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Duncan Litigation Investments, LLC v. Mikal Watts and Watts Guerra, LLP

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

June 13, 2019

DUNCAN LITIGATION INVESTMENTS, LLC, Appellant,
v.
MIKAL WATTS AND WATTS GUERRA, LLP, Appellees.

          On appeal from the 94th District Court of Nueces County, Texas.

          Before Chief Justice Contreras and Justices Longoria and Perkes

          MEMORANDUM OPINION

          GREGORY T. PERKES, JUSTICE

         After a failed investments, appellant Duncan Litigation Investments, LLC sued appellees Mikal Watts and Watts Guerra, LLP for negligence, gross negligence, and negligent misrepresentation. The trial court granted summary judgment in favor of appellees based on their limitations defense. By three issues, appellant argues that: (1) the trial court considered untimely and inadmissible evidence; (2) appellees failed to conclusively establish the accrual date of appellant's claims; and (3) appellant failed to negate application of the discovery rule and continuing tort doctrine. Because we conclude there was no evidentiary error and the record conclusively establishes appellant had actual knowledge of its injury more than two years before filing suit, we affirm.

         I. Background

         In early June 2010, Corpus Christi attorney Robert Hilliard approached Max Duncan of Corpus Christi about investing in mass-tort litigation stemming from the BP "Deepwater Horizon" oil spill. Hilliard had entered into a cost and fee sharing agreement with San Antonio attorney Mikal Watts and his law firm. In exchange for funding Hilliard's portion of the upfront litigation costs, Duncan and Hilliard would share equally in Hilliard's portion of the recovery.

         When Duncan asked Watts about the downside risk of the investment, Watts responded that the chief concern is getting "duped on the sign-ups," but he explained that this was "[n]ot likely given our guys' history of acquisition prowess." Watts had also reached a fee sharing agreement with Mississippi attorney Anders Ferrington to be the originating attorney responsible for acquiring clients and referring them to Watts Guerra. Watts and Hilliard had previously worked with Ferrington on the FEMA Formaldehyde litigation under a similar arrangement. Duncan was told that Ferrington's field team had a proven track record of determining which claimants (i.e., potential clients) were legitimate.

         Duncan formed appellant as its sole owner and entered into an agreement with Hilliard and his law firm.[1] According to its petition, "[appellant] agreed to invest in the litigation based on the representations that the investment guaranteed a significant financial return, the reputation of Mikal Watts, and Watts' [sic] specific representation that Duncan would not lose money." Appellant's petition also alleged that, "[i]n June 2010, Max Duncan believed Watts already had 15, 000 clients and he was going to get more clients, thereby increasing the financial return on the investment. By July 1, 2010, it was reported to Duncan that the number of clients had increased to 25, 000." This number would eventually balloon to over 40, 000.

         From an initial outlay of $3.2 million in June 2010 to a final $100, 000 in late July 2012, appellant invested a total of $5.8 million in the venture. Watts Guerra also invested matching funds over this period. To raise capital, Watts Guerra sold a portion of its interest in the recovery to Dallas attorney John Cracken for $2 million. Most of the upfront litigation costs funded the Ferrington field team's acquisition efforts in the spring and summer of 2010. By August 2010, appellant had already invested $5.6 million of its $5.8 million total investment.

         In the summer of 2010, Watts Guerra filed twenty-five complaints on behalf of approximately 40, 000 plaintiffs that were consolidated with other cases into a multi-district litigation (MDL) proceeding. Based on the large number of clients Watts Guerra purported to represent, Watts was appointed to the plaintiff's steering committee, a position coveted for the access, control, and additional compensation afforded to its members. Eventually, in the spring of 2012, BP negotiated a multibillion-dollar class action settlement agreement, part of which was based on Watts Guerra's purported representation of over 40, 000 viable claimants.

         In the interim, though, BP had established a $20 billion fund and the Gulf Coast Claims Facility (GCCF) to settle claims. In September 2010, Watts Guerra submitted 26, 000 claims on behalf of clients to the GCCF. In a November 10, 2010 letter from the GCCF administrator to Watts, the administrator explained that, due to forty-three complaints against Watts Guerra by claimants alleging unauthorized use of their social security number, the GCCF would not process any claim submitted by Watts Guerra without a signed written authorization from the claimant. This letter was forwarded to Duncan that same day.

         To file a successful claim, the GCCF also required a claimant to provide documented evidence of lost income, such as W-2s from before and after the oil spill. It became apparent in November 2010 that gathering the necessary documentation from their clients-almost all of whom were transient Vietnamese fishermen typically paid in cash or by barter-would be exceedingly difficult. In a November 29, 2010 email from Cracken, forwarded to Duncan that same day, Cracken recounted his recent meeting with one of the lead members of the Ferrington field team, who "advised . . . that she cannot, in the ordinary course, collect 'proof' of past income or lost income due to the Spill." In response to this news, Duncan wrote to Hilliard that same day, "This sounds grim."

         In late December 2010, Cracken traveled to Biloxi, Mississippi to meet with a lead member of the Ferrington field team. His report to Watts and Hilliard, shared with Duncan the next day, provided more bad news: half of the approximately 300 clients interviewed wanted to terminate their representation contracts; many of their clients were filing a separate claim with the GCCF to avoid paying attorney's fees; the field team did not have reliable contact information for many of the clients; and $600, 000 in recent funding to the field team had resulted in only 10-15 completed GCCF claim packets. In summation, Cracken wrote, "We don't have 41K 'clients'; we have a list of 41K names we hope [the field team] can convert into 'clients' over time . . . ." In response, Duncan wrote to Hilliard, "Give me a ray of hope."

         Cracken continued to provide a sobering assessment of their prospects into January 2011, prompting Hilliard to suggest a change in direction. In an email to Watts and Cracken that was forwarded to Duncan that same day, Hilliard wrote:

Clearly the 40k clients are ghosts in the wind. No amount of $$ will bring them back and time is a [sic] enemy. From looking at Cracken's bleak yet accurate summary of where this is[, ] I am sure that it is time for an aggressive 'put it to bed today' approach.
These cases, as a bundle, need to be pitched as a complete and early settlement to BP, et al. This pitch needs to go to BP not to [the GCCF]. 40k filed cases, today, have value and settlement attractiveness to the defs. It cleans out 40k from the MDL.

         Although Watts and Hilliard expressed some renewed optimism in this strategy, they also realized each client would still have to provide substantive proof of his or her loss before receiving a payment from any settlement. Without this substantive proof, Cracken warned that their "docket may trend toward -0- value." Duncan received Cracken's warning from Hilliard on January 28, 2011.

         Up to this point, the interested parties were focused on client retention and the practical challenges of monetizing their efforts, but in a January 23, 2011 email, Cracken exposed a different kind of problem-a percentage of their purported 40, 000 clients were nothing more than "names from a phone book," some were duplicates, and some claimed they were "duped" into signing representation agreements. This correspondence was forwarded to Duncan that same day.

         News of this nature continued to emerge. Duncan already knew at this point that the GCCF administrator was taking the position that there were approximately 5, 000 total deckhands operating in the Gulf at the time of the oil spill while Watts Guerra purported to represent over 40, 000 deckhands-all of them Vietnamese. In a January 25, 2011 email, Duncan learned that Watts Guerra's own consultant confirmed "there were not 40k Vietnamese deckhands at the ready" when the oil spill occurred. The consultant also found it "odd" that their "clients" were concentrated in Texas and Florida because the Vietnamese fishing community was concentrated in Louisiana, Mississippi, and Alabama. This significant discrepancy would also be a source of contention for BP during settlement negotiations of the MDL. BP took the same position as the GCCF administrator that there were approximately 5, 000 total deckhands operating in the Gulf in 2010. BP's specific misgivings were shared with Duncan on February 26, 2012.

         Almost a year before, though, a March 8, 2011 email chain forwarded to Duncan the next day includes a discussion regarding the discovery that one of Watts Guerra's "clients" died five years before the oil spill. Watts wrote, "Another fine example of the shit we paid for; dead 5 years ago." Cracken simply responded, "Fraud."

         A United States Department of Justice investigation, including a raid by the United States Secret Service on the San Antonio offices of Watts Guerra in February 2013, revealed that two members of the Ferrington field team perpetrated a massive fraud; thousands of the purported clients acquired by the field team never actually signed representation agreements with Watts Guerra. As Cracken had warned in January 2011, many were nothing more than Vietnamese names selected from a phonebook, if they existed at all. The raid was covered contemporaneously by the Houston Chronicle and the San Antonio Express-News.

         On December 17, 2013, BP sued Watts and Watts Guerra, alleging the firm filed thousands of fraudulent claims. Watts, along with employees of his firm and two members of the Ferrington field team, were indicted by a federal grand jury in September of ...


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