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Lemon v. Hagood

Court of Appeals of Texas, Eighth District, El Paso

July 26, 2017


         Appeal from County Court at Law No. 5 of Dallas County, Texas (TC # CC-11-03989-E)

          Before McClure, C.J., Rodriguez, and Hughes, JJ.


          ANN CRAWFORD McCLURE, Chief Justice.

         This appeal is the second go around between lawyers embroiled in a fee dispute. Daniel Hagood acted as co-counsel alongside Shaw & Lemon in a construction defect case. The lawyers were ultimately successful in obtaining a substantial judgment for their clients. Everyone agrees that Hagood was entitled to twenty-five percent of the of the forty percent contingency fee for his role in the case, which equates to ten percent of the total recovery. The contingency fee issue became thorny, however, when both the judgment creditors and the judgment debtor went into bankruptcy. The case became more complicated still when our Appellant here, D. Brent Lemon, was hired as special counsel in the judgment debtor's bankruptcy case and recovered more than a million dollars for the bankrupt estate, much of which was used to pay part of the judgment that Hagood had helped to obtain. Lemon was paid substantial attorney's fees through the bankruptcy for doing so, but nothing was paid to Hagood. Upset with this state of affairs, Hagood sued Lemon over the unpaid fee in state court.[1]

         Following the first trial of this fee dispute case, Hagood prevailed but the judgment was reversed on appeal based on charge error. Lemon v. Hagood, 05-13-00132-CV, 2014 WL 3700687, at *4 (Tex.App.--Dallas July 24, 2014, no pet.)(mem.op.). Following the second trial, Hagood prevailed again. For the reasons stated below, we reverse and render.


         This tale begins with husband and wife Gary Carpenter and Julie Perez (the Carpenters) who claimed that Holmes Builders, Inc. erred in the construction of their home. They hired attorney Van Shaw to represent them in 1999, and signed a fee contract giving Shaw a forty percent contingency in any recovery. At the time, Lemon was doing contract work for Shaw. By 2000, however, Shaw and Lemon entered into a partnership (Shaw & Lemon) and the Carpenters were represented by the partnership. On several occasions Shaw & Lemon had asked Appellee Daniel Hagood to assist with the trial of various cases, and the partnership did so in the Carpenter-Holmes Builders litigation. Hagood was to be paid twenty-five percent of the total forty percent contingency fee out of any recovery. Hagood never had a written agreement with the Carpenters. The general division of responsibilities dictated that Shaw and Hagood would handle the trial, and Lemon would tend to motion practice matters, some discovery, and post-trial collections or appeals.

         The trial, held in the Fall of 2001, went well for the Carpenters. The jury's answers supported a verdict in excess of $1.8 million. The trial court, however, granted a judgment notwithstanding the verdict that resulted in a take nothing judgment and saddled the Carpenters with court costs. This turn of events contributed to the Carpenters filing for bankruptcy in February 2002. The Carpenter's claim against Holmes Builders, became an asset of the bankruptcy estate for the benefit of the Carpenters' creditors. The bankruptcy trustee[2] filed an application to employ Shaw and the firm of Shaw & Lemon as special counsel to pursue that claim. Shaw and the firm would do so on the same fee basis that the Carpenters had agreed to.

         Lemon then pursued an appeal of the JNOV that had been entered in the Carpenter-Holmes Builders case. In March 2003, while that appeal was pending, Shaw and Lemon had a falling out. Lemon opened his own office and took the Carpenter file with him. As for the cases that Lemon took, he suggested that as each case "is resolved or remuneration received (regardless of who has primary possession or responsibility) a distribution to the partners will be made per our agreement." The dissolution was less than friendly, leading to protracted litigation beginning in 2003 and which is described in our record as "contentious" and "acrimonious."[3]The Carpenters wrote both Shaw and Lemon in December 2003 expressing their desire not to be involved in the former partners' disputes, and urged both to work collaboratively on the Carpenters' behalf, but they desired that Lemon be their sole point of contact.

         Lemon was successful with the appeal. The Eastland Court of Appeals (on transfer from the Dallas Court of Appeals) reversed the JNOV and remanded the case for entry of judgment in accordance with the jury's verdict. See Carpenter v. Holmes Builders, Inc., No. 11-02-00132-CV, 2004 WL 306130 (Tex.App.--Eastland Feb. 19, 2004, pet. denied). On February 11, 2005, the Texas Supreme Court denied Holmes Builders' Motion for Rehearing of its Petition for Review. Important here, on February 28, 2005, a motion was filed in the Carpenters' bankruptcy to sell the bankruptcy estate's interest in the Carpenter-Holmes Builder's case back to the Carpenters. The bankruptcy court approved that sale on March 22, 2005, and in exchange for $62, 500, the Carpenters obtained the bankruptcy estates' interest in the litigation claim "free and clear of all liens, claims and encumbrances."

         On April 6, 2005, the state trial court in the Carpenter-Holmes Builders case entered a judgment consistent with the court of appeals' mandate, thereby giving the Carpenters a judgment for $2, 003, 240 against Holmes Builders. Hagood received a copy of the trial court's new judgment in April 2005 and promptly wrote Lemon reminding him of his fee interest. Lemon did not respond to Hagood's letter, nor to two similar letters sent in July 2005 and August 2005. Lemon's unresponsiveness convinced Hagood that "I was in for a war. I wasn't going to get my money easy." To that end, Hagood retained his own counsel and in April 2006 filed an intervention in the Carpenter-Holmes Builders state court litigation asserting his fee interest. He was promptly informed that Holmes Builders had itself filed for bankruptcy and any intervention seeking his fee interest in the state court case was a violation of the automatic stay.

         In the Holmes Builders bankruptcy, the Carpenters and another couple complaining of a defective home, the Galases, were the largest creditors. The initial filings apparently showed few assets to pay those claims. The bankruptcy trustee, with court approval, then hired Lemon to pursue two different claims to infuse assets into estate. One claim related to the denial of coverage under a liability insurance policy in favor of Holmes Builders. The second group of "alter ego" claims sought to return money improperly transferred out of the company. Lemon was to be paid a thirty-four percent contingency for any sums he recovered, subject to review and approval by the bankruptcy court. As a part of the application to employ him, Lemon filed an affidavit stating "[m]y representation of [the Carpenters] has been terminated and I have waived all claim for any recovery of attorney fees, for all past services, directly from [the Carpenters]." He also swore that "[n]either I, my firm, nor any member therefor, insofar as I have been able to ascertain has any current connection with the debtor, creditors, or any other party in interest..." Hagood added himself to the master service matrix to monitor the progress of the bankruptcy. By November 18, 2009, Lemon had secured a $500, 000 settlement of the insurance policy claim for the bankruptcy estate. The trustee proposed an interim distribution of $252, 539.70 to the Carpenters, and $157, 648.66 to Lemon.[4] Hagood objected to the Carpenters' proposed interim payment and raised his entitlement to a portion of the recovery. The bankruptcy judge allowed the interim payments, and in its order approving the Carpenter's payment, noted that $360, 000 was available for payment to Hagood and the Galases, who had also filed an objection. Lemon was also able to secure an additional $684, 474.24 for the bankruptcy estate through the alter ego claims. On August 6, 2010, the trustee filed a final report which proposed to distribute an additional $324, 068.40 to the Carpenters, $40, 733.48 to the Galases, and an additional fee award of $230, 460.40 to Lemon. Hagood objected through his bankruptcy counsel as no funds were designated for him.

         The bankruptcy judge took up the objection at a hearing on November 3, 2010. During the hearing, the judge raised concerns as to whether Hagood's objection was procedurally proper, suggesting an adversary proceeding was the appropriate procedure to raise this type of claim. The judge was also concerned with Hagood's standing and the timeliness of the claim. The judge inquired whether Hagood should file suit against Lemon in state court.[5] The hearing was recessed, but prior to being reset, Hagood withdrew his objection. The bankruptcy judge agreed to the final distribution including the additional fee award to Lemon. In all, Lemon's total fee awards for collecting $1, 184, 474.24 for the bankruptcy estate was $388, 109.06.

         Hagood then took his fee dispute to state court. In December 2010, he intervened in the on-going litigation between Lemon and Shaw. Lemon successfully moved to strike the intervention. Hagood then filed the suit from which this appeal arises on June 8, 2011. Hagood sued only Lemon; he did not sue Shaw nor the partnership of Shaw & Lemon. Round one of this suit resulted in a judgment in Hagood's favor for $97, 024.77 in breach of contract damages, and an additional $125, 000.00 in attorney's fees. On appeal, the court held that the charge erroneously referred to Hagood's contract as a contingency in the fees "related to the Firm's representation" on the Carpenter case, and not twenty-five percent of the fees the firm received under the contingent-fee agreement with the Carpenters. Lemon v. Hagood, 05-13-00132-CV, 2014 WL 3700687, at *4 (Tex.App.--Dallas July 24, 2014, no pet.)(mem.op.). The court concluded that the error was harmful because it expanded the scope of Hagood's compensation under the agreement beyond that supported by the evidence at trial. Id.

         The court then reviewed the legal sufficiency of the evidence "under the charge that should have been given, that is, one that stated Hagood's compensation under his contract with the firm was twenty-five percent of the fees received by the firm under the contingent-fee agreement with the Carpenters." Id. at *5. Finding the evidence was legally sufficient, the court rejected the contention that because the firm had never received any funds, Hagood was owed nothing. A reasonable jury could have determined that Lemon's affidavit filed in the bankruptcy court "made impossible the performance of the condition precedent to Lemon's liability under Hagood's agreement -- that the firm received funds under the Carpenter agreement." Id. at *6. "A reasonable juror could have determined that Lemon failed to cooperate by waiving the fee agreement with the Carpenters and that this failure to cooperate breached the agreement with Hagood." While there was some evidence that Lemon breached the agreement with Hagood, the case was reversed and remanded for a new trial because the charge was erroneous.

         On remand the case was tried much as before, but with two different twists. For the first time, Lemon claimed that he had no individual liability as a partner until a judgment was obtained against the partnership of Shaw & Lemon. He raised this issue a few days after the Texas Supreme Court handed down American Star Energy and Minerals Corporation v. Stowers, 457 S.W.3d 427 (Tex. 2015) which contains language consistent with Lemon's claim. Because Hagood never sued the partnership, Lemon contended that he could have no individual liability. The second twist involved the sale order in the Carpenter bankruptcy (selling the claim back to the Carpenters, free and clear of all liens and encumbrances). Lemon argued this order extinguished Shaw & Lemon's fee interest in the claim, and consequently Hagood's dependent interest as well. The trial court rejected a summary judgment and jurisdictional challenge built around these arguments.

         At trial, the jury found that Shaw and Lemon were in a partnership when Hagood was asked to participate in the Carpenter litigation. The jury also found that Lemon failed to pay Hagood for his services in trying the Carpenter lawsuit. The jury further found that Hagood is excused from, and Lemon is quasi-estopped to complain about, any failure to first satisfy a judgment against the partnership. The jury awarded Hagood $97, 204 in damages for Lemon's failure to pay him as agreed, and awarded $207, 608.75 in attorney's fees. Hagood was also awarded conditional awards of appellate attorney's fees. Lemon brings nineteen issues for our review. We begin with those issues reflecting the new arguments raised in the second trial.


         After the case was remanded for a new trial, Lemon claimed that Hagood was required to have first obtained a judgment against the partnership before he could directly sue Lemon.[6] At the time of the first trial, precedent in the Dallas Court of Appeals held that there was no requirement to first sue and obtain a judgment against the partnership before pursuing an individual partner. Reagan v. Lyberger, 156 S.W.3d 925, 929 (Tex.App.--Dallas 2005, no pet.)("Reagan cites us to no cases, and we have found none, requiring that the partnership entity be sued separately to hold the individual partners liable. We conclude Reagan's challenges to the judgment against him on the basis of partnership are without merit.").[7] Following remand of this case, however, the Texas Supreme Court issued its opinion in American Star Energy and Minerals Corporation v. Stowers, 457 S.W.3d 427 (Tex. 2015) which resolved the issue of when limitations accrue against a partner for a partnership debt. Id. at 428. In deciding that issue, the court wrote:

The statutory prerequisites to enforcement make a partner's liability not only derivative of the partnership's liability, but contingent on it for all practical purposes. If a partnership obligates itself to pay a sum or perform a service under a contract, the individual partners, though liable for the obligation under the [Texas Revised Partnership Act], cannot immediately be called on to pay or perform in lieu of the partnership. In either case, the claim must be litigated against the partnership so that its obligation is determined, reduced to damages, and fixed in a judgment. See Tex.Bus.Orgs.Code § 152.306(b)(2)(A). Second, the plaintiff-creditor must have ninety days' opportunity to satisfy that judgment from the partnership's assets. Id. § 152.306(b)(2)(C).

Id. . at 431.

         The Statutory Exceptions

         American Star derives the obligation to obtain a judgment against the partnership from the Texas Revised Partnership Act, and we begin there.[8] A Texas partnership is "an entity distinct from its partners." Tex.Bus.Orgs.Code Ann. § 152.056 (West 2012). It can therefore sue and be sued as an entity. See Tex.R.Civ.P. 28. A creditor must obtain a judgment both against the partnership as an entity and the partner before the partner's individual assets may be executed upon, though this may be accomplished in the same lawsuit. This conclusion flows from Section 152.306 (a) and (b). Subsection (a) provides that a "judgment against a partnership is not by itself a judgment against a partner." Id. It makes clear that a "judgment may be entered against a partner who has been served with process in a suit against the partnership." Subsection (b) then provides that a creditor may proceed against a partner or a partner's property only if a judgment "is also obtained against a partner" which "remains unsatisfied for 90 days." Section 152.306(b) is, however, subject to several exceptions found in Subsection (c):

(c) Subsection (b) does not prohibit a creditor from proceeding directly against one or more partners or the property of the partners without first seeking satisfaction from partnership property if:
(1) the partnership is a debtor in bankruptcy;
(2) the creditor and the partnership agreed that the creditor is not required to comply with Subsection (b);
(3) a court orders otherwise, based on a finding that partnership property subject to execution in the state is clearly insufficient to satisfy the judgment or that compliance with Subsection (b) is excessively burdensome; or
(4) liability is imposed on the partner by law independently of the person's status as a partner.


         Hagood focuses on the third exception, and argues that the Shaw & Lemon partnership was devoid of assets or that litigating against it would have been excessively burdensome. We disagree for two reasons. The first reason is procedural. Hagood raised this argument as one of many responses to Lemon's motion for summary judgment. The trial court denied the motion without elaborating its reasons. Consequently, the court never made a specific finding that partnership property was "clearly insufficient" to satisfy the judgment, or that suing the partnership would have been "excessively burdensome." The exception requires such a finding from the trial court. Id. at § 152.306(c)(3).

         The second reason is substantive. The exceptions found in Subsection (c) pertain to the ninety-day waiting period, and not the requirement for obtaining the judgment against the partnership. This conclusion follows from a construction of the statute. Statutory construction is a legal question that we review de novo. In re ReadyOne Industries, Inc.,394 S.W.3d 680, 684 (Tex.App.--El Paso 2012, orig. proceeding), citing Entergy Gulf States, Inc. v. Summers,282 S.W.3d 433, 437 (Tex. 2009). Our primary focus in statutory interpretation is to give effect to legislative intent, considering the language of the statute, as well as its legislative history, the objective sought, and the consequences that would flow from alternative constructions. CrownLife Ins. Co. v. Casteel,22 S.W.3d 378, 383 (Tex. 2000). We seek that intent "first and foremost" in the statutory text. Lexington Ins. Co. v. Strayhorn,209 S.W.3d 83, 85 (Tex. 2006). We must "presume that every word in a statute has been used for a purpose and that ...

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