Affirmed in Part and Reversed and Remanded in Part and Memorandum Majority and Concurring Opinions filed October 2, 2007.
In The
Fourteenth Court of Appeals
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NO. 14-06-00921-CV
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ANGLO-DUTCH PETROLEUM INTERNATIONAL, INC. AND
ANGLO-DUTCH (TENGE) LLC, Appellants
V.
LITTLEMILL LIMITED, Appellee
On Appeal from the 152nd District Court
Harris County, Texas
Trial Court Cause No. 2004-60996
M E M O R A N D U M M A J O R I T Y O P I N I O N
Appellee, Littlemill Limited, filed suit against appellants, Anglo-Dutch Petroleum International, Inc. and Anglo-Dutch (Tenge) LLC, for breach of contract and other causes of action. The trial court granted appellee=s motion for partial summary judgment holding that the contracts were valid and enforceable. The trial court then granted appellee=s motion for summary judgment on appellee=s contract damages and attorneys= fees. In two issues, appellants contend that: (1) the trial court erred in concluding the contracts at issue were valid and enforceable and that appellants had breached the contracts as a matter of law; and (2) the trial court erred in awarding appellee its attorneys= fees. We affirm in part and reverse and remand in part.
Factual and Procedural Background
For reasons not relevant to this appeal, appellants filed suit against Halliburton Energy Services, Inc. (AHalliburton@) and Ramco Oil and Gas, Ltd. (ARamco@). Appellants sought damages in the amount of $677 million in their lawsuit against Halliburton and Ramco. Faced with the expense of maintaining the lawsuit, as well as operating their business, and unable to obtain bank loans due to a lack of collateral, appellants sought to raise money by soliciting investors in its litigation with Halliburton and Ramco. Appellants entered into Claims Investment Agreements in which investors agreed to fund the litigation and office expenses of appellants in return for a portion of the cash recovery, if any, from Halliburton and Ramco. The investors were divided into four tiers, with each tier taking priority over the lower tiers in the event appellants were successful in their lawsuit against Halliburton and Ramco.
Appellee became a third-tier investor when it signed three Claims Investment Agreements (the AAgreements@) in which it agreed to invest a total of $149,972. Appellants agreed that if they made a cash recovery in their lawsuit against Halliburton and Ramco, they would pay appellee its initial investment, plus ninety percent of the amount of the initial investment, plus an additional ninety percent of the initial investment for every year that passed from the date of the agreement to a final recovery.[1] In addition, appellants and appellee agreed that A[i]f a final disposition or settlement of the [Halliburton and Ramco] lawsuit fails to result in a cash recovery, as defined herein, for whatever reason, then [appellants] shall have no obligation to make any payment to [appellee] for any portion of the investor=s total return.@
Appellants= suit against Halliburton and Ramco went to trial and the jury awarded damages against Halliburton in excess of $64 million and against Ramco for $6.4 million.[2] Appellants and Halliburton subsequently entered into a settlement agreement, the terms of which are undisclosed.[3] Following the settlement, appellants contacted their litigation investors, including appellee, and attempted to negotiate a reduced payment contrary to the terms of the Claims Investment Agreements. Appellants alleged for the first time in letters to the investors that the Claims Investment Agreements, which they prepared and provided to the investors, were contrary to public policy and unenforceable under Texas law. Appellee refused appellants= offer of reduced payments and filed suit against appellants asserting causes of action for breach of contract, fraud, and conspiracy to breach the Agreements and to commit fraud. Appellee also sought a declaration that the Agreements were valid and enforceable, and that the transactions were not loans.
On May 17, 2006 the trial court signed its Amended Order Granting Partial Summary Judgment in appellee=s favor as to appellee=s breach of contract claims against appellants. In that order, the trial court found that the Agreements were valid and enforceable, and that appellants had breached them. On June 6, 2006, the trial court granted appellee=s motion for summary judgment as to appellee=s breach of contract damages and attorneys= fees. The trial court awarded appellee $440,315.00 in contractual damages and $130,641.75 in attorneys= fees.[4] On July 10, 2006, the trial court severed all claims except appellee=s breach of contract claim against appellants into a separate lawsuit making the summary judgments on appellee=s breach of contract claim final and appealable. This appeal followed.
Discussion
This is a summary judgment case. In their first issue, appellants assert the trial court erred when it concluded that the Agreements were valid and enforceable, and that appellants, by not paying appellee the contractually agreed amount, breached the Agreements. In their second issue, appellants assert the trial court erred when it granted appellee=s motion for summary judgment and awarded appellee its attorneys= fees because (1) there were genuine issues of material fact regarding the reasonableness of the fees; and (2) appellee failed to segregate its attorneys= fees.
A. The Standard of Review
The movant for summary judgment has the burden to show there is no genuine issue of material fact and is entitled to judgment as a matter of law. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). In determining whether there is a genuine fact issue precluding summary judgment, evidence favorable to the non-movant is taken as true and the reviewing court makes all reasonable inferences and resolves all doubts in the non-movant=s favor. Id. at 548B549. If there is no genuine issue of material fact, summary judgment should issue as a matter of law. Hasse v. Glazner, 62 S.W.3d 795, 797 (Tex. 2001). We review a trial court=s summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).
B. Breach of Contract
In their first issue, appellants contend the trial court erred in finding a breach of contract because (1) the Agreements were usurious loans, (2) if the Agreements were not loans, they were void, unregistered securities, and (3) the Agreements were unenforceable because they violated public policy. In Anglo-Dutch Petroleum Int=l, Inc. v. Haskell, 193 S.W.3d 87 (Tex. App.CHouston [1st Dist.] 2006, pet. denied), the First Court of Appeals addressed these precise issues. In Haskell, several other investors signed Claims Investment Agreements with appellants that were virtually identical to the Agreements signed by appellee. The only differences between the Claims Investment Agreements in Haskell and those at issue here are the rate of return on the investment, the amount invested, and the name of the investor. The First Court of Appeals found the Claims Investment Agreements did not meet the definition of a loan and were not usurious transactions. Id. at 95B101. The court held that, for an agreement to be usurious, three essential elements must be present: (1) a loan of money, (2) an absolute obligation to repay the principle, and (3) the extraction of a greater compensation than allowed by law for the use of money by the borrower. Id. at 96. The court determined the Claims Investment Agreements at issue in Haskell were not loans because there was no obligation to repay the principle if there was no recovery in the underlying lawsuit. Id. at 101.
The First Court further found that under the Securities Act of 1933 and the Texas Securities Act that securities agreements are not automatically void when not registered, but rather are voidable by the purchaser. Id. at 102B03. The court held that a seller of an unregistered security lacks standing to bring this claim. Id. at 103. Therefore, even if the investment agreements could be considered securities, the fact that they are not registered cannot be raised by appellants. Id.
Finally, the court found the Claims Investment Agreements did not violate public policy. Id. at 103B05. The court held that agreements that vest control over litigation in uninterested third parties are against public policy, but that in this case there was no evidence of investor control, such as the ability to select counsel, direct trial strategy, or participate in settlement discussions. Id.
In its response brief to this court, appellee argues appellants are collaterally estopped by the First Court=s Haskell opinion from asserting that the contracts are void as usurious loans, void as unregistered securities, void as against public policy and/or are unenforceable. On appeal, appellants contend the Haskell opinion does not collaterally estop them from asserting defenses against appellee because the doctrine of collateral estoppel only precludes re-litigation of facts between identical parties. We agree with appellee.
The doctrine of collateral estoppel, or issue preclusion, is designed to promote judicial efficiency, protect parties from multiple lawsuits, and prevent inconsistent judgments by precluding re-litigation of issues. Sysco Food Services, Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex. 1994). A party seeking to assert the bar of collateral estoppel must establish that: (1) the facts sought to be litigated in the second suit were fully and fairly litigated in the first suit; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action. Id. To satisfy the third prong, strict mutuality of parties is no longer required. Id. Instead, it is only necessary that the party against whom the doctrine is asserted was a party or in privity with a party in the first action. Id. at 802. In the case at bar, appellee seeks to assert the doctrine of collateral estoppel against appellants. Since appellants were parties to the Haskell case, litigated and lost each of the points raised in their first issue in this appeal in Haskell, and those facts were essential to the judgment in Haskell, collateral estoppel precludes them from re-litigating those same issues here. We overrule appellants= first issue.
C. Attorneys= Fees
Texas law does not allow the recovery of attorneys= fees unless they are authorized by statute or contract. Tony Gullo Motors I, L. P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). Section 38.001 of the Texas Civil Practices & Remedies Code provides that a successful party in a breach of contract action may recover reasonable and necessary attorneys= fees. Mullins v. Mullins, 889 S.W.2d 550, 554 (Tex. App.CHouston [14th Dist.] 1994, writ denied) (citing Tex. Civ. Prac. & Rem. Code Ann. ' 38.001 (Vernon 1997)). Attorneys= fees are not recoverable in an action in tort however. Knebel v. Capital Nat=l Bank, 518 S.W.2d 795, 803B04 (Tex. 1974).
Here, appellee asserted tort causes of action against appellants in addition to its claim for breach of contract. Appellants contend that a portion of the trial court=s summary judgment awarding attorneys= fees to appellee must be reversed because the amount awarded is not reasonable and necessary, as appellee failed to segregate its fees between those fees that were recoverable and those that were not. Appellee responds that the trial court properly awarded attorneys= fees only for appellee=s breach of contract claim.
As evidence in support of its motion for summary judgment seeking attorneys= fees, appellee submitted the affidavit of its lead counsel, Fred Hagans. In response, appellants submitted the affidavit of one of its attorneys, Bradley Hoover. A summary judgment may be based on uncontroverted testimonial evidence of an expert witness as to subject matter concerning which the trier of fact must be guided solely by the opinion testimony of experts, if the evidence is clear, positive and direct, otherwise credible and free from contradictions and inconsistencies, and could have been readily controverted. Tex. R. Civ. P. 166a(c). Therefore, we must first determine if Mr. Hagans= affidavit was controverted by that of Mr. Hoover.
In his affidavit, Mr. Hoover stated: AI have a preliminary opinion that the amount of attorneys= fees being claimed by [appellee] appears to be unreasonable.@ An affidavit is insufficient unless the allegations contained therein are direct and unequivocal and perjury can be assigned upon it. Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984). Because he does not render a direct and unequivocal conclusion that the attorneys= fees sought by appellee were unreasonable, Mr. Hoover=s affidavit lacks the necessary factual sufficiency to constitute summary judgment evidence sufficient to raise a genuine issue of material fact. Id. Therefore, we hold Mr. Hagans= affidavit was uncontroverted.
As Mr. Hagans= affidavit was uncontroverted, we next examine whether it was clear, positive and direct, otherwise credible and free from contradictions and inconsistencies, and could have readily been controverted. Within his affidavit, Mr. Hagans initially stated: A[i]t is my opinion that attorney=s fees of $116,126.00 is a reasonable fee for the prosecution and handling of [appellee=s] breach of contract claims through the trial court in this matter.@ However, in a later paragraph, Mr. Hagans stated:
This case involves claims of breach of contract, claims for declaratory relief and other claims arising out of the same transaction at issue in connection with [appellee=s] breach of contract claims such that the prosecution of all of these claims entails proof or denial of essentially the same facts. All of [appellee=s] claims are, in my opinion, intertwined to the point of being inseparable and therefore are Ainextricably intertwined.@ (emphasis added)
In that same paragraph, Mr. Hagans concluded:
In my opinion, the time that has been spent and which will be spent on this case through the trial court phase of this case will total several hundred hours of lawyer time and would result in attorney=s fees in excess of $116,126.00 if [appellee] were billed by the hour and the lawyers working on this case charged their standard and customary rates for such work on this case. (emphasis added)
Mr. Hagans= affidavit is inconsistent on the issue of whether appellee was seeking the award of $116,126.00 in attorneys= fees exclusively for the prosecution of the breach of contract claim, or for the handling of the entire case, including tort claims, because the claims were inextricably intertwined.[5] Because of this internal inconsistency, Mr. Hagans= affidavit cannot support the trial court=s summary judgment awarding attorneys= fees. Tex. R. Civ. P. 166a(c). Accordingly, we sustain appellants= second issue.
Conclusion
We affirm the summary judgments of the trial court to the extent they: (1) found the Agreements were valid and enforceable; and (2) awarded $440,315.00 in damages for appellee=s breach of contract claim. We reverse that portion of the trial court=s second summary judgment awarding attorneys= fees to appellee and remand that issue to the trial court for proceedings consistent with this opinion.
/s/ John S. Anderson
Justice
Judgment rendered and Memorandum Majority and Concurring Opinions filed October 2, 2007.
Panel consists of Justices Anderson, Fowler, and Senior Justice Hudson.(Fowler, J., Concurring).
[1] The initial Claims Investment Agreement between appellants and appellee, contained the following example:
For example only, if the Investor makes an investment of $50,000 in one payment of $25,000 and another payment of $25,000, and if Anglo-Dutch receives its Cash Recovery 700 days after the Investor paid its first $25,000 payment and 660 days after Investor paid its second $25,000 payment, then the Investor shall be paid the total sum of $178,836, which is calculated as follows:
(a) $50,000 (being its Investment), plus
(b) $45,000 (being an amount equal to 90% of its Investment), plus
(c) $43,151 (being $25,000 x 90% x [700 days/365 days]), plus
(d) $40,685 (being $25,000 x 90% x [660 days/365 days]).
[2] Ramco appealed the judgment against it to this court and we reversed the $6.4 million judgment and rendered judgment that appellants take nothing. Ramco Oil & Gas, Ltd. v. Anglo-Dutch (Tenge), L.L.C., 207 S.W.3d 801 (Tex. App.CHouston [14th Dist.] 2006, pet. denied).
[3] While the terms of the settlement agreement are confidential, appellants did not contend in the trial court or here that the settlement amount is insufficient to trigger their duty to pay the third tier investors the full amount owed under the terms of the agreements. Instead, appellants contend only A. . . that if [appellants] settled with Halliburton and paid the litigation financiers at the contractual rates, [appellants] believed there would not be enough left for it to stay in business as an oil company.@
[4] The trial court=s summary judgment awarded $116,126 in attorneys= fees for trial and an additional $14,515.75 in the event of an appeal.
[5] Generally speaking, attorneys= fees incurred in the prosecution of a tort claim are not recoverable under Texas law. Knebel v. Capital Nat=l Bank, 518 S.W.2d 795, 803B04 (Tex. 1974). As a result, parties seeking to recover attorneys= fees have always been required to segregate fees between claims where fees are recoverable and claims where they are not. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006). An exception exists to this general duty to segregate if the claims are inextricably intertwined. Id. To establish that attorneys= fees are inextricably intertwined, the party seeking the recovery of attorneys= fees must establish that discrete legal services advanced both a recoverable and an unrecoverable claim. Id. at 313B14.