Opinion
No. 05-09-00884-CV
Opinion Filed April 20, 2011.
On Appeal from the 68th Judicial District Court Dallas County, Texas, Trial Court Cause No. 00-08050-C.
Before Justices MORRIS, FRANCIS, and MURPHY.
MEMORANDUM OPINION
The two issues in this appeal are presentment of appellee McGuire, Craddock, Strother Hale, P.C.'s breach of contract claim to recover section 38.001 attorney's fees and segregation of its attorney's fees associated with defending the counterclaim of appellants, Transcontinental Realty Investors, Inc. and RT Realty, L.P. (collectively, Transcontinental). See Tex. Civ. Prac. Rem. Code Ann. §§ 38.001, 38.002(2) (West 2008). Transcontinental contends the trial court erred in awarding attorney's fees to McGuire, Craddock because of its failure to prove presentment. McGuire, Craddock contends by cross-appeal that the trial court erred in reducing its award because it was not required to segregate the fees incurred in defending against Transcontinental's counterclaims. We affirm the trial court's judgment with the exception of the reduction of fees and remand that portion of the judgment to the trial court for further proceedings.
Procedural Background
McGuire, Craddock sued its former clients, Transcontinental Realty and RT Realty, alleging claims for breach of a fee agreement and fraudulent inducement. McGuire, Craddock's live pleading included separate sections for "CONTRACT" and "ATTORNEY'S FEES." Under the "contract" section, McGuire, Craddock alleged that Transcontinental's failure to make required payments for legal services was a breach of the fee agreement and that all conditions precedent to recovery on the breach of contract claim had been satisfied. Under the "attorney's fees" section, McGuire, Craddock alleged that it had timely presented its claim for Transcontinental's default, the claim remained unpaid, and McGuire, Craddock was entitled to recover its reasonable attorney's fees under sections 38.001 and 37.009 of the Texas Civil Practice and Remedies Code.
Transcontinental generally denied McGuire, Craddock's allegations and asserted various affirmative defenses. Transcontinental also alleged McGuire, Craddock "ha[d] not performed all conditions precedent to recovery" but did not specifically deny the condition precedent of presentment. Transcontinental counterclaimed for breach of contract, fraud, breach of fiduciary duty, negligence, and negligent misrepresentation. The case was tried to a jury, which returned a verdict in favor of McGuire, Craddock for $298,630 on its claims and against Transcontinental on its counterclaims. The parties agreed the issue of attorney's fees would be submitted by affidavit and determined by the trial court after trial.
Thereafter, the parties filed post-judgment motions. McGuire, Craddock moved for entry of judgment on the jury's verdict and asked the trial court to include an award for attorney's fees and expenses incurred in pursuing its claims. Transcontinental moved for judgment notwithstanding the verdict and sought the equitable remedy of fee forfeiture. Following a hearing, the trial court rendered its judgment granting the motion for JNOV and ordered the parties take nothing on their claims. McGuire, Craddock appealed, and this Court reversed the trial court's judgment, rendered judgment on the jury verdict, and remanded the case to the trial court to address the issue of attorney's fees. See McGuire, Craddock, Strother Hale, P.C. v. Transcontinental Realty Investors, Inc., 251 S.W.3d 890, 899 (Tex. App.-Dallas 2008, pet. denied).
On remand, McGuire, Craddock filed a motion for entry of judgment and award of attorney's fees. In support of its request for attorney's fees, McGuire, Craddock filed the affidavit of Alison H. Moore, its counsel of record. Moore testified McGuire, Craddock incurred $330,158.88 in attorney's fees and expenses for the "prosecution of [its] breach of contract claim and the necessary legal work to defeat the affirmative defenses [Transcontinental] asserted to that claim." That total amount included the following fees: $229,376.62 incurred through trial; $79,772 incurred in appealing the JNOV; $8,334 incurred in opposing Transcontinental's petition for review to the Texas Supreme Court; $12,676.26 incurred during the proceedings on remand; and $3,500 to be incurred in future proceedings to conclude the case. Moore stated it was "impossible" to distinguish between the fees incurred in "defending the affirmative claims for relief asserted against McGuire, Craddock" from the fees incurred in "defeating [Transcontinental's] affirmative defenses" due to the "interrelated nature" of the claims. Moore further testified the fees attributable to the prosecution of McGuire, Craddock's fraudulent inducement claim were "a tiny fraction" of the total fees; she opined that amount was $9,904.76, or three percent of the total fees incurred. She did not subtract that amount from the $229,376.62 in fees incurred through trial.
Transcontinental objected to any award of attorney's fees, arguing among other things McGuire, Craddock did not (1) prove it presented its underlying contract claim to Transcontinental after McGuire, Craddock's legal services were terminated or (2) segregate its fees. Transcontinental also filed a controverting affidavit of Ryan K. Lurich, its counsel of record. Lurich testified McGuire, Craddock's work related to defeating Transcontinental's counterclaims was "easily distinguishable" from the work related to prosecuting McGuire, Craddock's breach of contract claim. Lurich also challenged the reasonableness of certain fees incurred in pursuing matters "that were not relevant" to McGuire, Craddock's breach of contract claim.
After hearing argument, the trial court rendered judgment on the jury verdict, awarding McGuire, Craddock $298,630 in actual damages. The trial court also ordered that McGuire, Craddock recover $199,282.26 in attorney's fees, representing its fees and expenses incurred in prosecuting the lawsuit and appeal, as well as amounts for the proceedings on remand and future proceedings to conclude the case. The award reflected a reduction for fees incurred in prosecuting the claims through trial. Following the trial court's denial of post-trial motions, the parties appealed.
Transcontinental's Appeal
Transcontinental contends the trial court erred in awarding attorney's fees to McGuire, Craddock because McGuire, Craddock "failed to offer any proof of presentment during the hearings before the trial court on the issue of attorney's fees" as required by section 38.002 of the Texas Civil Practice and Remedies Code. See Tex. Civ. Prac. Rem. Code Ann. § 38.002(2).
Applicable Law
A party who prevails on a breach of contract claim may recover reasonable attorney's fees for prosecution of that claim. See id. § 38.001(8). One prerequisite to recovering attorney's fees under chapter 38 is presentment of the underlying claim to the opposing party or its agent. Id. § 38.002(2). The purpose of the presentment requirement is to allow the person against whom the claim is asserted an opportunity to pay a claim within thirty days of receiving notice of the claim without incurring an obligation for attorney's fees. See Jones v. Kelley, 614 S.W.2d 95, 100 (Tex. 1981). Presentment requires no particular form; all that is necessary is an assertion of a debt or claim, a request for payment, and the opposing party's refusal to pay. Id.; Standard Constructors, Inc. v. Chevron Chem. Co., 101 S.W.3d 619, 627 (Tex. App.-Houston [1st Dist.] 2003, pet. denied). "When the question of attorney's fees is submitted to the court, the court may consider the entire case file to determine whether presentment was made." Bethel v. Norman Furniture Co., 756 S.W.2d 6, 8 (Tex. App.-Houston [1st Dist.] 1988, no writ) (citing Carrington v. Hart, 703 S.W.2d 814, 818 (Tex. App.-Austin 1988, no writ)); see also Tex. Civ. Prac. Rem. Code Ann. § 38.004(1).
The claimant bears the burden to plead and prove presentment of its contract claim and that the party failed to tender performance. See Ellis v. Waldrop, 656 S.W.2d 902, 905 (Tex. 1983) (op. on reh'g). "But when a claimant avers in its petition that all conditions precedent to recovery have occurred or have been performed, it is required to prove only those conditions precedent that have specifically been denied by the opposing party." Shin-Con Dev. Corp. v. I.P. Invs., Ltd., 270 S.W.3d 759, 768 (Tex. App.-Dallas 2008, pet. denied) (citing Tex. R. Civ. P. 54); see also Belew v. Rector, 202 S.W.3d 849, 857 (Tex. App.-Eastland 2006, no pet.).
Analysis
Relying on Texas Rule of Civil Procedure 54 and this Court's opinion in Shin-Con Development Corp., McGuire, Craddock asserts it did not need to prove presentment of its contract claim because it pleaded that "all conditions precedent" to recovery under the contract occurred and Transcontinental did not deny specifically which conditions precedent had not been met. Transcontinental argues that McGuire, Craddock's general averment under the "contracts" section of its petition that all conditions precedent to recovery had been satisfied was "expressly limited" and did not extend to the request for attorney's fees; stated differently, Transcontinental contends that when McGuire, Craddock specifically pleaded presentment under the "attorney's fees section" of its petition, it was required to prove that specifically-pleaded element of its claim.
We need not resolve whether McGuire, Craddock was relieved of its burden to prove presentment under the pleading nuance presented here because our review of the record, which consists of the proceedings on remand as well as the proceedings from the underlying trial, shows that McGuire, Craddock presented its contract claim to Transcontinental and that Transcontinental refused to pay. Transcontinental does not dispute that evidence was introduced in the underlying trial or argue that the evidence is not sufficient proof of presentment. Rather, it contends McGuire, Craddock waived reliance on this evidence because, at the attorney's fees hearings on remand, McGuire, Craddock "simply relied upon its argument that it was not required to prove presentment" because it pleaded "all conditions precedent" occurred. We are not persuaded by Transcontinental's argument.
The parties agreed during trial of the underlying case that attorney's fees would be submitted by affidavit and determined by the trial court. At the hearings on remand, the trial court had before it the entire case file, in addition to the record of the underlying trial.
The trial court was permitted to consider that record and the case file to determine whether presentment was made. See Bethel, 756 S.W.2d at 8. The evidence presented at trial, which Transcontinental does not contest, shows Tom Craddock made repeated oral and written demands for Transcontinental not only to pay McGuire, Craddock's outstanding invoices but also to pay McGuire, Craddock's invoices upon receipt. Construing section 38.002 generously, as we must do, we conclude the trial testimony and communications satisfy the presentment requirement of section 38.002. See Tex. Civ. Prac. Rem. Code Ann. §§ 38.002(2), 38.005; Recognition Comm'ns, Inc. v. Am. Auto. Ass'n, 154 S.W.3d 878, 891 (Tex. App.-Dallas 2005, pet. denied). We overrule Transcontinental's sole issue.
In support of its waiver argument, Transcontinental asserts McGuire, Craddock (1) never asked the trial court to take judicial notice of the file or presented excerpts from the transcript and (2) argued only that its pleading satisfied any proof requirements. The only authority cited by Transcontinental is appellate rule 33.1(a), which requires that a complaint be presented to the trial court and the trial court ruled on the request. See Tex. R. App. P. 33.1(a). Here, it was Transcontinental's request-asking the trial court to find McGuire, Craddock had not proved presentment-that was refused. With regard to judicial notice, there was no reason, as suggested by Transcontinental, the trial court would have to take judicial notice of its own trial record in determining the question of presentment. Even if judicial notice were appropriate, the trial court is entitled under chapter 38 to take judicial notice of "the contents of the case file" without receiving any further evidence. See Tex. Civ. Prac. Rem. Code Ann. § 38.004.
McGuire, Craddock's Cross-Appeal
McGuire, Craddock contends in its cross-appeal that the trial court erred in reducing its fee award due to non-segregation of fees associated with defending against Transcontinental's counterclaim. It challenges the $95,000 awarded for the trial proceedings, which was more than $134,000 less than the $229,376.62 testified to by Moore. As to those fees, the trial court stated: "I have reviewed the billing statements. I think the incorrect standard . . . on segregation was applied. Based on my evaluation, approximately $95,000 is the appropriate amount of attorney's fees to be awarded through entry of judgment. . . ." During the hearing, the trial court also noted that in addition to the fees for the fraudulent inducement claim separated by Moore in her affidavit, fees for "any affirmative claims" made by Transcontinental "should have been segregated out as well."
McGuire, Craddock argues the trial court erred in reducing its attorney's fee award based on an alleged failure to segregate. Specifically, McGuire, Craddock contends it was not required to segregate the fees it incurred in pursuing its breach of contract claim from the fees incurred in overcoming Transcontinental's counterclaims.
Applicable Law
If attorney's fees are authorized for some, but not all, of a party's claims, that party generally has the duty to segregate the recoverable from the non-recoverable attorney's fees. See Tony Gullo Motors, I., L.P. v. Chapa, 212 S.W.3d 299, 313-14 (Tex. 2006); A L Eng'g Consulting, Inc. v. Shiloh Apollo Plaza, Inc., 315 S.W.3d 928, 931 (Tex. App.-Dallas 2010, no pet.). But a party is not required to segregate attorney's fees if "discrete legal services advance both a recoverable and unrecoverable claim," thus causing the fees to become "so intertwined that they need not be segregated." Tony Gullo Motors, 212 S.W.3d 313-14. This standard does not require attorneys to keep separate time records. Id. at 314. Rather, the amount of recoverable attorney's fees is sufficiently segregated if, for example, the attorney testifies that a given percentage of time would have been necessary if there had been no unrecoverable claim. Id.
The question of whether segregation is required in a particular case is a legal inquiry, subject to de novo review. Id. at 312; see also CA Partners v. Spears, 274 S.W.3d 51, 81 (Tex. App.-Houston [14th Dist.] 2008, pet. denied). Segregation is not required, for example, to "overcome any and all affirmative defenses" to a breach of contract claim. Tony Gullo Motors, 212 S.W.3d at 314. The "opposing party who raises [affirmative defenses to a contract claim] should not be allowed to suggest to the [fact finder] that overcoming those defenses was unnecessary." Id. Similarly, "when a defendant asserts a counterclaim that the plaintiff must overcome in order to fully recover on its contract claim, the attorneys' fees necessary to defeat that counterclaim are likewise recoverable." 7979 Airport Garage, L.L.C. v. Dollar Rent A Car Sys., Inc., 245 S.W.3d 488, 507 (Tex. App.-Houston [14th Dist.] 2007, pet. denied) (citing Varner v. Cardenas, 218 S.W.3d 68, 69-70 (Tex. 2007) (per curiam)).
Analysis
McGuire, Craddock asserts "there is no need to segregate when a defendant alleges the same theory as both an affirmative defense and a counterclaim in an effort to reduce or eliminate the plaintiff's recovery on a contract claim." We agree. In this case, McGuire, Craddock's breach of contract claim and Transcontinental's counterclaims depend upon many of the same essential facts and evidence, and McGuire, Craddock had to defeat Transcontinental's claims before it could recover on its contract for legal fees. See Tony Gullo Motors, 212 S.W.3d at 314; Varner, 218 S.W.3d at 68-70. A recovery on any of Transcontinental's claims would be an offset to McGuire, Craddock's breach of contract claim. For example, McGuire, Craddock and Transcontinental each asserted the other breached the fee agreement.
McGuire, Craddock alleged Transcontinental "failed to make the required payments" on the account. Transcontinental alleged (1) McGuire, Craddock agreed (a) "only [to] charge for services [Transcontinental] agreed to pay"; (b) to charge reasonable and necessary fees; and (c) not to exceed McGuire, Craddock's litigation estimate without Transcontinental's express agreement, and (2) McGuire, Craddock (a) "failed to properly manage the fees and expenses" in the underlying suit, (b) did not notify Transcontinental when the fees exceeded the "agreed-upon estimate" for the litigation, and (c) continued to charge Transcontinental the fees incurred that were in excess of the estimate. Transcontinental also asserted counterclaims for fraud, breach of fiduciary duty, negligence, and negligent misrepresentation on those same allegations and alleged McGuire, Craddock "incurred hundreds of thousands of dollars pursuing claims" in the underlying litigation that had no available evidentiary support and should have been dismissed by filing a dispositive motion earlier in the litigation. Transcontinental further pleaded a claim for set-off against the claims asserted by McGuire, Craddock. Thus, evidence related to (1) the fee agreement, billing method, and Transcontinental's payment obligations; (2) the litigation budget prepared by McGuire, Craddock and how the progression of the case affected the estimates; and (3) the reasonableness of McGuire, Craddock's fees in light of, among other things, the labor involved, the complexity of the case, the amount of time involved, and the results obtained, was essential and relevant to both McGuire, Craddock's breach of contract claim and to its defense against Transcontinental's counterclaims. Questions on Transcontinental's counterclaims also were submitted to the jury. The damages questions related to those counterclaims asked the jury to consider the following elements of damages: *The amount of monies that was received by [McGuire, Craddock] in excess of the reasonable and necessary attorneys fees; or,
*The damages caused to [Transcontinental] by the lost opportunity to sign a contingent fee agreement in September 1997 measured by the amount of monies paid by [Transcontinental] for attorneys fees in excess of a September 1997 contingent fee agreement; or,
*The amount of fees paid to McGuire Craddock that represents the excess, if any, of the total fees paid by [Transcontinental] in the [lawsuit in which McGuire, Craddock represented Transcontinental] over the amount of the estimate given by McGuire Craddock.
And Transcontinental asserted in its motion for JNOV that it "conclusively proved that [McGuire, Craddock] breached its fiduciary duty to [Transcontinental]"; the evidence "establishes a legal bar to [McGuire, Craddock's] recovery"; McGuire, Craddock "cannot retain the benefits it acquired by the breach"; and it was "entitled to the remedy of fee forfeiture."
For McGuire, Craddock to recover on the contract for the legal fees it claimed were owed by Transcontinental, McGuire, Craddock had to overcome each of the defenses and affirmative claims asserted by Transcontinental. We therefore conclude McGuire, Craddock was not required to segregate the attorney's fees it incurred in prosecuting its breach of contract claim from the fees incurred in defeating Transcontinental's counterclaims. See Varner, 218 S.W.3d at 69-70; 7979 Airport Garage, L.L.C., 245 S.W.3d at 509. We sustain McGuire, Craddock's issue on its cross-appeal.
In sustaining McGuire, Craddock's issue on cross-appeal, we note McGuire, Craddock prevailed on two claims against Transcontinental, one that permits recovery of attorney's fees (breach of contract) and one that does not (fraudulent inducement). The amount of fees attributable to McGuire, Craddock's fraudulent inducement claim should be segregated from the total fees incurred in the trial proceedings. See Tony Gullo Motors, 212 S.W.3d at 313-14. As acknowledged by McGuire, Craddock, Moore stated in her affidavit that the fees incurred in prosecuting McGuire, Craddock's fraudulent inducement claim were $9,904.76.
Accordingly, we reverse that portion of the judgment awarding McGuire, Craddock $95,000 in attorney's fees for the trial court proceedings. Although we conclude the fees incurred in prosecuting the breach of contract claim are not required to be segregated from the fees incurred in defeating the counterclaims, a remand is necessary because the record does not conclusively prove any particular amount that was a reasonable and necessary fee for the trial court proceedings through judgment. The trial court made no reasonableness finding on the amount of fees, and Transcontinental offered a competing affidavit, challenging the reasonableness of certain fees incurred in pursuing matters "that were not relevant" to McGuire, Craddock's breach of contract claim. We therefore remand this case for further proceedings. See Tony Gullo Motors, 212 S.W.3d at 314; see also McMillin v. State Farm Lloyds, 180 S.W.3d 183, 211 (Tex. App.-Austin 2005, pet. denied).
Conclusion
We reverse that portion of the judgment awarding McGuire, Craddock $95,00 in attorney's fees for the trial court proceedings and remand for further proceedings on that issue alone. In all other respects, we affirm the trial court's judgment.