Affirmed and Opinion filed December 4, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-00906-CV
REICH & BINSTOCK, LLP, Appellant
V.
ROBERT SCATES, INDIVIDUALLY AND D/B/A SCATES ENGINEERING
CONSULTANTS, Appellee
On Appeal from the 55th District Court
Harris County, Texas
Trial Court Cause No. 2010-46208
OPINION
In this appeal from a bench trial, a law firm seeks to set aside the trial court’s
determination that its payment arrangement with an expert violates the Texas
Disciplinary Rules of Professional Conduct. The law firm further asks that we
reverse the trial court’s grant of equitable relief to the expert based on a theory of
quantum meruit. We affirm.
BACKGROUND
Appellee Robert Scates worked as a consulting and occasionally testifying
expert for appellant Reich & Binstock, LLP (R&B), a Houston law firm, for
numerous years. Scates had other clients, but he primarily worked for R&B on its
mass tort cases. During most of his employment with R&B, Scates was
compensated under a verbal employment agreement (the Agreement), documented
by several emails and other written communication between the parties. After he
completed his graduate studies in chemical engineering, he continued to provide
the firm with the same services under the d/b/a of Scates Engineering Consulting.
A dispute arose concerning payment of several of Scates’s invoices. The case was
tried to the bench in June 2013 as a suit on a sworn account and for equitable
relief. 1
The dispute during the bench trial related to the parties’ conflicting
interpretation of the Agreement. The parties agreed that Scates was to invoice the
firm $40 per hour of work that would be paid in the ordinary course of business.
The parties further agreed that Scates would be paid an additional $30 per hour for
that same work upon “settlement” of the case. Scates testified that his “due on
settlement” fee was due and payable on any settlement, profitable to R&B or not.
R&B’s representative, Dennis Reich, stated that Scates’s additional fee was a
“bonus,” which would only be paid if R&B made a profit after expenses and client
distribution. Reich testified that Scates’s “bonus” was paid out of the firm’s fees
for the particular case on which Scates had worked, not from a client’s share.
According to Reich, Scates’s additional fee was not paid in the same manner as
other expenses, such as those for overhead. The parties agreed that if a case did
1
Scates initially sued for breach of contract, but he nonsuited his breach-of-contract
claim before the bench trial.
2
not settle, Scates would not receive the additional $30 per hour. In one prior case
described by the parties, there was a settlement but no profit to R&B; Scates was
not paid the additional $30 per hour for this case.
R&B agreed that it owed Scates for unpaid time at his base rate of $40 per
hour. Scates presented evidence that he was owed $47,608.70 for unpaid time at
this base rate. Further, Scates presented evidence of an additional $108,802.51 of
time and expenses he was due based on two particular cases that had settled, but
had not resulted in a profit to R&B. Reich acknowledged that Scates performed
the services for which he had billed R&B, that these services were valuable, and
that Scates billed at a reasonable rate. Finally, although the parties agreed that
Scates predominantly served as a “consulting expert” in the cases on which he
worked for the firm, Scates specifically testified that he had been paid a “due on
settlement” fee of nearly $30,000 in a case for which he served as a testifying
expert.
Based on the parties’ course of dealings and other evidence, the trial court
found that the Agreement violated the Texas Disciplinary Rules of Professional
Conduct (the Disciplinary Rules) by (1) making an “expert’s” compensation
contingent on the outcome of the case and (2) splitting legal fees with a non-
lawyer. See Tex. Disciplinary Rules Prof’l Conduct R. 3.04(b), 5.04(a), reprinted
in Tex. Gov’t Code Ann., tit. 2, subtit. G, app. A (Tex. State Bar R. art. X, § 9).
Because the Agreement violated the Disciplinary Rules, the trial court determined
that it was unenforceable as against public policy. But the court awarded Scates
the value of his services—$156,411.21—under a theory of quantum meruit. The
court additionally awarded Scates attorney’s fees and interest. The trial court
signed findings of fact and conclusions of law.
3
R&B filed a motion for new trial, which was overruled by the trial court.
This appeal timely followed.
ISSUES PRESENTED
R&B challenges the trial court’s award in five issues. The first two concern
the propriety of the trial court’s determination that the Agreement was void as
against public policy because it violated the Disciplinary Rules. R&B’s third
through fifth issues all involve the trial court’s determination that Scates was
entitled to equitable relief. Finally, in a cross-issue, Scates requests that we
remand this case for a determination of the appropriate appellate legal fees. We
group these issues as listed above and discuss them in turn.
VIOLATION OF THE DISCIPLINARY RULES
In its first two issues, R&B asserts that the Agreement does not violate the
Disciplinary Rules. We begin our analysis by noting that R&B does not assert
that, if the Agreement violates an ethical rule, it is not unenforceable as against
public policy. See Dardas v. Fleming, Hovenkamp & Grayson, P.C., 194 S.W.3d
603 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (op. on reh’g) (explaining
that a court may deem the Disciplinary Rules to be an expression of public policy
such that a contract violating them is unenforceable as against public policy).
Thus, we presume for our analysis in this case that, if the Agreement violated the
Disciplinary Rules, it is unenforceable as against public policy.
As described above, the trial court concluded that the Agreement between
Scates and R&B violated Rules 3.04 and 5.04 of the Disciplinary Rules. See Tex.
Disciplinary Rules Prof’l Conduct R. 3.04(b), 5.04(a). Rule 3.04 provides, in
pertinent part,
A lawyer shall not . . . . falsify evidence, counsel or assist a witness to
testify falsely, or pay, offer to pay, or acquiesce in the offer or
4
payment of compensation to a witness or other entity contingent upon
the content of the testimony of the witness or the outcome of the case.
Tex. Disciplinary Rules Prof’l Conduct R. 3.04(b) (emphasis added). Rule 5.04,
on the other hand, prohibits the sharing of legal fees with a non-lawyer, with
certain exceptions not applicable here. Tex. Disciplinary Rules Prof’l Conduct R.
5.04(a). We conclude that the Agreement violates both rules for the following
reasons.
A. The trial court found that R&B retained Scates as both a consulting and
testifying expert.
In its findings of fact, the trial court found that Scates was retained to consult
and testify for R&B on its mass tort cases. The trial court specifically found that in
one case, which is not subject to this dispute, Scates was paid nearly $30,000 when
he had served as a testifying expert. These unchallenged factual findings are fatal
to R&B’s claim that the Agreement did not violate Disciplinary Rule 3.04(b).
Because R&B has not specifically challenged any of the trial court’s factual
findings, they are binding on this court unless the contrary is established as a
matter of law or if there is no evidence to support the findings. Pierre v. Ollivierre,
No. 14-10-00585-CV, 2011 WL 6287962, at *3–4 (Tex. App.—Houston [14th
Dist.] Dec. 15, 2011, no pet.) (citing McGalliard v. Kuhlmann, 722 S.W.2d 694,
696 (Tex. 1986)). R&B does not assert that the contrary of this finding is
established as a matter of law or that there is no evidence to support it. Further,
our review of the record confirms that the trial court’s findings described above are
supported by adequate evidence. Thus, in this case, we review the trial court’s
conclusions of law to determine whether, based on the facts, they are correct. See
id. (citing Zagorski v. Zagorski, 116 S.W.3d 309, 314 (Tex. App.—Houston [14th
Dist.] 2003, pet. denied) (op. on reh’g)).
5
As noted above, Scates described a case in which he provided expert
testimony and was paid the additional fees on settlement of the case. Based on the
undisputed fact that, under the terms of the Agreement, Scates had been paid as a
testifying expert, the trial court did not err in determining that the Agreement
violated Disciplinary Rule 3.04(b).
Because the trial court correctly concluded that the Agreement violated
Disciplinary Rule 3.04(b), we overrule R&B’s first issue.
B. The trial court found that a portion of Scates’s fee was paid out of
R&B’s legal fees.
The trial court found that Scates’s fee was paid out of R&B’s fee, not as a
client expense or as overhead or as a “gratuitous bonus.” The court further found
that Scates’s “due on settlement fee” was contingent upon R&B’s receiving legal
fees. As discussed above, Rule 5.04(a) provides, with exceptions not applicable
here, that “a lawyer or law firm shall not share or promise to share legal fees with a
non-lawyer.” Tex. Disciplinary R. Prof’l Conduct 5.04(a). Based on these
unchallenged findings, which are supported by the record, 2 we conclude that the
Agreement violates Disciplinary Rule 5.04(a) because it calls for improper fee
splitting between a lawyer and a non-lawyer.
R&B urges that payment of Scates’s “bonus” does not violate this rule
because it was neither a percentage of profit nor a percentage of legal fees
generated by a particular case. See Tex. Disciplinary R. Prof’l Conduct 5.04(a),
cmt. 3 (“[T]he payment of an annual or other bonus does not constitute the sharing
of legal fees if the bonus is neither based on a percentage of the law firm’s profits
2
See Pierre, 2011 WL 6287962, at *3–4 (unchallenged factual findings are binding on
this court unless there is unless the contrary is established as a matter of law or there is no
evidence to support the findings).
6
or on a percentage of particular legal fees. . . .”). We must disagree with R&B’s
proposition.
In State Bar of Texas v. Faubion, this court considered whether similar
payments by a lawyer to an investigator constituted “illegal fee splitting.” 821
S.W.2d 203, 307 (Tex. App.—Houston [14th Dist.] 1991, writ denied). There, the
lawyer paid his investigator a salary, car allowance, and incentive bonus. Id.
“Attorney’s fees recovered in cases worked on by [the investigator] were deposited
into [the attorney]’s firm operating account.” Id. On paydays, the investigator’s
compensation was computed at 20 to 33 percent of “the gross fees calculated upon
[the investigator]’s time involvement in a particular case.” Id. After examining
Rule 5.04, we determined that the lawyer was sharing legal fees with the
investigator based on the investigator’s involvement in a particular case. Id. at
208. We concluded that these payments “were not analogous to an hourly wage;
they were based on a ‘percentage of particular legal fees.’” Id.
R&B reads Faubion to permit sharing legal fees if the parties are not sharing
a stated percentage of those fees or if the payment is a bonus. R&B reads Faubion
too narrowly. In Faubion, we held that “an annual or other bonus does not
constitute the sharing of legal fees if the bonus is neither based on a percentage of
the law firm’s profits or on a percentage of particular legal fees.” Id. Although the
payments at issue under the Agreement here are couched both as a “bonus” and as
an hourly amount, Scates was paid an additional $30 per hour for each hour he
worked out of the particular legal fees that R&B earned when R&B settled for a
profit. We agree this amount is not a sum-certain “percentage” of R&B’s fees.
We do not agree that this amount is not based upon a percentage of the law firm’s
profits. Scates’s additional payment is for a sum certain and is based upon a
percentage of R&B’s profits; that is, the payment is made only if R&B makes a
7
profit: fees above zero percent. And, thus, the payment is shared from a portion—
or percentage—of the firm’s fees from particular cases. It was entirely uncontested
that Scates’s additional $30 per hour was due only upon profitable settlement.
Thus, R&B paid the additional sum out of R&B’s fees only when R&B made a
profit on a case after the client was paid and other expenses were deducted.
Though Scates received an hourly rate payable without condition, the
additional payment was contingent upon the success of the R&B case upon which
he worked. As such, the additional sum payable to Scates is far more like the
percentage payment “reward” we rejected in Faubion than the unconditional
payment of an hourly rate or an annual bonus in a successful year. We conclude
that the firm was improperly splitting its fees with Scates under the terms of the
Agreement found by the trial court. See Tex. Disciplinary R. Prof’l Conduct R.
5.04(a).
Accordingly, we overrule R&B’s second issue because the trial court’s
conclusion that the Agreement involved improper fee splitting is correct.
EQUITABLE RELIEF
In its third issue, R&B asserts that the trial court erred in providing Scates an
equitable remedy because it declared the Agreement unenforceable. R&B next
asserts that the amount of the quantum meruit award constitutes an impermissible
windfall. Finally, in its fifth and final issue, R&B urges that the trial court abused
its discretion by providing an equitable remedy despite Scates’s unclean hands.
We consider each of these issues in turn.
A. Scates proved his case without reliance on his own illegal act.
R&B complains that a contract that violates a disciplinary rule is “void and
unenforceable as against public policy.” In such a case, according to R&B, a court
8
refrains from using its equity powers to favor either party to the contract. For this
proposition, R&B relies on cases involving illegal contracts. See Plumlee v.
Paddock, 832 S.W.2d 757, 759 (Tex. App.—Fort Worth 1992, writ denied)
(refusing to provide equitable relief to party who was involved in fee-splitting
agreement that violated both the Disciplinary Rules and the Texas Penal Code); see
also Academy of Skills & Knowledge, Inc. v. Charter Schools, USA, Inc., 260
S.W.3d 529, 545 (Tex. App.—Tyler 2008, pet. denied) (oral contract violating
Texas Education Code declared void; no equitable relief available because “parties
who wish to recover on such a contract must prove their case without reliance on
their own illegal act”).
The two cases on which R&B relies for its proposition that Scates is not
entitled to equitable relief both acknowledge that parties who wish to recover on an
illegal contract must prove their case without reliance on their own illegal act.
Academy of Skills & Knowledge, 260 S.W.3d at 545; Plumlee, 832 S.W.2d at 759;
cf. Sw. Underground Supply & Env’l Servs., Inc. v. Amerivac, Inc., 894 S.W.2d 15,
18 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (possible illegality of
contract resulting from impermissible non-compete clause did not preclude party
from recovering on a theory of quantum meruit). Here, Scates proved his case
without relying on any “illegal” act on his part: he established that he billed R&B
for his valuable services as an expert. He was not involved in any illegal act, such
as barratry. Cf. Plumlee, 832 S.W.2d at 759 (“Plumlee cannot prove the existence
of a contract, nor his right to recover, without proving his own illegal conduct in
entering a barratry contract.”).
For the foregoing reasons, we overrule R&B’s third issue.
9
B. The trial court determined that Scates performed valuable services for
which he billed R&B at reasonable rates.
In issue four, R&B urges that Scates’s recovery constitutes an impermissible
windfall. It asserts that under the trial court’s construction of the agreement,
Scates was not entitled to collect any of the additional “due on settlement” fees and
that he billed at a higher hourly rate than that of other engineers working on the
cases for which he sought payment.
Quantum meruit is an equitable remedy based on an implied promise to pay
for benefits received that does not arise out of a contract, but is independent of it.
Ellis v. Reliant Energy Retail Servs., L.L.C., 418 S.W.3d 235, 255 (Tex. App.—
Houston [14th Dist.] 2013, no pet.). To recover under a theory of quantum meruit,
a party must establish, as applicable here, (1) that valuable services were rendered,
(2) for the person sought to be charged, (3) the services were accepted by the
person sought to be charged and used an enjoyed by him, and (4) the person sought
to be charged was notified that the person performing the services expected to be
paid for them. See id.
Here, the trial court found that Scates performed valuable services for which
he had an expectation he would be paid; the record reflects that Scates billed R&B
for his services. The trial court further found that R&B’s representative, Dennis
Reich, agreed that Scates’s rate was reasonable. Finally, the court found that the
value of Scates’s unpaid work is $156,411.21. These findings are uncontested and
supported by the record. See Pierre, 2011 WL 6287962, at *3–4. Without a
challenge to these findings, we are bound by them. See id. These findings support
the trial court’s determination that Scates was entitled to judgment for the
reasonable value of his services under the theory of quantum meruit. See Ellis, 418
S.W.3d at 255. The only evidence of a reasonable rate in this case was
10
Scates’stestimony regarding his rates and Reich’s testimony that Scates billed
R&B at reasonable rates. Hence, there is simply no evidence that the Scates
received a windfall by being paid what even R&B acknowledged was a reasonable
rate for his services.
Accordingly, we overrule R&B’s fourth issue.
C. There is insufficient evidence to show that Scates had “unclean hands.”
In its fifth and final issue, R&B asserts that the trial court abused its
discretion by providing an equitable remedy despite Scates’s “unclean hands.” It is
within the trial court’s sound discretion to determine whether a party has unclean
hands and whether the party’s alleged fraudulent actions should bar equitable
relief. Willis v. Donnelly, 118 S.W.3d 10, 38 (Tex. App.—Houston [14th Dist.]
2003), rev’d on other grounds, 199 S.W.3d 262 (Tex. 2006).
Here, the trial court specifically stated as follows on this issue: “There was
insufficient evidence for the Court to make any finding as to whether Scates[]
defrauded the court or R&B relating to an unaccounted for signature on the
Employment Agreement attached to defendant’s Exhibit 14, or in any other
respect.” The trial court, as the finder of fact, was charged with making credibility
determinations. See 24/7 Grill, LLC v. Clark, No. 14-13-00099-CV, 2014 WL
1410210, at *3 (Tex. App.—Houston [14th Dist.] Apr. 10, 2014, pet. denied)
(citing Glassman & Glassman v. Somoza, 694 S.W.2d 174, 176 (Tex. App.—
Houston [14th Dist.] 1985, no writ.)). The trial court here determined that there
was insufficient evidence to support a finding that Scates committed any fraudulent
actions.
11
It was undisputed that Reich’s signature on the contracts under which Scates
initially brought suit for breach of contract were generated electronically. 3 Scates
testified that he did not place Reich’s signature on the contracts. Reich testified
that he did not authorize the placement of his signature on these documents, but
that he did not know who had done so. Reich’s legal assistant testified regarding
the uses of Reich’s electronic signature, but provided no testimony that Scates ever
accessed it. R&B’s IT support professional testified that he did not know whether
Scates had ever accessed Reich’s electronic signature.
We conclude that any finding about whether Scates had placed Reich’s
electronic signature would thus be based solely on a credibility determination by
the trial court—i.e., whether the trial court believed Scates’s denial that he placed
Reich’s signature on the documents at issue. The trial court explicitly stated that
there was insufficient evidence from which it could make such a finding, thus
implicitly determining that there was insufficient credible evidence that Scates
defrauded R&B. We decline R&B’s invitation to override the trial court’s
determination.
For these reasons, we overrule R&B’s fifth and final issue.
APPELLATE ATTORNEY’S FEES
In a cross-issue, Scates requests that we remand this case for a determination
of appropriate appellate attorney’s fees. Specifically, Scates requests that we
affirm the trial court’s judgment, yet remand to the trial court for trial on the issue
of appellate attorney’s fees. There are at least two problems with this request.
First, Scates failed to file a notice of appeal. “A party who seeks to alter the
trial court’s judgment or other appealable order must file a notice of appeal.” Tex.
3
As noted above, Scates nonsuited his breach-of-contract claim and the trial was
conducted on his suit on a sworn account and for equitable relief.
12
R. App. P. 25.1(c). Although not couched as such, Scates’s issue would require us
to alter the trial court’s judgment because appellate attorney’s fees were not
awarded in the judgment. In fact, the award of conditional appellate attorney’s
fees were struck from the judgment by the trial court, although the trial court noted
in its findings of fact and conclusions of law that “[a]ppropriate fees for the appeal
may be considered and awarded, if warranted, after appeal.” Such a request to
alter the trial court’s judgment can only be considered when the party seeking the
alteration has filed a notice of appeal. See Lubbock Cnty., Tex. v. Trammel’s
Lubbock Bail Bonds, 80 S.W.3d 580, 584 (Tex. 2002); Frontier Logistics, L.P. v.
Nat’l Prop. Holdings, L.P., 417 S.W.3d 656, 666–67 (Tex. App.—Houston [14th
Dist.] 2013, pet. filed).
Second, as noted above, Scates requests that we affirm the judgment and
remand. But our rules of appellate procedure only permit us to:
(a) Affirm the trial court’s judgment in whole or in part;
(b) Modify the trial court’s judgment and affirm as modified;
(c) Reverse the trial court’s judgment in whole or in part and
render the judgment that the trial court should have
rendered;
(d) Reverse the trial court’s judgment and remand the case for
further proceedings;
(e) Vacate the trial court’s judgment and dismiss the case; or
(f) Dismiss the appeal.
Tex. R. App. P. 43.2. There is simply no authority for us to affirm and remand. 4
Because Scates seeks more relief than was granted in the trial court’s
judgment, he was required to file a notice of appeal. Further, his request that we
4
During oral argument, Scates’s counsel confirmed that Scates sought affirmance of the
trial court’s judgment and remand for a trial on appellate attorney’s fees.
13
affirm the trial court’s judgment, yet remand for a trial on appellate attorney’s fees
is not well-taken. Accordingly, we reject Scates’s cross-issue.
CONCLUSION
We have determined that the trial court did not err in concluding that the
Agreement violated the Disciplinary Rules. We thus have overruled R&B’s first
two issues. We further have concluded that the trial court did not err in granting
Scates equitable relief, overruling R&B’s final three issues. We affirm the trial
court’s judgment.
/s/ Sharon McCally
Justice
Panel consists of Justices McCally, Brown, and Wise.
14