EXCO Operating Company, LP v. Mary K. McGee

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ACCEPTED 12-15-00087-CV TWELFTH COURT OF APPEALS TYLER, TEXAS 6/8/2015 7:36:11 PM CATHY LUSK CLERK CASE NO. 12-15-00087-CV IN THE FILED IN TWELFTH COURT OF APPEALS 12th COURT OF APPEALS TYLER, TEXAS at Tyler 6/8/2015 7:36:11 PM _______________ CATHY S. LUSK Clerk EXCO OPERATING COMPANY, LP Appellant, V. MARY K. MCGEE Appellee. _______________ Appeal from Cause No. 369-09 115th District Court, Upshur County, Texas Honorable Lauren Parish Presiding ________ BRIEF OF APPELLANT EXCO OPERATING COMPANY, LP JENNIFER PARKER AINSWORTH Texas Bar No. 00784720 E-mail: jainsworth@wilsonlawfirm.com MATTHEW T. MILAM Texas Bar No. 24065746 E-mail: mmilam@wilsonlawfirm.com WILSON, ROBERTSON & CORNELIUS, P.C. One American Center 909 ESE Loop 323, Suite 400 [01] P.O. Box 7339 Tyler, Texas 75711-7339 Telephone: 903/509-5000 Telecopier: 903/509-5091 ATTORNEYS FOR APPELLANT EXCO OPERATING COMPANY, LP ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL 1. EXCO Operating Company, LP, Appellant Counsel for Appellant: JENNIFER PARKER AINSWORTH Texas Bar No. 00784720 E-mail: jainsworth@wilsonlawfirm.com MATTHEW T. MILAM Texas Bar No. 24065746 E-mail: mmilam@wilsonlawfirm.com WILSON, ROBERTSON & CORNELIUS, P.C. One American Center 909 ESE Loop 323, Suite 400 [01] P.O. Box 7339 Tyler, Texas 75711-7339 Telephone: 903/509-5000 Telecopier: 903/509-5091 2. Mary K. McGee, Appellee Counsel for Appellee: JOHN D. SLOAN, JR. Texas Bar No. 18505100 E-mail: jsloan@sloanlaw.com J. RYAN FOWLER Texas Bar No. 24058357 E-mail: rfowler@sloanfirm.com Sloan, Bagley, Hatcher & Perry Law Firm 101 East Whaley Street P.O. Drawer 2909 Longview, Texas 75606 Telephone: 903-757-7000 Telecopier: 903-757-7574 3. Presiding Judge: The Honorable Lauren Parish 115th District Court, Upshur County, Texas i TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL .............................................................i TABLE OF CONTENTS .......................................................................................... ii INDEX OF AUTHORITIES.................................................................................... iii TERMINOLOGY ...................................................................................................... v STATEMENT OF THE CASE .................................................................................vi STATEMENT REGARDING ORAL ARGUMENT ........................................... viii ISSUES PRESENTED FOR REVIEW ....................................................................ix STATEMENT OF FACTS ........................................................................................ 1 STANDARD OF REVIEW ....................................................................................... 7 SUMMARY OF THE ARGUMENT ........................................................................ 8 ARGUMENT AND AUTHORITIES ...................................................................... 10 PRAYER .................................................................................................................. 26 CERTIFICATE OF SERVICE ................................................................................ 27 CERTIFICATE OF COMPLIANCE ....................................................................... 28 TABLE OF CONTENTS TO APPELLANT’S APPENDIX .................................. 29 ii INDEX OF AUTHORITIES CASES PAGE(S) Arthur Anderson & Co. v. Perry Equip. Corp., 945 S.W.2d 812 (Tex. 1997) ...................................................................18, 23 Bocquet v. Herring, 972 S.W.2d 19 (Tex. 1998). ................................................ 8, 16 Divin v. Tres Lagos Prop. Owners’ Ass’n, 2014 Tex. App. LEXIS 8587 at *7 (Tex. App.—Texarkana Aug. 7, 2014) .................................................................... 17 Findlay v. Cave, 611 S.W.2d. 57 (Tex. 1981) ...................................................11, 13 Huff v. Fidelity Un. Life. Ins., 312 S.W.2d 493 (Tex. 1958) ................................... 10 Jones v. Kelley, 614 S.W.2d 95 (Tex. 1981) .....................................................10, 15 Llanes v. Davila, 133 S.W.3d 635 (Tex. App. – Corpus Christi 2003, pet denied) ............................................. 10 Musgrave v. Brookhaven Lake Prop. Owners Ass’n, 990 S.W.2d 386 (Tex. App.–Texarkana 1999, pet. denied) ..................................................... 25 Owen Elec. Supply, Inc. v. Brite Day Constr., Inc., 821 S.W.2d 283 (Tex. App. Houston [1st Dist.] 1991, writ denied)........................................ 16 Oyster Creek Fin. Corp. v. Richwood Invs. II, Inc., 176 S.W.3d 307 (Tex. App.–Houston [1st Dist.] 2004, pet. denied) ........................................................................... 7 Powell Elec. Systems, Inc. v. Hewlett Packard Co., 356 S.W.3d 113 (Tex. App. – Houston [1st Dist.] 2011, no pet.) ............................................ 16 iii Reeder v. Wood County Energy L.L.C., 320 S.W.3d 433 (Tex. App.--Tyler 2010) rev’d on other grounds, 395 S.W.3d 789 (Tex. 2012) ..................................................................... 8, 16 Sabine Offshore Service, Inc., v. Port Arthur, 595 S.W.2d 840 (Tex. 1971) .......... 17 Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009).................19, 20, 25 Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1 (Tex. 1991) .............................. 16 Tex. State Teachers Ass'n v. Garland Ind. Sch. Dist., 489 U.S. 782, 793 (1989) .............................................................................. 19 Transportation Ins. v. Moriel, 879 S.W.2d 10 (Tex. 1994)....................................... 8 Thomas v. Bobby D. Assocs., 2008 LEXIS 5881 (Tex. App.--Tyler 2008, no pet.) ..................... 7, 8, 16, 17, 18, 22, 23, 24, 25 Wayne v. A.V.A Vending, Inc., 52 S.W.3d 412 (Tex. App.–Corpus Christi 2001, pet denied).....................................11, 13, 14 Warrior Constructors, Inc., v. Small Bus. Inv. Co. of Houston, 536 S.W. 2d 382 (Tex. App. – Houston [14th Dist.] 1976, no writ) ...................................13, 14 USAA Cty. Mut. Ins. Co. v. Cook, 241 S.W.3d 93 (Tex. App.–Houston 2007, no pet) ................................................................ 25 TEXAS STATUTES PAGE(S) TEX. CIV. PRAC. & REM. CODE 38.001(8) ................................................................ 10 TEX. CIV. PRAC. & REM. CODE 38.002 ..................................................................... 10 TEXAS RULES PAGE(S) TEX. DISCIPLINARY R. PROF. CONDUCT 1.04, reprinted in TEX. GOV'T CODE ANN. tit. 2, subtit. G app (State Bar Rules, art. X, § 9) ................................................................... 18 iv TERMINOLOGY "EXCO" or “Appellant” Appellant/Defendant, EXCO Operating Company, LP "McGee" or "Appellee” Appellee/Plaintiff, Mary K. McGee "Judge Parish" Honorable Lauren Parish, 115TH Judicial District Court, Upshur County, Texas The "Lease" That Oil, Gas and Mineral Lease dated February 21, 1996, originally between Curtis Webb and Wife Mary K. McGee, as lessors, and Amoco Production Company, as lessee. (5 R.R. Pl. Ex. 1) The “Property” That 93.9 acres of land, more or less, a part of the David Meredith Survey, A-315, being that land subject to the Lease and made the basis of the underlying lawsuit by McGee. v STATEMENT OF THE CASE This appeal arises from an award of attorney’s fees by the trial court in an amount approximately ten times the amount of actual damages awarded by a jury. McGee filed the underlying lawsuit in 2009 alleging that EXCO1 breached an Oil, Gas and Mineral Lease (App. Tab 4) by failing to pay for surface damages related to the drilling of a gas well. Although EXCO offered to pay McGee $16,518.25 prior to any suit being filed and $18,518.25 after suit had been filed, McGee rejected such offers and demanded payment of $90,000.00. (App. Tab 5 and App. Tab 6) Although McGee demanded $90,000.00 from EXCO prior to trial, at trial she never sought anything close to that amount. Instead she sought $34,156.25, approximately a third of the amount she had demanded. Additionally, the vast majority of the amount McGee sought at trial was for loss of property value, a measure of damages which the language of the Lease did not explicitly authorize. At trial, the jury awarded only $4,108.25 for timber costs. (App. Tab. 3) Such amount was based on a timber estimate provided by EXCO to McGee, which EXCO had used in making its pre-trial offers of settlement. 1 McGee’s lawsuit was filed against TXOK Texas Energy Resources, LP, TXOK Texas Energy Holdings, LLC, and EXCO Operating Company, LP. The aforementioned TXOK entities were merged into EXCO Operating Company, LP. Accordingly, references in the Record to either of the aforementioned TXOK entities should be treated as references to EXCO. vi The jury awarded less than five percent of what McGee had demanded prior to trial and approximately one-eighth of what she sought at trial. McGee could have recovered four times more than she did at trial had she accepted EXCO’s pre- suit offer or pre-trial offers. Despite recovering only a fraction of the damages she had sought and far less than what EXCO had offered, she requested $39,773.75 in attorney’s fees from EXCO, almost ten times the amount of damages awarded by the jury. Nevertheless, the trial court awarded the full amount of attorney’s fees sought by McGee. (App. Tab 1) The trial court erred in awarding McGee attorney’s fees because her pre-trial demands of $90,000.00, an amount over twenty times the amount the jury awarded, were excessive. Furthermore, even if this Court believed McGee was entitled to some award of attorney’s fees, the trial court’s award of an amount nearly ten times more than the actual damages awarded by the jury was not reasonable and necessary. vii STATEMENT REGARDING ORAL ARGUMENT EXCO asks this court to grant oral argument in this matter because full discussion of the case would materially aid in this Court’s decision-making process. viii ISSUES PRESENTED 1. In light of McGee’s principal recovery of $4,108.25 in actual damages, were McGee’s pre-trial demands on EXCO of $90,000.00 excessive, such that the trial court erred in awarding her attorney’s fees? 2. Even if McGee is entitled to recover some amount of attorney’s fees, was the award of attorney’s fees by the trial court of $39,773.75, an amount almost ten times that of actual damages, reasonable and necessary? ix CASE NO. 12-15-00087-CV IN THE TWELFTH COURT OF APPEALS at Tyler _______________ EXCO OPERATING COMPANY, LP Appellant, V. MARY K. MCGEE Appellee. _______________ Appeal from Cause No. 369-09 115th District Court, Upshur County, Texas Honorable Lauren Parish Presiding ________ BRIEF OF APPELLANT EXCO OPERATING COMPANY, LP ________ I. STATEMENT OF FACTS This appeal arises from an award of attorney’s fees to Appellee Mary K. McGee (“McGee”) in a suit involving an Oil, Gas and Mineral Lease. On or about July 11, 1996 McGee executed an Oil, Gas and Mineral Lease (the “Lease”) (App. Tab 4) which covered approximately 93.9 acres of land acres in Upshur County, Texas (the “Property”). (3 R.R. 92-93; 5 R.R. Pl.’s Ex. 1). Attached as part of the 1 Lease was an exhibit with two unique provisions, Paragraphs 13 and 14. Paragraph 13 of the Lease provided that only the southeast 33.2 acres could be used for conducting surface drilling operations. (App. Tab 4). Paragraph 14 of the Lease provided that lessee was to pay McGee for certain damages caused by any operations, including damages to “houses, buildings, fences, wells, roads and other improvements, cattle and other livestock, growing crops, trees and grasses.” (App. Tab 4). Although EXCO was not the original lessee, there is no dispute that at all times relevant to this matter EXCO was the lessee under the terms of the Lease. In 2006, representatives of EXCO began attempts to notify McGee of its intent to drill a gas well on the Property. (3 R.R. 160-161). Brett McKinney of RWT Land Services first attempted to contact McGee by telephone. (3 R.R. 160- 161). He left a few messages at McGee’s office, but did not receive a response. (3 R.R. 161). Merl Muse, another landman at RWT Land Services, also attempted to contact McGee by phone and by going to her office. (3 R.R. 161). In or about November of 2006, EXCO formally notified McGee in writing of its intent to drill a gas well on the Property. (5 R.R. Def.’s Ex. 5). In that same notice, EXCO offered to pay $5,000 for initial surface damages. (5 R.R. Def.’s Ex. 5). EXCO further stated that road and pipeline rights-of-way could be discussed at a later time after surveys and well staking had been completed. (5 R.R. Def.’s Ex. 5). 2 Following its formal written notice to McGee of its intent to drill, EXCO drilled a gas well on the Property in or about late 2006 or early 2007. (3 R.R. 66). The gas well was drilled on the southeast 33.2 acres of the Property, as required by Paragraph 13 of the Lease. (App. Tab 4). Subsequent to the drilling of the well, Mr. McKinney spoke with Kenneth Freeman2 regarding compensation for surface disturbances related to the drilling of the well. (3 R.R. 174). Mr. McKinney then followed up with a letter to McGee offering her compensation related to the drilling of the well. (3 R.R. 174; 5 R.R. Def. Ex. 6). The total compensation offered to McGee was $16,518.25. (5 R.R. Def. Ex. 6). That amount included the $5,000.00 for location damages that had previously been offered, along with $3,895.00 for a pipeline right of way, $3,515.00 for a road right of way, and $4,108.25 for lost timber. (3 R.R. 174-177; 5 R.R. Def. Ex. 6). The amount offered for lost timber was based on a timber appraisal that EXCO obtained and forwarded to McGee along with its offer of compensation. (3 R.R. 175-177). Unwilling to accept EXCO’s offer, on or about June 24, 2009, McGee filed her Original Petition and Request for Disclosure (“Original Petition”). (C.R. 6-14). In her Original Petition, McGee alleged that EXCO breached the Lease by failing to pay for damages caused by its drilling operations. (C.R. 8). EXCO filed its 2 Kenneth Freeman is McGee’s significant other and was authorized by McGee to speak with EXCO and EXCO representatives regarding issues related to the drilling of the gas well. (3 R.R. 95-96) 3 Original Answer on or about July 21, 2009. (C.R. 15-17). McGee filed her First Amended Petition on or about January 4, 2012, which contained substantially the same allegations. (C.R. 23-27). Subsequent to filing suit, on January 23, 2012, McGee demanded by letter that EXCO pay her $90,000.00 to resolve the claims asserted by her. (App. Tab 5). McGee alleged in that letter that an offer by EXCO of $18,518.25 did not “fully [compensate] her for her losses, including but not limited to damages caused by destruction of grass, trees, land by pits and excavations dug, and change of drill location on land which [McGee] intended to build upon.” (App. Tab 5). McGee sent a second demand for $90,000.00 to EXCO on or about April 10, 2013. (App. Tab 6). McGee’s second letter again referenced damages caused by destruction of grass, trees, land by pits and excavations dug, and change of drill location on which McGee intended to build. (App. Tab 6). EXCO filed its First Amended Answer on or about December 2, 2013, including the additional affirmative defense that Plaintiff was not entitled to attorney’s fees due to her excessive demand of $90,000.00. (C.R. 42-43). On February 13, 2014, a jury trial began in 115TH Judicial District Court of Upshur County, Texas. (3 R.R. 1). At trial, McGee sought $30,048 as compensation for alleged loss of property value, along with $4,108.25 for costs of timber removed from the Property. (4 R.R. 67-68). The jury awarded $4,108.25 in 4 timber costs to McGee, but did not award any amount for loss of property value. (App. Tab 3). By agreement of the parties, the issues of McGee’s entitlement to attorney’s fees and the amount of attorney’s fees, if any, were to be submitted to the trial court. (4 R.R. 89-92). On February 18, 2014, McGee sent a letter to EXCO with affidavits and time records purporting to evidence attorney’s fees of $39,773.75.3 In response to McGee’s affidavits and time records, EXCO filed its Response to Plaintiff’s Request for Attorneys’ Fees, asserting both that Plaintiff was barred from recovering attorney’s fees because her demands of $90,000.00 from EXCO had been excessive or unreasonable and that, alternatively, the amount of attorney’s fees sought by Plaintiff was neither reasonable nor necessary (C.R. 215- 222). An affidavit controverting Plaintiffs’ claimed attorney’s fees was included as part of EXCO’s filing. (C.R. 227-230). McGee subsequently filed a reply to EXCO’s response on attorney’s fees. (C.R. 231-238). On April 21, 2014, Judge Parish signed an Order on Plaintiff’s Attorneys’ Fees awarding McGee her requested $39,773.75 in fees. (C.R. 239). Contemporaneously, she sent the parties a letter stating that she was granting McGee’s request for attorney’s fees and that she did not and could not find that 3 EXCO acknowledges receipt of the aforementioned letter, affidavits and time records. Further, the aforementioned letter purported to copy Judge Parish by facsimile. However, these documents do not appear in the Clerk’s Record and EXCO is not aware of any file-marked copy. 5 McGee’s attorneys acted unreasonably or in bad faith in their initial demand of $90,000.00. (C.R. 240). On June 6, 2014 the trial court entered its findings of fact and conclusions of Law. (App. Tab 2). These included findings of fact and conclusions of law that McGee demanded payment of $90,000.00 from EXCO on two occasions, that McGee did not act unreasonably or in bad faith in her demand of $90,000.00, and that the attorney’s fees sought by McGee were reasonable and necessary. (App. Tab 2). On January 7, 2015 the trial court signed a Final Judgment awarding McGee $4,108.25 in actual damages for lost timber and $39,773.75 in attorney’s fees. (App. Tab 1). On February 6, 2015 EXCO filed a Motion for New Trial on the issues of whether McGee’s demands on EXCO were excessive or unreasonable and the amount of reasonable and necessary attorney’s fees, if any, for McGee’s attorneys. (C.R. 263-269). The trial court entered no order as to EXCO’s Motion for New Trial, and, accordingly, it was overruled by operation of law. On April 6, 2015, EXCO filed its Notice of Appeal of the Final Judgment. (C.R. 270-271). 6 II. STANDARD OF REVIEW A. Excessive Demand An excessive demand finding is reviewed under a sufficiency of the evidence standard. See Oyster Creek Fin. Corp. v. Richwood Invs. II, Inc., 176 S.W.3d 307, 317-18 (Tex. App.–Houston [1st Dist.] 2004, pet. denied). Where a party attacks the legal and factual sufficiency of an adverse finding on which he has the burden of proof, he must demonstrate that the evidence conclusively establishes, as a matter of law, all facts in support of the issue, or alternatively, that the adverse finding is against the great weight and preponderance of the evidence. Id. at 318. In reviewing a claim that the evidence conclusively establishes liability as a matter of law, the reviewing court considers evidence and inferences supporting the finding and ignores all evidence and inferences to the contrary. Id. In reviewing a claim that the finding is against the great weight and preponderance of the evidence, the reviewing court considers and weighs all of the evidence, and may set aside the finding only if it is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Id. B. Reasonableness and Necessity of Attorney’s Fees Award An attorney fee award is also reviewed for excessiveness under a sufficiency of the evidence standard. Thomas v. Bobby D. Assocs., 2008 LEXIS 5881, *3 (Tex. App.–Tyler 2008, no pet). When the complaint is that the award of 7 attorney’s fees is excessive, factual insufficiency to support the award also constitutes an abuse of discretion by the court. Reeder v. Wood County Energy L.L.C., 320 S.W.3d 433, 452 (Tex. App.--Tyler 2010) rev’d on other grounds, 395 S.W.3d 789 (Tex. 2012), citing Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). C. Remittitur The standard the court of appeals applies to review an issue of remittitur is the factual sufficiency of the evidence. Transportation Ins. v. Moriel, 879 S.W.2d 10, 30 (Tex. 1994). The court of appeals applies the same standard when it reviews a trial court’s suggestion of remittitur as when it reviews a request for remittitur made on appeal. Id. Where error only affects the amount of attorney’s fees awarded, the issue of attorney’s fees is severable. Thomas v. Bobby D. Assocs., 2008 LEXIS 5881, *13 (Tex. App.–Tyler 2008, no pet). III. SUMMARY OF THE ARGUMENT A. McGee is not entitled to attorney’s fees because her demands of $90,000.00 were excessive. The trial court erred in awarding McGee attorney’s fees because her demands of $90,000.00 on EXCO were excessive. McGee acted unreasonably in making demands for compensation to which she was not entitled under the terms of the Lease. Furthermore, she made such demands without any estimate as to 8 what her damages actually were. Accordingly, the evidence conclusively established as a matter of law that McGee acted unreasonably in making such demands. Alternatively, the trial court’s finding that McGee did not act unreasonably in making such demands is against the great weight and preponderance of the evidence. B. The amount of attorney’s fees awarded by the trial court was neither reasonable nor necessary. The trial court erred in awarding McGee attorney’s fees in an amount almost ten times greater than actual damages. McGee had little success at trial, recovering less than one-eighth of what she attempted to recover at trial and less than five percent of what she had demanded prior to trial. Additionally, this was a relatively simple breach of contract case with a very limited procedural history that took only a little over a single day to try. Thus, there was no evidence that the attorney’s fees sought by McGee were reasonable and necessary. Alternatively, there is insufficient evidence to support the trial court’s finding of $39,773.75 in reasonable and necessary attorney’s fees. C. Remittitur. Alternatively, in the event this Court does not bar the recovery of attorney’s fees due to McGee's excessive demands, this Court should suggest a remittitur as to attorney’s fees. 9 IV. ARGUMENT AND AUTHORITIES A. McGee is not entitled to attorney’s fees because her demands of $90,000.00 were excessive. 1. To recover attorney’s fees under the general attorney’s fees statute, a party must present its claim to the opposing party. A prevailing party in a suit for breach of contract may recover its attorney’s fees. TEX. CIV. PRAC. & REM. CODE 38.001(8). In order to recover attorney’s fees under the general attorney’s fees statute a party must be represented by an attorney, must have presented the claim to the opposing party, and the opposing party must have failed to tender payment of the "just amount owed" within 30 days of being presented with the claim. TEX. CIV. PRAC. & REM. CODE § 38.002. “Present” is simply defined as a demand or request for payment. Llanes v. Davila, 133 S.W.3d 635, 641 (Tex. App.–Corpus Christi 2003, pet denied). The purpose of presentment is to give the defendant a chance to pay the claim before becoming obligated for the plaintiff’s attorney’s fees. Jones v. Kelley, 614 S.W.2d 95, 100 (Tex. 1981). The act of filing suit is not by itself a demand within the terms of the statute. Huff v. Fidelity Un. Life Ins., 312 S.W.2d 493, 500 (Tex. 1958); Llanes v. Davila, 133 S.W.3d at 641. 2. A party who makes an excessive demand on another party is not entitled to attorney’s fees. Although generally a prevailing party in a breach of contract action is entitled to attorney’s fees, there is an exception for instances in which the 10 prevailing party makes an excessive demand on the opposing party. A creditor who makes an excessive demand of a debtor is not entitled to attorney’s fees for the litigation required to recover the debt. Findlay v. Cave, 611 S.W.2d. 57, 58 (Tex. 1981). The dispositive inquiry for determining whether a demand is excessive is whether the claimant acted unreasonably or in bad faith. Wayne v. A.V.A Vending, Inc., 52 S.W.3d 412, 418 (Tex. App.–Corpus Christi 2001, pet denied), citing Findlay v. Cave, 611 S.W.2d. at 58. If a claimant demands monies to which he is not entitled, that demand is unreasonable and consequently excessive. Wayne v. A.V.A Vending, Inc., 52 S.W.3d at 418. A judgment for less than the amount demanded is some evidence of excessiveness, but a demand is not necessarily excessive simply because it is greater than what the jury determined was actually due. Findlay v. Cave, 611 S.W.2d. at 58. 3. McGee acted unreasonably because she demanded monies to which she was not entitled. Where a claimant demands monies to which he is not entitled, that demand is unreasonable and consequently excessive. Wayne v. A.V.A Vending, Inc., 52 S.W.3d at 418. For example, in Wayne, the appellate court affirmed a trial court’s finding that the plaintiff had made an excessive demand because the plaintiff had demanded double holdover rent and common area charges, which were amounts to which he was not entitled. Id. at 418-19. Likewise, in this case McGee demanded monies to which she was not entitled, and therefore her demand was excessive. 11 i. McGee unreasonably demanded compensation due to the location of the well. McGee’s demands included seeking compensation for losses related to a purported “change of drill location on land which [McGee] intended to build upon.” There are at least two problems with McGee’s demand. First, the Lease expressly authorized EXCO to drill at the location at which it did, such location being on the southeast 33.2 acres of the Property. (App. Tab 4). This was the specific portion of the Property that McGee had picked for possible drilling when she executed the Lease. (3 R.R. 100-101). At trial, McGee admitted that EXCO drilled on the proper portion of the Property and did not violate the Lease in doing so. (3 R.R. 100). Thus, by the terms of the Lease and McGee’s own admission, the location of the well did not constitute a breach of the Lease that would permit her to recover damages. The second problem with McGee’s demand for compensation related to the location of the well is that the terms of the Lease do not provide for any such recovery. The Lease set forth certain damages which she could recover related to EXCO’s operations, which included “all damages...to houses, buildings, fences, wells, roads and other improvements, cattle and other livestock, growing crops, trees and grasses.” (App. Tab 4). Accordingly, there is no provision that entitles her to compensation due to the location of EXCO’s well. 12 ii. McGee unreasonably demanded an amount almost three times more than what she sought at trial. At trial McGee sought to recover little more than one-third of the amount that she had demanded from EXCO prior to trial. Rather than attempting to recover the $90,000.00 she had demanded, or any amount close to $90,000.00, she instead sought a greatly reduced amount of $34,156.25 in damages, which included $30,048.00 for an alleged loss of property value and $4,108.25 for timber costs. (4 R.R. 67-68). Given the vast disparity between the amount McGee demanded from EXCO prior to trial and the amount that she attempted to recover at trial, it is apparent that even McGee realized that she was not entitled to the amounts she had demanded. iii. McGee’s demands far exceed the amount to which the jury found she was entitled. Although a demand is not necessarily excessive simply because it is greater than what a jury determines is due, it can be evidence of excessiveness. Findlay v. Cave, 611 S.W.2d. at 58. For example, in Warrior Constructors, Inc., v. Small Bus. Inv. Co. of Houston, 536 S.W. 2d 382, 386 (Tex. App. – Houston [14th Dist.] 1976, no writ), a demand of effectively $35,000.00 was found to be excessive where the defendant was only liable for $25,000.00. Likewise, in Wayne v. A.V.A Vending, Inc., 52 S.W.3d 412, 418-419 (Tex. App.–Corpus Christi 2001, pet denied) 13 demands of $37,000.00 and $43,000.00 were found to be excessive when the actual recovery was only $4,265.00. McGee’s demands were not merely greater than the amount the jury determined she was entitled to, they were over twenty times greater than the $4,108.25 that the jury awarded her. This disparity between McGee’s demands and her actual recovery is far greater than the disparities in both Wayne and Warrior Constructors, Inc., which both included findings of excessive demands. 4. McGee acted unreasonably by making demands on EXCO without any basis to support the amount demanded. McGee’s demands were further unreasonable and excessive because she had no basis for the amount she demanded. Her two demands to EXCO of $90,000.00 were made on January 23, 2012, and April 10, 2013. (App. Tab 5 and App. Tab 6). Following those demands, on June 28, 2013, EXCO took McGee’s deposition. (C.R. 32). In her deposition, taken over four years after she filed her lawsuit, McGee admitted that she did not have an estimate as to what her damages were: 41 19 Q Okay. And I don't want to get into anything that 20 you've discussed with your attorney, so you don't 21 have to tell me anything that you've discussed with 22 him but do you have any ballpark estimate of what 23 your damages are? 24 A Not at this time. 14 25 Q Okay. So you can't say whether this $16,518.25 42 1 total on Exhibit No. 2 would be a fair amount of 2 compensation or not? 3 A It appears to be grossly low. 4 Q Okay. And what do you base that on? 5 A The property value and the timber amount. 6 Q Okay. You believe you're entitled to more than 7 $4,108.25 for the lost timber? 8 A Yes. (See C.R. 225-26) This is not simply an example of initial uncertainty at the outset of a case regarding a proper amount of unliquidated damages. Years into this litigation and following multiple demands on EXCO, McGee still did not have an estimate of her damages. Such delay and baseless demands frustrate the entire purpose for requiring presentment of a claim or demand. See Jones v. Kelley, 614 S.W.2d 95, 100 (Tex. 1981) (The purpose of presentment is to give the defendant a chance to pay the claim before becoming obligated for the plaintiff’s attorney’s fees.). 15 B. The amount of attorney’s fees awarded by the trial court was neither reasonable nor necessary. Even if McGee is entitled to some amount of attorney’s fees, there is no evidence and/or factually insufficient evidence4 to support the Court's award of attorney’s fees to Plaintiff in the amount of $39,773.75 and its findings that such attorney’s fees were reasonable and necessary. Accordingly, the amount of attorney’s fees awarded is excessive. 1. Attorney’s fees must be reasonable and necessary. Any award of attorney’s fees must be supported by evidence that the fees are both reasonable and necessary. Powell Elec. Systems, Inc. v. Hewlett Packard Co., 356 S.W.3d 113, 127-28 (Tex. App.–Houston [1st Dist.] 2011, no pet.), citing Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991), modified on other grounds by Tony Gullo I, L.P. v. Chapa, 212 S.W.3d 299, 313-14 (Tex. 2006). The amount of an award of attorney’s fees rests in the sound discretion of the trial court. Owen Elec. Supply, Inc. v. Brite Day Constr., Inc., 821 S.W.2d 283, 288 (Tex. App.–Houston [1st Dist.] 1991, writ denied). However, as this Court has noted, an appellate court has the duty to reduce the fee awarded if it is excessive. 4 Factual insufficiency to support an award of attorney’s fees also constitutes an abuse of discretion by the court. Reeder v. Wood County Energy L.L.C., 320 S.W.3d 433, 452 (Tex. App.--Tyler 2010) rev'd on other grounds, 395 S.W.3d 789 (Tex. 2012), citing Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). 16 Thomas v. Bobby D. Assocs., 2008 LEXIS 5881, *12 (Tex. App.–Tyler 2008, no pet.). 2. There is no evidence of attorneys’ fees in the record. As an initial matter, EXCO reiterates that the attorney’s fees affidavits and time records sent to EXCO by McGee do not appear in the Clerk’s Record and may not have been filed in the trial court below. Appellate courts cannot consider affidavits outside the record. Sabine Offshore Service, Inc. v. Port Arthur, 595 S.W.2d 840, 841 (Tex. 1979). An appellate court is to base its decisions on the record as provided in each case, not on the record that should or could have been made. Divin v. Tres Lagos Prop. Owners’ Ass’n, 2014 Tex. App. LEXIS 8587 at *7 (Tex. App.—Texarkana Aug. 7, 2014). Accordingly, the aforementioned affidavits and time records cannot be considered as evidence of attorney’s fees. Without such documents, McGee has no evidence or, alternatively, insufficient evidence of attorney’s fees. McGee’s award of attorneys’ fees should be reversed and judgment rendered that McGee recover no attorneys’ fees. Alternatively, in the event the court treats such documents as a part of the record, EXCO sets forth its additional arguments. 3. There are multiple factors to consider in determining the reasonableness and necessity of attorney’s fees. There is no one single factor that is dispositive as to the reasonableness and necessity of an award of attorney’s fees. In determining whether the award is 17 excessive, the reviewing court is entitled to look at the entire record and to view the matter in the light of the testimony, the record before them, the amount in controversy, and their own common knowledge and experience as lawyers and judges. Thomas v. Bobby D. Assocs., 2008 LEXIS 5881 at *12-13. In Arthur Anderson & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997) (quoting TEX. DISCIPLINARY R. PROF. CONDUCT 1.04, reprinted in TEX. GOV’T CODE ANN. tit. 2, subtit. G app (State Bar Rules, art. X, § 9), the Texas Supreme Court set forth certain factors to be weighed in determining the reasonableness and necessity of attorney’s fees, which include: a. the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly; b. the likelihood . . . that the acceptance of the particular employment will preclude other employment by the lawyer; c. the fee customarily charged in the locality for similar legal services; d. the amount involved and the results obtained; e. the time limitations imposed by the client or by the circumstances; f. the nature and length of the professional relationship with the client; g. the experience, reputation, and ability of the lawyer or lawyers performing the services; and 18 h. whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered. 4. The most critical factor in determining the reasonableness of a fee award is the degree of success obtained. Although multiple factors are weighed to determine the reasonableness of a fee award, the “most critical factor” in determining the reasonableness of a fee award “is the degree of success obtained.” Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545, 548 (Tex. 2009) (quoting Tex. State Teachers Ass’n v. Garland Ind. Sch. Dist., 489 U.S. 782, 793 (1989)). For example, in Smith the jury awarded $65,000 in damages. Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d at 546. Plaintiff sought $47,438.75 in attorney’s fees, which was ultimately awarded by the Court of Appeals. Id. at 546-47. However, the Texas Supreme Court, noting that Plaintiff had sought $215,000 in damages but only recovered $65,000, ruled that the fees of $47,438.75 awarded were unreasonable in light of the amount involved and the results obtained. Id. at 548. Thus, the fee award, which was 72.98% of the damages recovered, was found to be unreasonable as a matter of law. 5. The factors set forth by the Texas Supreme Court do not support the amount of attorney’s fees awarded to McGee The factors set forth by the Texas Supreme Court weigh heavily against the amount of fees awarded to McGee. First, as noted above, the “most critical factor” 19 in determining the reasonableness of a fee award “is the degree of success obtained.” Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d at 548. McGee recovered only a small fraction of the amount she sought. McGee demanded $90,000.00 prior to trial. (C.R. 223 and 224). McGee sought $34,156.25 in damages at trial. (4 R.R. 67-68). Ultimately, however, she only recovered $4,108.25 in damages, or less than five percent of what she had demanded and less than one-eighth of what she sought at trial. (App. Tab 3). McGee would’ve recovered four times as much had she simply accepted EXCO’s pre-suit offer of $16,518.25. (5 R.R. Def. Ex. 6). Second, the issues involved in this case were neither complex nor novel. The only cause of action asserted in this case was for breach of a single oil, gas, and mineral lease. (C.R. 23-27). In that regard, the sole issue at trial was a single paragraph of the Lease. (C.R. 25). There were no counterclaims filed in this suit. (C.R. 42-43). The sole affirmative defense at issue was whether the demand made on EXCO by McGee was excessive.5 (C.R. 42-43). The trial in this case lasted only a little over a single day, beginning at approximately noon on February 13, 2014 with opening statements (3 R.R. 6, 11) and ending with the verdict being read at approximately 12:30 p.m. the next day. (4 R.R. 1, 87). 5 Although EXCO pleaded a statute of limitations defense, this issue was neither presented nor argued to either the jury or the trial court. 20 Third, this case should not have prevented any further employment by McGee’s counsel. The Plaintiff took no depositions in the case and there were no hearings in the case before the pretrial hearing. (C.R. 229). Further, the affidavits and billing records sent to EXCO pertaining to attorney's fees indicated multiple periods of months in which no work was performed, including (C.R. 229): a. October 14, 2008 to January 13, 2009 – Approximately 3 months; b. January 13, 2009 to May 6, 2009 – Approximately 4 months; c. August 17, 2009 to November 12, 2009 – Approximately 3 months; d. December 22, 2009 to August 16, 2010 – Approximately 8 months; e. August 31, 2010 to January 3, 2011 – Approximately 4 months; f. January 3, 2011 to April 5, 2011 – Approximately 3 months; g. May 11, 2011 to September 19, 2011 – Approximately 4 months; h. January 28, 2012 to May 11, 2012 – Approximately 3 months; and i. May 11, 2012 to February 4, 2013 – Approximately 9 months. Thus, during the 4.5 years that this case was pending, there was no work performed in 41 months, or 3.4 years of that time. Fourth, the hourly fees charged by McGee’s attorneys of $450.00 and $300.00 are not customary or reasonable in East Texas for a case with an amount in controversy of less than $35,000.00. Jennifer Ainsworth, attorney for EXCO and a shareholder at Wilson, Robertson & Cornelius, P.C., charged an hourly rate 21 of $200.00 while associate attorneys who worked on this matter charged an hourly rate of $150.00. (C.R. 229-230). Fifth, there is no evidence of any time limitations imposed by the client or by the circumstances. In fact, the record reflects just the opposite, as over 4.5 years elapsed between the time of filing and the time of trial. (Compare C.R 6, filing date of June 24, 2009, to 3 R.R. 1, trial on the merits beginning on February 13, 2014). Lastly, there was no evidence submitted regarding whether this case was taken on a contingency fee basis, nor whether McGee has actually compensated her counsel for any time spent. (C.R. 230). Additionally, there was no evidence submitted regarding the nature and length of the professional relationship between McGee and her counsel. 6. Precedent from this Court supports a much lower award of attorney’s fees. In Thomas v. Bobby D. Assocs., 2008 LEXIS 5881 (Tex. App.–Tyler, 2008 no pet), this Court reviewed an attorney fee award of $49,000.00 when the amount of damages recovered was only $7,030.00. Thomas involved claims of breach of six contracts for deed. Id. at *1. At trial, the plaintiff recovered $7,030.00 in actual damages and attorney’s fees of $49,000.00. Id. at *2. On appeal, appellant complained that the amount of attorney’s fees awarded was grossly disproportionate to the amount of actual damages. 22 In addressing whether the award of fees was excessive, this Court considered those factors set forth by the Texas Supreme Court in Arthur Anderson. Thomas v. Bobby D. Assocs., 2008 LEXIS 5881 at *4-5. More specifically, this Court noted the following: a. The trial lasted little more than a day. Id. at *10-11. b. The issues involved were not complex. Id.at *11. c. Bobby D. Associates sought in excess of $80,000.00, but recovered only $7,030.00. Id. d. There was no evidence that plaintiff’s attorneys were precluded from other employment because of their representation of plaintiff. Id. e. The record did not show numerous trial settings, multiple depositions or any indication of a treacherous procedural history. Id. f. Although the litigation lasted for seven years, there were periods when the case lay dormant for years. Id. g. Multiple lawyers worked on the case. Id. Considering the above, this Court found the attorney’s fees to be excessive in the amount of $24,000.00. Thomas v. Bobby D. Assocs., 2008 LEXIS 5881 at *13. Comparing the present case to Thomas, it is clear that the fees awarded by the trial court are similarly excessive and should be reduced. 23 Thomas v. Bobby D. Assocs., EXCO Operating Co., LP v. McGee 2008 LEXIS 5881 (Tex. App.–Tyler 2008, no pet) Trial lasted little more than a day. Trial lasted little more than a day. Id . at *11 Supra, P. 20. The issues involved were not complex. The issues involved were not complex, Id . at *11 involving a single breach of contract claim. Supra, P. 20 Bobby D. Associates sought in excess of McGee sought in excess of $90,000.00 $80,000.00, but recovered only prior to trial and $34,156.25 at trial, but $7,030.00. recovered only $4,108.25. Id. at *11 Supra, P. 20 There was no evidence that plaintiff’s There is no evidence that McGee’s attorneys were precluded from other attorneys were precluded from other employment because of their employment because of their representation of plaintiff. representation of McGee. Id. at *11 Supra, pp. 20-21 The record did not show numerous trial There was a very limited procedural settings, multiple depositions or any history. There were no pretrial hearings indication of a treacherous procedural and limited discovery. history. Supra, pp. 20-21 Although the litigation lasted for seven Lasted over four and a half years, but it years, there were periods when the case lay dormant for long periods of time. lay dormant for years. Supra, P. 22 Id. at *11 7. A 10-1 ratio of attorney’s fees to damages is almost always excessive. The amount of fees awarded ($39,773.75) is almost ten times the amount of damages awarded ($4,108.25). Although the ratio of attorney’s fees to damages is not necessarily dispositive as to whether the fees are reasonable and necessary, 24 Appellant is aware of only one other Texas case in which a higher ratio was awarded and upheld by an appellate court.6 Conversely, there are multiple examples of Texas cases in which lower fee-to-damages ratios have been deemed to be excessive. For example, in the Thomas case, supra, this Court found a seven- to-one ratio to be excessive. In Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545, 548 (Tex. 2009) the Texas Supreme Court found a fee award of 72.98% of the damages recovered to be unreasonable. In Musgrave v. Brookhaven Lake Prop. Owners Ass’n, 990 S.W.2d 386, 402 (Tex. App.–Texarkana 1999, pet. denied), a one-to-one ratio of fees to damages was deemed to be excessive and ultimately reduced on appeal. Thus, although there is no set ratio that is deemed excessive for all cases, a ten-to-one ratio is almost unheard of in Texas. C. Remittitur In the event attorney’s fees are not entirely barred, EXCO alternatively requests that this Court reduce by remittitur the amount of attorney’s fees awarded. EXCO proposes a reduction of $35,665.50, which would result in an award of attorney’s fees of $4,108.25, being the same amount of actual damages awarded to Plaintiff at trial. 6 In USAA Cty. Mut. Ins. Co. v. Cook, 241 S.W.3d 93, 102-03 (Tex. App.–Houston 2007, no pet.) the appellate court affirmed a $53,310 fee award in a dispute over an insurance claim worth approximately $2,000. However, the court noted that most of the hours billed by the recovering party were spent responding to motions filed by the opposing party that ultimately were denied. 25 V. PRAYER Appellant EXCO Operating Company, LP, respectfully prays that this Court reverse the trial court’s judgment as to the award of attorney’s fees and render judgment in its favor that McGee recover no attorney’s fees due to her excessive demands. Alternatively, EXCO prays that the Court suggest a reduction by remittitur to the amount of attorney’s fees awarded and, in the event the remittitur is not timely filed, that the portion of the judgment awarding attorney’s fees be severed and reversed and remanded for a new trial. Respectfully submitted, WILSON, ROBERTSON & CORNELIUS, P.C. One American Center 909 ESE Loop 323, Suite 400 [01] P.O. Box 7339 Tyler, Texas 75711-7339 Telephone: 903/509-5000 Telecopier: 903/509-5091 By: /s/ Matthew T. Milam JENNIFER PARKER AINSWORTH State Bar No. 00784720 E-mail: jainsworth@wilsonlawfirm.com MATTHEW T. MILAM State Bar No. 24065746 E-mail: mmilam@wilsonlawfirm.com ATTORNEYS FOR APPELLANT EXCO OPERATING COMPANY, LP 26 CERTIFICATE OF SERVICE I hereby certify that pursuant to Rule 9.5, Texas Rules of Appellate Procedure, that a true and correct copy of the foregoing pleading was served upon the following counsel electronically, through the electronic filing manager, and via certified mail, return receipt requested, on this the 8th day of June, 2015: John D. Sloan, Jr., E-mail: jsloan@sloanlaw.com J. Ryan Fowler, E-mail: rfowler@sloanfirm.com [Attorneys for Appellee Mary K. McGee] SLOAN, BAGLEY, HATCHER & PERRY LAW FIRM 101 East Whaley Street P.O. Drawer 2909 Longview, Texas 75606 /s/ Matthew T. Milam MATTHEW T. MILAM 27 CERTIFICATE OF COMPLIANCE I, MATTHEW T. MILAM, attorney for Appellant EXCO Operating Company, LP, hereby certify, pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), that there are 5,834 words in the foregoing Appellant's Brief. I am making this certification based upon reliance on the word count of the computer program used to create Appellant's Brief. /s/ Matthew T. Milam MATTHEW T. MILAM 28 TABLE OF CONTENTS TO APPELLANT'S APPENDIX Description Tab Final Judgment dated January 7, 2015. 1 Findings of Fact and Conclusions of Law, dated June 6, 2014 2 Jury Charge and Verdict 3 The Lease 4 Demand letter from McGee’s counsel to EXCO’s counsel dated 5 January 23, 2012. Demand letter from McGee’s counsel to EXCO’s counsel dated 6 April 10, 2013. 29 APPENDIX TAB 1 APPENDIX TAB 2 APPENDIX TAB 3 APPENDIX TAB 4 APPENDIX TAB 5 APPENDIX TAB 6