.
Reviewing the record independently, as the United States Supreme Court requires us to do, we agree with Pitts's contention, raised for the first time on appeal, that the evidence is legally insufficient to establish that he acted with the actual malice required for him to be liable on a claim of defamation against a public figure. We therefore sustain Pitts's issue complaining about the lack of such evidence, and we do not reach issues relating to other aspects of Schechter's professional-colleague defamation claim.
C. Abuse of process
Schechter alleged that Pitts also committed the tort of abuse of process by repeatedly filing copies of a video recording of the statements to Houston City Council that were the subject of the defamation claim. The record reflects that Pitts took the position during pretrial discovery that he did not have a copy of the recording and that he was unable to obtain one from any public source. He insisted that a copy be produced to him by Schechter, who complied, designating it as being confidential for purposes of the protective order governing the case. The record does not reflect any objection by Pitts to this designation of confidentiality.
The protective order specified that "confidential information shall not be filed with the clerk of the Court nor included in whole or in part in pleading, motions or briefs." The order did permit the filing of confidential materials under seal "should the Court need to examine them as evidence in a hearing or other pretrial proceeding." The order further provided that confidential information "shall not be disclosed directly or indirectly to any person, including the media, other than those authorized by this Protective Order without the consent of the non-disclosing Party, or upon further order of the Court."
On appeal, Pitts has not contended that his actions were not violations of the protective order. To the contrary, Pitts affirmatively testified that the video recording was subject to a protective order, that he filed it without placing it under seal, and that, in so doing, he failed to follow the proper procedure. On cross-examination he agreed he was responsible for the recording being filed on three separate occasions without being placed under seal. Schechter's counsel testified that he complained to Pitts in writing about each of the first two violations, but Pitts nevertheless continued to attach the videorecording to his public filings.
Although Schechter suggested to the jury that Pitts's actions resulted in confidential information being published in a newspaper article, no evidence was presented at trial to show that any information published by the newspaper could be directly traced to Pitts's violations of the protective order. The only actual damages requested by Schechter were the litigation costs in the amount of $10,146.50 incurred in attempts to secure Pitts's compliance with the protective order and to remediate or reverse the effects of the violations. Schechter also sought and obtained a jury finding by clear and convincing evidence that the abuse of process damages resulted from Pitts's malice.
The jury found Pitts liable to Schechter on his claim of abuse of process and awarded $10,146.50 in actual damages and $15,000 in exemplary damages. On appeal, Pitts argues that the evidence was legally and factually insufficient to support an abuse-of-process cause of action because this claim was improperly based on litigation conduct. In addition, he contends that the judgment must be reversed because there is no evidence of special damages.
The elements of the cause of action include: (1) that the defendant made an illegal, improper, perverted use of the process; (2) that in so doing the defendant had an ulterior motive or purpose; and (3) that damage resulted to the plaintiff from the irregularity. Detenbeck v. Koester, 886 S.W.2d 477, 480 (Tex. App.-Houston [1st Dist.] 1994, writ dism'd). To recover for abuse of process in Texas, a claimant must demonstrate that he suffered special damages, i.e. some physical interference with the claimant's person or property in the form of an arrest, attachment, injunction, or sequestration. See Martin v. Trevino, 578 S.W.2d 763, 766769 ((Tex. Civ. App.-Corpus Christi 1978, writ ref'd n.r.e.); see also Tex. Beef Cattle Co. v. Green, 921 S.W.2d 203, 209 (Tex. 1996). The policy supporting this rule is that it "assures good faith litigants access to the judicial system without fear of intimidation by a countersuit." Tex. Beef Cattle, 921 S.W.2d at 209 (quoting Martin, 578 S.W.2d at 768). The special damage requirement also serves to avoid needless and vexatious litigation. See id.
Schechter claimed no damages for abuse of process other than his legal fees incurred in the course of responding to Pitts's improper filings in violation of the protective order. But for purposes of the special-injury requirement, "[i]t is insufficient that a party has suffered the ordinary losses incident to defending a civil suit, such as inconvenience, embarrassment, discovery costs, and attorney's fees." Id. at 208. Schechter's appellate brief identifies no other evidence of special injury. Accordingly, we sustain Pitts's issues challenging the awards of damages, including punitive damages, on Schechter's abuse-of-process claim.
IV. Conclusion
We affirm the judgment of the trial court in all respects concerning Schechter's contract claims against Pitts. After an independent review of the record, we conclude that the evidence is legally insufficient to establish that Pitts acted with the actual malice required by the Constitution for him to be liable on a claim of defamation against a public figure. Using the ordinary standard of review, we also find legally insufficient the evidence of special injury arising from Schechter's claim of abuse of process. We therefore reverse and render judgment that Schechter take nothing on his tort claims against Pitts. The judgment of the trial court is affirmed in all other respects.