File: 061024F - From documents transmitted: 08/29/2007
AFFIRMED in part; MODIFIED in part; REMANDED in part; Opinion filed
August 29, 2007.
Court of Appeals
Fifth District of Texas at Dallas
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Appellant
NATIONAL DEVELOPMENT AND RESEARCH CORPORATION and
ROBERT E. TANG, Appellees
On Appeal from the 68th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 03-11843-C
Before Justices Wright, Richter, and Smith See Footnote 1
Opinion By Justice Smith
This is an appeal from a jury verdict in a legal malpractice lawsuit filed by
appellees National Development and Research Corporation and Robert E. Tang See
Footnote 2 (collectively NDR) against appellant Akin, Gump, Strauss, Hauer & Feld,
L.L.P. The jury found Akin Gump negligent and assessed damages totaling $922,631.86. Akin
Gump does not appeal the finding of negligence but seeks to reduce the damages awarded,
arguing that (1) NDR did not prove that certain damages would be collectible; (2) no evidence
supports the jury's finding of fair market value of the Pan-Sino stock at issue; (3) attorney's fees
in the underlying lawsuit are not a proper measure of damages in a malpractice suit; and (4) an
offset is due for the 10% contingency fee NDR would have owed Akin Gump for prevailing in
the underlying lawsuit. We conclude attorney's fees are not recoverable in this malpractice suit,
but resolve all other issues in favor of the judgment.
In October 1997, NDR retained Akin Gump to represent it in disputes with
Panda Energy Corporation and its affiliates. These disputes arose from a 1994 Letter Agreement
in which NDR agreed to assist Panda Energy Corporation in its efforts to develop and operate
power plants in China. As part of the Letter Agreement, Panda Energy Corporation agreed to
pay NDR an annual service retainer, a success fee, and stock grants in a contemplated
subsidiary. Later that year, Panda Energy Corporation formed Pan-Sino Energy Development
Company, L.L.C. (Pan-Sino), to act as a holding company for its Chinese projects. Panda
Energy Corporation and NDR executed a Shareholders' Agreement which gave NDR a 4.5%
stock interest in Pan-Sino and required Panda Energy Corporation to repurchase NDR's stock
in Pan-Sino upon termination of the Letter Agreement.
In 1995, with NDR's approval, Panda Energy Corporation assigned the Letter
Agreement to Panda Energy International. Two years later, again with NDR's approval, Panda
Energy Corporation sold its stock in Pan-Sino to Panda Global Energy Company. According to
the Letter Agreement, Panda Energy International remained obligated to repurchase the
Pan-Sino stock from NDR upon termination of the Letter Agreement. See Footnote 3
Meanwhile, the Panda entities developed a power plant in Luannan County in the Tangshan
Municipality of Hebei Province in the People's Republic of China (the Luannan project).
Pan-Sino held approximately 87% interest in the Luannan project. For reasons
not relevant here, Panda Global Energy notified NDR that it was terminating the Letter
Agreement and exercising its right under the Shareholders' Agreement to repurchase NDR's
4.5% interest in Pan-Sino. The parties disagreed about the validity of the termination, which
Panda entity should repurchase the stock, and the stock's value.
Panda Global Energy filed a declaratory judgment action against NDR to
resolve the parties' disputes. NDR filed third-party claims against Panda Energy International
and Pan-Sino. Akin Gump represented NDR in all matters. The case was tried to a jury. The
jury returned a verdict partially in favor of NDR and partially in favor of the Panda entities.
However, the trial court granted the Panda entities' motion for judgment notwithstanding the
verdict because NDR failed to submit jury questions to support the verdict in their favor.
See Footnote 4 The trial court then entered final judgment in favor of the Panda entities
and ordered NDR to pay $111,043.50 in attorney's fees to Panda Global Energy for prevailing
in the declaratory judgment action, and $347,348 in attorney's fees to Panda Global Energy and
Pan-Sino pursuant to the Shareholders' Agreement. NDR appealed. This Court affirmed,
See Footnote 5 and the Texas Supreme Court denied review.
After exhausting all appeals in the Panda litigation, NDR sued Akin Gump for
legal malpractice for failure to submit jury questions to support the verdict in the Panda lawsuit.
The jury found Akin Gump negligent and awarded NDR $922,631.86 for the following
damages: (1) $168,667.41 for “the judgment paid by NDR in the Panda lawsuit”; (2)
$427,777.77 as the fair market value of the Pan-Sino stock subject to the repurchase
agreement; (3) $216,590 in attorney's fees and expenses paid by NDR in the Panda lawsuit; (4)
$109,596.68 in success fees owed to NDR by Panda. The trial court denied Akin Gump's
request for an offset in the amount of a 10% contingency fee it would have earned for prevailing
in the Panda lawsuit.
On appeal, Akin Gump does not appeal the finding of negligence or the award
of $168,667.41 for the judgment NDR paid the Panda entities in the underlying suit. It brings
four issues challenging all the other elements of damages and insisting on its entitlement to an
Fair Market Value of Pan-Sino Stock
In its second issue, Akin Gump insists the evidence is legally insufficient to
support the jury's award of $427,777.77 for the fair market value of the Pan-Sino stock Panda
Energy International was obligated to repurchase from NDR. Its argument is two-fold: (1) NDR
offered incompetent and thus no evidence of the fair market value of the Pan-Sino stock it
owned at the time of the breach; and (2) NDR offered no evidence of the fair market value of
the stock remaining in its possession today. It is Akin Gump's position that any value of the stock
still held by NDR today must be deducted from the value of that stock at the time of the breach
to properly calculate that measure of damages.
In evaluating the legal sufficiency of the evidence to support a jury finding, we
view the evidence in the light most favorable to the verdict, crediting favorable evidence if
reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.
See Kroger Tex. Ltd. P'ship v. Suberu, 216 S.W.3d 788, 793 (Tex. 2006) (citing City of
Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)). We will sustain a no-evidence point
when the evidence offered to establish a vital fact does not exceed a scintilla. Id. (citing City of
Keller, 168 S.W.3d at 810). “Evidence does not exceed a scintilla if it is 'so weak as to do no
more than create a mere surmise or suspicion' that the fact exists.” Id. (quoting Ford Motor Co.
v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004)).
When we review a challenge to the legal sufficiency of an expert's testimony,
our task is not to determine whether the expert's opinion is correct. Kerr-McGee Corp. v.
Helton, 133 S.W.3d 245, 257 (Tex. 2004). Instead, we are to determine whether the expert's
conclusions are reliable. Id.; see Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706,
712-13 (Tex. 1997). In doing so, we examine the principles, research, and methodology
underlying the expert's conclusions. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 578
(Tex. 2006) (citing Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex. 2002)).
Fair Market Value at Time of Breach
Generally, the measure of damages for breach of a contract to repurchase
stock is the difference between the contract price and the fair market value of the stock at the
time of the breach. See Miga v. Jensen, 96 S.W.3d 207, 215 (Tex. 2002) (quoting Randon v.
Barton, 13 Tex. 324 (1855)); Coleman v. Mayes, 347 S.W.2d 827, 830 (Tex. Civ.
App.-Houston [1st Dist.] 1961, writ ref'd n.r.e.). In this case, the jury charge did not define
“fair market value.” Although Akin Gump tendered a definition of fair market value comporting
with the parties' Letter Agreement, See Footnote 6 the trial court overruled its
objection to the charge and denied the request; Akin Gump does not appeal those rulings. As a
result, we analyze the sufficiency of the evidence based on the ordinary meaning of “fair market
the fair market value of closed corporation stock, or stock having no public market, as here, is “what a willing purchaser would pay to a willing seller who was not
acting under compulsion to sell.” Willis v. Donnelly, 118 S.W.3d 10, 40-41 (Tex.
App.-Houston [14th Dist.] 2003), aff'd in part and rev'd in part on other grounds, 199
S.W.3d 262, 279 (Tex. 2006); InterFirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882, 889
(Tex. App.-Texarkana 1987), disapproved on other grounds by Tex. Commerce Bank,
N.A. v. Grizzle, 96 S.W.3d 240 (Tex. 2002). When stock sales do not exist upon which fair
market value may be determined, other methods of assessing fair market value include the asset
approach and the earnings, or income, approach. See Willis, 118 S.W.3d at 41.
NDR's expert Jonathan Saiger
NDR presented the preliminary report and deposition testimony of Jonathan
Saiger, vice president at PricewaterhouseCoopers, concerning the fair market value at the time
of the breach of the Pan-Sino stock NDR owned. Saiger originally prepared this report, dated
June 21, 1999, for Akin Gump on behalf of NDR in the underlying Panda lawsuit. His report
provides “a preliminary estimate of the fair market value of NDR's shares in Pan-Sino
constituting a 4.5% equity ownership interest as of June 30, 1997, assuming that NDR's shares
are on a controlling and marketable basis.” In his deposition, Saiger explained that he used the
discounted cash flow, or income, approach to value the stock because no comparable sales or
historical data were available to use the market and asset approaches. He stated the income
approach “involves projecting future benefits from a project or company and then discounting
those benefits to the present time using a rate that reflects their expected risk.”
Saiger analyzed the value of the Pan-Sino stock NDR owns under six different
scenarios. See Footnote 7 For each scenario, Saiger relied on income projections
contained in the Panda Global Energy April 1997 bond offering prepared by the securities firm
of Donaldson, Lufkin & Jenrette for the Luannan project. Saiger testified he did not undertake a
detailed analysis or investigation of all of the underlying documents supporting the financial
projections contained in the offering memorandum, but he did review them for “some level of
reasonableness” and looked at the factors that were used to determine whether they were
consistent with the industry.
Akin Gump contends that each of Saiger's six scenarios is based on at least
one faulty assumption, and, as a result, is incompetent and constitutes no evidence of the fair
market value of the Pan-Sino stock. See Footnote 8 Akin Gump asserts two
arguments against all six scenarios: (1) Saiger erroneously assumed that all of the cash flow from
the Luannan project would be distributable to Pan-Sino at the end of the year in which it was
generated; and (2) the ability of the Luannan project to charge the 7.4 cents per kilowatt hour
tariff contained in the offering memorandum and upon which Saiger relied in his calculations was
being questioned as early as May 1999.
Cash Flow Distribution
Akin Gump does not complain that the income projections contained in the
offering memorandum, which Saiger used in making his calculations, are unreliable. Nor does
Akin Gump complain that the income approach Saiger used is an unacceptable method for
determining fair market value. Instead, Akin Gump complains about Saiger's methodology in
using the net cash flow figures contained in the offering memorandum to calculate the value of
the stock. The firm specifically complains that Saiger assumed a distribution of the entire net
cash flow, when the undisputed evidence showed that Chinese regulations require a portion of
the cash flow, called the “undistributable cash flow,” to remain in China and thus unavailable to
Pan-Sino, a non-Chinese company. But Akin Gump's own expert agreed that the existence of
the undistributable cash flow would bear on the valuation of the Pan-Sino stock because the
Shareholders' Agreement requires the stock to be appraised as if the sale were a sale of all of
the company's shares in a single transaction to an independent third party, and an independent
third party would take the undistributable cash flow figure into account in valuing the company.
Saiger explained that he assumed all of the cash flow would be distributed each year because
“[t]his assumption is necessary and reasonable considering the fact that NDR is assumed to
have a controlling interest in Pan-Sino . . . .” Although Akin Gump's expert testified he would
have calculated the cash flow distribution differently, this does not make Saiger's calculations
unreliable. See Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 500-01 (Tex. 2001); Nip v.
Checkpoint Sys., Inc., 154 S.W.3d 767, 772 (Tex. App.-Houston [14th Dist.] 2004, no pet);
United Servs. Auto. Ass'n v. Pigott, 154 S.W.3d 625, 631 (Tex. App.-San Antonio 2003,
judgm't withdrawn by agr.).
Akin Gump further contends that Saiger miscalculated NDR's interest in the
Pan-Sino stock because he counted the undistributable cash flow twice. We have reviewed
Saiger's calculations and agree that he mistakenly counted the undistributable cash flow twice.
However, we do not agree that this makes Saiger's opinion unreliable. As we stated earlier, Akin
Gump does not complain that the income projections contained in the offering memorandum are
themselves unreliable. An error in addition or multiplication goes to the weight to be given the
expert's opinion on valuation; it does not challenge the reliability of the underlying data. See
Wilkins, 47 S.W.3d at 500-01; Pigott, 154 S.W.3d at 631-32.
Tariff to be Charged
We next consider Akin Gump's contention that Saiger's opinion is unreliable
because he used the tariff from the 1997 offering memorandum of 7.4 cents per kilowatt hour.
Akin Gump contends that tariff is unreliable for two reasons. First, as early as May 1999, it was
questionable whether the Luannan project would be able to charge this tariff. And second, the
actual price charged in 2001 was approximately 5 cents per kilowatt hour, 40% less than the
tariff in the offering memorandum.
To support its first contention, Akin Gump introduced a May 14, 1999 Global
Power Report article entitled “Moody's Lowers Rating on Panda's 100-MW Project in
Luannan, China.” That article forecast lower-than-expected revenues for the Luannan project
based, in part, on lower-than- projected tariff charges due to an oversupply of electricity in the
area. Akin Gump argues this information was available to Saiger and he failed to consider it. But
Saiger relied on the assumption made by an independent third party in the offering memorandum
prepared two months before the article was published. And Akin Gump's own expert testified
that the parties' agreements upon which the tariff was determined did not change based on the
Global Power Report article. Whether Akin Gump's expert would have considered possible
price changes does not impact the reliability of Saiger's calculations, which were based on an
independent report from a third party. See Nip, 154 S.W.3d at 772; Wilkins, 47 S.W.3d at
500-01; Pigott, 154 S.W.3d at 631-32. We conclude a single article questioning whether the
Luannan project would be able to charge the contracted-for price does not affect the reliability
of the underlying data prepared by an independent third party upon which Saiger relied. And we
fail to see how the actual tariff charged in 2001 could have had any impact on Saiger's analysis,
which he prepared two years earlier in 1999.
Akin Gump further challenges three of Saiger's scenarios (one, three, and five)
because they assume the equity contribution to the Luannan project does not have to be repaid.
Akin Gump contends this directly contradicts the terms of the offering memorandum. Even if
these three scenarios are unreliable, that does not affect Saiger's opinions in the remaining three
Akin Gump challenges the valuations contained in four of Saiger's scenarios
because Saiger assumes (1) in scenarios three and four, that the Luannan project will operate
and generate cash for thirty years, instead of the contracted-for twenty-year term; and (2) in
scenarios five and six, that the Luannan project will undergo an expansion in 2004 and will
produce cash flow until 2029. Akin Gump contends there is no evidence to support either
assumption. We disagree. Tang testified agreements were in place to extend the twenty-year
term by ten years and to expand the project in 2004. This testimony constitutes some evidence
to support Saiger's assumptions.
Even if we disregard Saiger's opinions in scenarios one, three, and five, we
conclude the evidence contained in scenarios two, four, and six exceeds a scintilla to support
Saiger's opinions concerning the valuation of NDR's Pan-Sino stock at the time of the breach.
Tang testified that he formed NDR, a consulting company, in the late 1980s.
As owner of NDR, Tang testified he performs consulting services in corporate finance and
serves as interim chief financial officer for the companies that engage him. The chief financial
officer of Panda Energy Corporation hired NDR to help locate projects in China where Panda
Energy Corporation could build and develop electric power generation facilities. As part of the
agreement, Panda Energy Corporation also hired Tang as business adviser “to the chairman of
Tang testified that the Letter Agreement stated the fair market value of the
Pan-Sino stock would be determined by an independent appraiser and “will be the appraised
value as of the date of the termination of the Letter [A]greement.” He read the definition of
“appraised value” contained in the Letter Agreement, and then explained to the jury that
“appraised value” meant “that whenever you try to put a value on the ownership of the China
project, treat it as if the entire company is being sold in a single transaction to a[n] independent
third party. That means it's like a going public in an IPO or in a merger acquisition you sell your
whole company to a buyer, to a willing buyer, a willing seller.” Tang also explained that this
method of calculating the stock's value was important to him, because if one buyer was buying
the entire company, the stock would have a higher value than in a sale of a small portion of the
Tang testified he worked with Saiger as the expert was preparing his report
and opinions of value in the underlying Panda litigation. Tang's own calculations about the value
of the Pan-Sino stock were provided to assist Saiger. Tang explained the methods of evaluating
the stock that Saiger used in his report. Tang then testified that, based on his personal
knowledge and review of all relevant documents, his opinion was that the value of NDR's
Pan-Sino shares at the time of the breach was between $6,314,000 and $7,718,107.
Akin Gump cites to testimony where Tang admitted: he was not an expert in
valuation and not qualified to do any formal appraisal of businesses; he had not reviewed
Pan-Sino's balance sheets; the offering memorandum said Pan-Sino was projected to lose
hundreds of thousands of dollars the first three years; and the existence of $155.2 million in
senior secured notes to which any stock in Pan-Sino was subordinated. It is well-settled in
Texas that a property owner may testify about the market value of his property if his testimony
shows he is familiar with the market value and his opinion is based on that market value.
Redman Homes, Inc. v. Ivy, 920 S.W.2d 664, 669 (Tex. 1996); Porras v. Craig, 675
S.W.2d 503, 503 (Tex. 1984). We have applied this general rule to allow a part owner of a
business to testify about the market value of that business's stock. Vector Indus., Inc. v. Dupre,
793 S.W.2d 97, 103 (Tex. App.-Dallas 1990, no writ). It was not necessary for Tang to qualify
as an expert witness to testify about his opinion of his own personal property. Although Tang did
not use the words “market value,” we conclude from his lengthy testimony concerning the
valuation of the stock that his testimony was based on market value. Accordingly, we conclude
Tang's testimony is some evidence of the fair market value of the Pan-Sino stock at the time of
Other evidence of value
NDR offered evidence, without objection, that Panda Energy International
valued NDR's interest in the Pan-Sino stock at $350,000. Additionally, Akin Gump's expert
testified that the fair market value of NDR's interest in the Pan-Sino stock was between
$100,000 and a negative $100,000. And other evidence showed that the underwriter for the
financing of the Luannan project valued NDR's ownership interest in the project at between $6
million and $8.2 million.
The legally sufficient evidence shows the value of the Pan-Sino stock NDR
owned at the time of the breach was between $8.2 million and a negative $100,000. The value
placed on the stock by the jury was well within the wide range of values reflected in the
evidence. Clearly, the jury highly discounted Saiger's and Tang's values, perhaps taking into
account the $350,000 value stated by Panda and the $100,000 or less value stated by Akin
Gump's expert. We conclude the evidence supporting the jury's determination of the fair market
value of the Pan-Sino stock owed to NDR by Panda exceeds a scintilla.
Deduction for Current Value
Akin Gump further contends that NDR was required to account for the current
value of the Pan-Sino stock it still owns and, because it did not do so, the evidence is legally
insufficient to support this damages award.
NDR insists Akin Gump waived its argument concerning the current value of
the stock by failing to object to the jury charge. Akin Gump responds that it preserved this
no-evidence issue by raising it in its post-judgment motions. We agree that Akin Gump
preserved the no-evidence issue. See Plano Lincoln Mercury, Inc. v. Roberts, 167 S.W.3d
616, 620-21 (Tex. App.-Dallas 2005, no pet.) (no-evidence point preserved for review if
appellant raised issue in post-judgment motion). Because Akin Gump did not request that the
jury be instructed to deduct the current value of the stock and did not object to the omission of
such an instruction, we consider the evidence in light of the charge given. See Romero v. KPH
Consol., Inc., 166 S.W.3d 212, 232 (Tex. 2005); Wal-Mart Stores, Inc. v. Sturges, 52
S.W.3d 711, 715 (Tex. 2001). We are not authorized to evaluate the sufficiency of the evidence
under calculations different from those the jury was instructed to use. Nip, 154 S.W.3d at 774.
And because the jury in this case was not given any instructions about the calculations to use, all
evidence of the stock's “fair market value,” however calculated, is relevant to our inquiry. See
Dupre, 793 S.W.2d at 103-04 (because issue referred generally to “value,” without specific
reference to “market value,” “book value,” or some other measure of “value,” all testimony
as to value relevant).
We have previously concluded the evidence supporting the jury's determination
of the fair market value of the Pan-Sino stock exceeds a scintilla. Because the jury was asked
only to determine the fair market value, without any reduction for the current value of the stock,
and Akin Gump did not object to the jury charge on this ground, we must conclude that the
evidence of the stock's value, as that issue was submitted to the jury without objection, is legally
We overrule Akin Gump's second issue.
Collectibility of Judgment
In its first issue, Akin Gump asks us to reverse the damages awarded for the
fair market value of the Pan-Sino stock and the success fee because NDR did not prove it
would have successfully collected such a judgment even if it had prevailed in the Panda lawsuit.
The charge defined “Panda” to include Panda Global Energy and Panda Energy International.
The parties do not dispute that Panda Global Energy is insolvent. Akin Gump contends NDR
offered no evidence that Panda Energy International is solvent. We disagree.
We review this issue under the same no-evidence standards enunciated earlier.
See Suberu, 216 S.W.3d at 793; City of Keller, 168 S.W.3d at 827. To show a judgment in
the Panda lawsuit would have been collectible, NDR was required to introduce evidence that
Panda Energy International was solvent “on the date the case was filed or anytime thereafter.”
Jackson v. Urban, Coolidge, Pennington & Scott, 516 S.W.2d 948, 949 (Tex. Civ.
App.-Houston [1st Dist.] 1974, writ ref'd n.r.e.); see also Schlosser v. Tripoli, 609 S.W.2d
255, 257 (Tex. Civ. App.-Houston [14th Dist.] 1980, writ ref'd n.r.e.) (personal knowledge of
whether company had sufficient assets to satisfy judgment sufficient to show judgment collectible).
Here, the Panda lawsuit was filed in 1997, and the judgment signed in October
2000. NDR introduced the business records affidavit of the general counsel and chief legal
officer of Panda Energy International and twenty-one pages of Panda Energy International's
business records. These records contained a consolidated financial statement showing that the
four joint ventures that own the Luannan project had over $108 million in assets and over $47
million in owners' equity in May 2001, only seven months after the judgment in the Panda
lawsuit was signed.
Additionally, the jury determined NDR's approximately 5% interest in the
Pan-Sino stock was valued at over $400,000, making the remaining 95% interest worth over $8
million. And Tang testified that “Panda” owned over 88% of the Luannan project.
We conclude this evidence is sufficient to create more than a mere surmise or
suspicion that Panda Energy International was solvent during the relevant time period and had
sufficient assets to pay a $537,374.45 See Footnote 9 judgment on the date the
lawsuit was filed or anytime thereafter.
We overrule Akin Gump's first issue.
The jury awarded as damages $216,590 for “[a]ttorney's fees and expenses
paid by NDR in the Panda Lawsuit.” In its third issue, Akin Gump argues there is no evidence
to support this award because NDR did not plead, prove, or obtain a jury finding to support a
fee forfeiture, and, in any event, the remedy of fee forfeiture should be determined by the court,
not by a jury. At trial, Akin Gump objected to the submission of the attorney's fees issue on the
grounds that whether a party is entitled to recover attorney's fees is a question of law for the
court and that disgorgement of fees is not a remedy available in a negligence action.
has made it clear in its brief and at oral argument that it is not
seeking to recover as damages the attorney's fees it expended at trial, but only the appellate attorney's fees
it incurred to appeal its loss at trial, only to lose again. See Footnote 10 NDR asserts
that it would not have incurred the fees and expenses of an appeal but for Akin Gump's
negligence. We reject this proposition, noting that even a successful litigant may be forced to
defend its judgment when the losing party appeals. Indeed, we decline to make any distinction
between attorney's fees incurred at trial and on appeal in discussing the propriety of awarding
those fees as damages in a subsequent malpractice suit.
the attorney's fees and expenses incurred in prior litigation with a
third party may serve as a measure of damages in a subsequent lawsuit is a subject of wide debate
among the intermediate appellate courts of this state. See, e.g., El Dorado Motors, Inc. v.
Koch, 168 S.W.3d 360, 366 (Tex. App.-Dallas 2005, no pet.) (declining to award attorney's
fees in legal malpractice suit because attorney's fees expended in prior litigation recoverable only
when provided for by contract or by agreement between parties); Martin-Simon v. Womack,
68 S.W.3d 793, 797-98 (Tex. App.-Houston [14th Dist.] 2001, pet. denied); Cupples Coiled
Pipe, Inc. v. Esco Supply Co., 591 S.W.2d 615, 619 (Tex. Civ. App.-El Paso 1979, writ ref'd
n.r.e.); Dalton S.S. Corp. v. W.R. Zanes & Co., 354 S.W.2d 621, 624 (Tex. Civ. App.-Fort
Worth 1962, no writ). But see Hoover v. Larkin, 196 S.W.3d 227, 231-32 (Tex.
App.-Houston [1st Dist.] 2006, pet. denied) (to extent client seeks attorney's fees as actual
damages, lack of causation evidence defeats claim); Lesikar v. Rappeport, 33 S.W.3d 282,
306 (Tex. App.-Texarkana 2000, pet. denied) (op. on reh'g) (recognizing split in intermediate
appellate courts and concluding plaintiff may recover attorney's fees as damages where
defendant's wrongful conduct forces plaintiff to prosecute or defend litigation in another
proceeding); Standard Fire Ins. Co. v. Stephenson, 963 S.W.2d 81, 90 (Tex.
App.-Beaumont 1997, no pet.) (same); Judwin Props., Inc. v. Griggs & Harrison, 911
S.W.2d 498, 507 (Tex. App.-Hous. [1st Dist.] 1995, no writ) (stating that “recovery of fees
paid to an attorney may be appropriate when his or her negligence rendered the services of no
value”); Baja Energy, Inc. v. Ball, 669 S.W.2d 836, 838 (Tex. App.-Eastland 1984, no
writ) (recognizing equitable exception to general rule that attorney's fees not recoverable as
damages). Cf. Interstate Contracting Corp. v. City of Dallas, No. 3:98-CV-2913-M, 2001
U.S. Dist. LEXIS 777 (N.D. Tex. Jan. 26, 2001) (mem. op. and order) (recognizing conflict
among Texas intermediate appellate courts and concluding that attorney's fees not recoverable
as damages); James M. Stanton, Recovering Attorney's Fees in Equity Under Texas Law:
Why Some Texas Courts of Appeal Have it Wrong, 29 T. Marshall L. Rev. 243, 249-83
(2004) (discussing conflict among Texas intermediate appellate courts).
Some courts have reasoned that attorney's fees should be counted in
calculating damages because the claimant was required to prosecute or defend litigation as a
consequence of the wrongful act of the defendant. See Baja, 669 S.W.2d at 839.
Notwithstanding the widening debate, this Court has consistently concluded that attorney's fees
are not recoverable as damages for legal malpractice. See, e.g., El Dorado Motors, Inc., 168
S.W.3d at 366; Newton v. Meade, 143 S.W.3d 571, 573-75 (Tex. App.-Dallas 2004, no
pet.) (award of attorney's fees for legal malpractice not sustainable because client did not
recover under breach of contract but under negligence); City of Garland v. Booth, 895
S.W.2d 766, 771-72 (Tex. App.-Dallas 1995, writ denied) (declining to award as damages in
separate malpractice action attorney's fees expended to disqualify opponent's attorney in prior
litigation). We have expressly declined to adopt an equitable exception to this general rule.
In support of its position, NDR cites Estate of Arlitt v. Paterson, 995
S.W.2d 713 (Tex. App.-San Antonio 1999), overruled on other grounds by Belt v.
Oppenheimer, Blend, Harrison & Tate, Inc., 192 S.W.3d 780, 783 (Tex. 2006). The San
Antonio court permitted the recovery of attorney's fees as damages in that case, but did note
two decisions of this Court holding to the contrary. Id. at 721 (citing Booth, 895 S.W.2d at
771-72, and Peterson v. Dean Witter Reynolds, Inc., 805 S.W.2d 541, 549 (Tex.
App.-Dallas 1991, no writ)). NDR failed to cite this controlling authority in this Court.
Based on the binding authority of our previous decisions, we conclude that
NDR's appellate attorney's fees are not recoverable as an element of damages in its separate
legal malpractice action against Akin Gump. Accordingly, the trial court erred by granting
judgment including this element of damages.
We sustain Akin Gump's third issue and modify the judgment to delete the
award of $216,590 in attorney's fees as actual damages in this suit.
Reduction of Damages by Contingency Fee
In its fourth issue, Akin Gump argues we should reduce the verdict by the 10%
contingency fee NDR would have owed Akin Gump had NDR prevailed in the Panda lawsuit.
The trial court entered judgment based on the jury's verdict, effectively denying Akin Gump's
request for an offset. Because the issue of whether damages for malpractice should be reduced
to reflect a contingency fee is a question of law, we review the trial court's ruling de novo. See
Ferry v. Sackett, 204 S.W.3d 911, 912 (Tex. App.-Dallas 2006, no pet.) (pure questions of
law reviewed de novo).
The general rule in the United States and Texas is that, unless authorized by
contract or statute, each party must bear its own costs of litigation. Alyeska Pipeline Serv. Co.
v. Wilderness Soc'y, 421 U.S. 240, 269 (1975); Dallas Cent. Appraisal Dist. v. Seven Inv.
Co., 835 S.W.2d 75, 77 (Tex. 1992). The parties agree that whether damages in a malpractice
suit should be reduced by a contingency fee is an issue of first impression in Texas. Jurisdictions
that have considered this issue have disagreed about the propriety of such an offset.
Some jurisdictions have held that damages should be reduced by the amount of
a contingency fee because not to do so violates the basic tort rule that damages are
compensatory only and must not put plaintiff in a better position than she would have been in
absent the tort. See, e.g., Moores v. Greenberg, 834 F.2d 1105, 1111-113 (1st Cir. 1987)
(applying Maine law); Sitton v. Clements, 257 F. Supp. 63, 66 (E.D. Tenn. 1966), aff'd, 385
F.2d 869 (6th Cir. 1967); McGlone v. Lacey, 288 F. Supp. 662, 665 (D.S.D. 1968); Horn
v. Wooster, 2007 WY 120, ¶15, -- P.3d -- (Wyo. Aug. 1, 2007); Ramp v. St. Paul Fire &
Marine Ins. Co., 269 So.2d 239, 245-46 (La. 1972); Childs v. Comstock, 69 A.D. 160, 169,
74 N.Y.S. 643, 649 (N.Y. App. Div. 1902), disagreed with by Andrews v. Cain, 62 A.D.2d
612, 613, 406 N.Y.S.2d 168, 169 (N.Y. App. Div. 1978); see also John E. Theuman,
Measure and Element of Damages Recoverable for Attorney's Negligence in Preparing or
Conducting Litigation, 90 A.L.R.4th 1033 § 14(a)-(c) (2006) (comparing conflicting views);
Samuel J. Cohen, The Deduction of Contingent Attorneys' Fees Owed to the Negligent
Attorney from Legal Malpractice Damage Awards: The New Modern Rule, 24 Tort & Ins.
L.J. 751, 761 (1989) (same).
Other jurisdictions have held that damages should not be reduced by the
amount of a contingency fee on two grounds. First, the offset credits the negligent attorney with
a fee he failed to earn and somewhat rewards his wrongdoing; and second, the deduction fails
to fully compensate the plaintiff who has been required to incur new attorney's fees and
expenses to recover the judgment it should have won in the trial court. See, e.g., Duncan v.
Lord, 409 F. Supp. 687, 691 (E.D. Pa. 1976) (deduction fails to fully compensate plaintiff);
Carbone v. Tierney, 151 N.H. 521, 534-35, 864 A.2d 308, 319-20 (N.H. 2004) (same);
Campagnola v. Mulholland, Minion & Roe, 148 A.D.2d 155, 543 N.Y.S.2d 516, 518-19
(N.Y. App. 1989) (deduction rewards wrongdoing and fails to fully compensate plaintiff); Kane,
Kane & Kritzer, Inc. v. Altagen, 107 Cal. App. 3d 36, 44, 165 Cal. Rptr. 534, 538 (Cal. Ct.
App. 1980) (same); Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 696 (Minn.
1980) (deduction rewards wrongdoing); Andrews v. Cain, 62 A.D.2d 612, 613, 406
N.Y.S.2d 168, 169 (N.Y. App. Div. 1978) (deduction rewards wrongdoing and fails to fully
compensate plaintiff); Winter v. Brown, 365 A.2d 381, 386 (D.C. 1976) (deduction fails to fully
compensate plaintiff); see also Theuman, supra, at § 14(a)-(b) (and cases cited therein); see
generally Cohen, supra, (and cases cited therein).
Some of the jurisdictions expressing a general rule that damages should not be
reduced by a contingency fee have adopted a “middle-road approach,” allowing some
reduction on a quantum meruit basis. See Schultheis v. Franke, 658 N.E.2d 932, 941 (Ind. Ct.
App. 1995); Strauss v. Fost, 213 N.J. Super. 239, 242-43, 517 A.2d 143, 145 (N.J. Super.
Ct. App. Div. 1986); Foster v. Duggin, 695 S.W.2d 526, 527 (Tenn. 1985). These courts
have reasoned that circumstances may exist where the efforts of the otherwise negligent attorney
rendered some beneficial services to the plaintiff, making it unfair to deny some credit for the
contingency fee. See, e.g., Schultheis, 658 N.E.2d at 941. Under this rationale, the jury would
be required to determine whether the negligent lawyer provided services benefitting the plaintiff
and, if so, to assign a value to those services and reduce the damages award accordingly. See
Carbone, 864 A.2d at 320. Akin Gump urges us to adopt the view that a
malpractice award must be reduced by the amount the client would have owed the attorney
under a contingency fee agreement, because to do so comports with well-established principles
of tort and legal malpractice compensation. Otherwise, Akin Gump argues, the client would be
placed in a better position than he would have been in but for his attorney's negligence. NDR
responds that granting an offset for the contingency fee will fail to put it in the position it would
have been in but for Akin Gump's negligence because of the expense of hiring new attorneys to
collect the damages that would have been awarded in the Panda suit.
Ordinarily, an attorney would seek to recover his contingency fee through a
breach of contract action. But if the attorney did not prevail in the underlying litigation, the
contingency fee has not been earned, and there is no viable breach of contract action for
recovery of the fee. A quantum meruit theory is an alternative avenue to recover all or part of a
contingency fee based on services rendered. But on this record, Akin Gump could not prevail on
a quantum meruit basis because the jury found that Akin Gump did not render any compensable
services to NDR in the Panda lawsuit. See Footnote 11
Akin Gump was entitled to its contingency fee only if NDR prevailed in the
Panda lawsuit. Due to Akin Gump's negligence, NDR did not prevail and thus Akin Gump did
not earn its contingency fee. To give the firm a credit for a contingency fee it failed to earn
would be to reward its wrongdoing. To secure the damages it would have been awarded in the
Panda lawsuit, NDR was required to pay two sets of lawyers and endure the aggravation of a
second lawsuit and a second appeal. The attorney's fees and expenses incurred to prosecute a
legal malpractice suit are not recoverable as damages, absent some statute or agreement not
applicable here. See El Dorado Motors, Inc., 168 S.W.3d at 366; Booth, 895 S.W.2d at
771-72. Simply put, NDR must pay attorneys twice to be in the same position it would have
been in absent Akin Gump's malpractice. It should not be forced to “pay” a contingency fee
that Akin Gump never earned. As we have noted, the jury in the malpractice suit found that
Akin Gump performed no compensable services to NDR. Accordingly, we conclude that the
judgment should not be offset by any contingency fee agreement in the underlying lawsuit.
Therefore, the trial court did not err by effectively denying Akin Gump's request to reduce the
damages by the amount of the contingency fee in the underlying suit.
We overrule appellant's fourth issue.
We modify the trial court's judgment to delete the award of $216,590 in
attorney's fees, reducing the actual damages to $706,041.86, and affirm the judgment in every
other respect. We remand to the trial court for the recalculation of interest on the judgment as
BEA ANN SMITH
Footnote 1 The Honorable Bea Ann Smith, Justice, Court of Appeals, Third District of
Texas at Austin, Retired, sitting by assignment.
Footnote 2 Tang and his wife are the only shareholders of NDR.
Footnote 3 Additionally, the trial court issued an order in the underlying lawsuit specifically
finding that Panda Energy International was not released from its obligations under the Letter
Agreement or Shareholders' Agreement by virtue of its delegation or assignment to Panda
Global Energy Company. The parties do not appear to dispute that Panda Energy International
was obligated to repurchase the Pan-Sino stock from NDR.
Footnote 4 Although the jury found that NDR did not breach its agreements with, or violate
its fiduciary duties to, the Panda entities, NDR did not submit jury questions asking whether the
Panda entities failed to comply with the provisions of the Letter Agreement or the Shareholders'
Agreement and whether NDR was damaged by any failure to comply. See Nat'l Dev. &
Research Corp. v. Panda Global Energy Co., No. 05-00-00820-CV, 2002 WL 1060483
(Tex. App.-Dallas May 29, 2002, pet. denied) (not designated for publication).
Footnote 5 Id.
Footnote 6 The Letter Agreement stated that the fair market value of the stock would be
determined by the board of directors of Panda Energy Corporation if the stock was not publicly
traded at the time of the termination. The Shareholders' Agreement provided that, upon
termination of the Letter Agreement, the fair market value of the stock “will be the Appraised
Value as of the date of the termination of the Letter Agreement.” The Shareholders' Agreement
defined “Appraised Value” in part as “the fair market value per share that would be received
with respect to the [Pan-Sino] Shares to be transferred as if the sale were a sale of all the
[Pan-Sino] shares in a single transaction to an independent third party. . . .”
Footnote 7 The six scenarios are:
*The Luannan facility operates for twenty years, beginning in August 1999. Value of
NDR's shares as of June 30, 1997 under scenario one is $3,839,000;
*The Luannan facility operates for twenty years, beginning in August 1999, and 100% of
Pan-Sino's equity is funded by a shareholder loan from Panda Global Energy, with
repayment from distributions to Pan-Sino over 10 years at an interest rate of 13.94% per
annum. Value of NDR's shares as of June 30, 1997 under scenario two is $2,401,000;
*The Luannan facility operates for thirty years, beginning in August 1999. Value of NDR's
shares as of June 30, 1997 under scenario three is $3,941,000;
*The Luannan facility operates for thirty years, beginning in August 1999, and 100% of
Pan-Sino's equity is funded by a shareholder loan from Panda Global Energy, with
repayment from distributions to Pan-Sino over 10 years at an interest rate of 13.94% per
annum. Value of NDR's shares as of June 30, 1997 under scenario four is $2,503,000;
*The Luannan facility undergoes a 100 megawatt expansion that begins operation in
January 2004 and the entire facility operates until July 2029. Value of NDR's shares as of
June 30, 1997 under scenario five is $6,314,000;
*The Luannan facility undergoes a 100 megawatt expansion that begins operation in
January 2004 and the entire facility operates until July 2029, and100% of Pan-Sino's equity
is funded by a shareholder loan from Panda Global Energy, with repayment from
distributions to Pan-Sino over 10 years at an interest rate of 13.94% per annum. Value of
NDR's shares as of June 30, 1997 under scenario six is $4,333,000.
Footnote 8 Akin Gump does not challenge Saiger's qualifications to render an opinion of
the value of the stock. Indeed, Saiger was the expert Akin Gump sponsored on behalf of
NDR in the underlying lawsuit. Saiger's report was not used in the underlying lawsuit because
he was not timely designated as an expert. We find it unconvincing that Akin Gump
complains about the opinion of an expert it sponsored in the underlying lawsuit. But NDR
did not raise this complaint below, nor does it urge it on appeal, other than in response to
the sufficiency issue.
Footnote 9 This is the sum of the fair market value of NDR's Pan-Sino stock at the time
of the breach and the success fee awarded by the jury. Akin Gump does not challenge the
collectibility of $168,667.41 awarded for the judgment NDR had to pay the Panda entities
in the underlying lawsuit.
Footnote 10 Akin Gump argues the record contains no evidence that NDR actually paid
these appellate fees to Akin Gump. But Akin Gump raises this issue for the first time in its
reply brief and, as a result, we do not consider it. See 2218 Bryan Street, Ltd. v. City of
Dallas, 175 S.W.3d 58, 65 (Tex. App.-Dallas 2005, pet. denied) (rules of appellate
procedure do not allow appellant to include in reply brief new issue in response to matter
raised in appellee's brief but not raised in appellant's original brief) (citing Howell v. Tex.
Workers' Comp. Comm'n, 143 S.W.3d 416, 439 (Tex. App.-Austin 2004, pet. denied)).
Footnote 11 The jury charge asked:
Did Akin Gump perform compensable work for NDR?
A party performs “compensable work” if valuable services are rendered for another
party who knowingly accepts and uses them, and if the party accepting them should know
that the performing party expects to be paid for the work.
Answer “Yes” or “No.”