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Marcus Hiles v. Arnie & Company

April 25, 2013


On Appeal from the 270th District Court Harris County Trial Court Cause No. 2010-42061

The opinion of the court was delivered by: Jeffrey V. Brown Justice

Affirmed and Substitute Opinion filed April 25, 2013.

In The Fourteenth Court of Appeals


We originally issued our opinion affirming the trial court's judgment on March 14, 2013. Appellant Marcus Hiles filed a motion for rehearing. We deny the motion for rehearing, vacate our earlier judgment, withdraw our previous opinion, and issue this substitute opinion in its place. The disposition of the case remains unchanged.

Hiles appeals from a trial-court judgment incorporating a jury verdict in favor of Arnie & Company, P.C., in Arnie's suit on a sworn account. On appeal, Hiles complains that he filed suit against Arnie in Dallas County before Arnie filed suit in Harris County, and because the Dallas County court had dominant jurisdiction, the trial court erred in refusing to transfer, abate, or dismiss Arnie's suit. Hiles also contends that the trial court erred by refusing Hiles's tendered jury instruction concerning whether Arnie's prior material breach excused Hiles's performance. For the reasons explained below, we affirm.


Hiles is a real-estate investor and developer who lives in Fort Worth and offices in Grand Prairie. Hiles became involved in litigation arising out of a partnership dispute over a large real-estate project in Tyler known as the Cascades. Hiles believed he was losing millions of dollars on the Cascades project and suspected his partners had engaged in some kind of "funny business." Hiles's counsel, the law firm of Coats, Rose, Yale, Ryman & Lee, L.L.P., and its partner, Bill Short, recommended retaining Arnie & Company, located in Houston, to conduct a forensic accounting review of the Cascades's records. Arnie's president, Dennis Arnie, is a CPA and certified fraud examiner. Dennis had worked with Coats Rose on many other cases.

Hiles agreed that Coats Rose could retain Arnie to assist in the Cascades litigation. Coats Rose and Hiles each signed an engagement letter Arnie drafted. Hiles also modified the letter, interlineating "and/or Hiles" at the end of the sentence "Your engagement of [Arnie] is at the will and discretion of Coats Rose." The engagement letter set out the hourly rates for Arnie personnel, provided for an "evergreen" retainer of $20,000, and reflected that Hiles was "solely liable for any fees incurred in this matter." The engagement letter also included a venue-selection clause specifying that the venue of any litigation or arbitration "SHALL LIE SOLELY AND EXCLUSIVELY IN HARRIS COUNTY, TEXAS[,] UNLESS MANDATORY VENUE RULES OR LAWS PROVIDE THAT VENUE MUST LIE IN ANOTHER COUNTY."

Arnie personnel conducted an extensive review of the Cascades's records and determined, as Hiles suspected, that his partners were committing fraud. The damage model amounted to about $10 million. But Coats Rose and Hiles disagreed on the best way to make use of Arnie's work. Short did not want Arnie to prepare a report, preferring instead to surprise the adverse parties with Arnie's opinions at trial; Hiles, however, instructed Dennis to prepare a report that Hiles could use as leverage at mediation. On April 29, 2010, Dennis met with Hiles at his office to discuss the details of the report and to drop off some unpaid invoices. Dennis also gave Hiles the option of either a short report highlighting a few significant transactions or a detailed report describing every allegedly fraudulent transaction discovered.

Hiles did not immediately decide which report he wanted, but the next day he left Dennis a voicemail directing him to prepare the detailed report. In the voicemail, which Dennis transcribed, Hiles also communicated an understanding that the additional work needed to compile the report would be minimal, requiring only "a little extra staff time" to type up the report and attach the exhibits. On May 4, Hiles confirmed in an email that he wanted Dennis to complete the "full written report" by May 12. According to Dennis, he never told Hiles that preparing the report would be simply a matter of administrative time, although he did not recall specifically correcting any misunderstanding on Hiles's part.

On May 12, Dennis delivered a draft of the report, titled "Analysis of Economic Damages and Related Events," to Hiles.*fn1 The report totaled twenty-three pages and was supported by over 400 pages of attached documentation. Hiles was pleased with the report, and he instructed Short to distribute copies of the report to all opposing counsel in the Cascades litigation. The Cascades litigation was ultimately resolved.

In early June, Arnie sent Hiles the bill for its work during the month of May in the amount of $76,199.74. Less than two weeks later, Hiles responded to Arnie's bill by filing suit against Arnie in Dallas, alleging breach of contract and seeking declaratory relief.*fn2

On July 8, 2010, after Arnie was served with Hiles's suit, Arnie filed suit against Hiles in Houston for unpaid bills totaling $364,502.00 on a sworn-account theory. After substituted service of citation was ordered in September, Hiles answered Arnie's suit subject to a motion to transfer venue.*fn3 On December 16, the trial court denied Hiles's motion to transfer venue. On January 21, 2011, Hiles filed a motion to abate Arnie's Harris County suit, and re-urged his motion to abate in September 2011.*fn4 The trial court denied the motion to abate and the case proceeded to trial.

At the end of the trial, the jury returned a verdict in Arnie's favor. On October 7, 2011, the trial court rendered judgment on the jury's verdict, awarding Arnie actual damages of $364,502.41 and attorney's fees in excess of $200,000. This appeal followed.


In his first issue, Hiles contends that the trial court erred in refusing to transfer, abate, or dismiss the Harris County suit. Hiles makes three primary arguments: (1) the venue-selection clause in Arnie's engagement letter is unenforceable; (2) Hiles filed suit first in a proper venue and therefore the Dallas County ...

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