Greenberg Traurig, LLP v. National American Insurance Company and Okie Foundation Drilling Co., Inc. & Fisherbroyles, LLP and Russell Depalma , 448 S.W.3d 115 ( 2014 )

Reversed and Remanded and Opinion filed September 11, 2014.
In The
Fourteenth Court of Appeals
NO. 14-14-00047-CV
GREENBERG TRAURIG, LLP, Appellant
V.
NATIONAL AMERICAN INSURANCE COMPANY AND OKIE
FOUNDATION DRILLING CO., INC., Appellees/Cross-Appellants
V.
FISHERBROYLES, LLP AND RUSSELL DEPALMA, Cross-Appellees
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 2013-39837
OPINION
Greenberg Traurig, LLP, appeals the trial court’s order denying its motion to
compel arbitration. In a cross-point, National American Insurance Company and
Okie Foundation Drilling Co. conditionally appeal a separate order denying their
alternative motion to compel arbitration among FisherBroyles, LLP and Russell
DePalma. For the reasons stated below, we reverse the trial court’s orders.
BACKGROUND
This appeal primarily concerns the enforceability of an arbitration provision
in Greenberg’s retainer agreement with National American Insurance Company
(NAICO) and Okie Foundation Drilling Co., Inc. The parties entered into the
agreement after Okie, a NAICO insured, suffered an adverse judgment at trial in a
wrongful-death tort action. NAICO sought and retained Greenberg for Okie’s
appeal from the adverse judgment.
A. The Retainer Agreement
NAICO’s General Counsel and Senior Vice President, Pat Gilmore, decided
to hire Robert DePalma, of Greenberg, on a flat-fee arrangement. Stephen Carlin,
another Greenberg attorney, had represented NAICO in litigation matters for
Greenberg dating back to 2005. Because the Okie appeal was the first time
Greenberg and NAICO had entered into a flat-fee arrangement, Carlin
recommended to Gilmore that the parties execute a formal retainer agreement.
DePalma prepared the first draft of the retainer agreement based on Greenberg’s
standard forms.
On December 22, 2010, DePalma sent the first draft of the agreement to
Gilmore. DePalma asked Gilmore to “[p]lease review and, if you agree, sign [the
agreement] as appropriate. If you have any questions, please contact me.” Gilmore
responded that the agreement “[l]ooked fine to me,” but that he was “just waiting
for Evans’ OK on your engagement letter.” Rick Evans, the Senior Vice President
of Claims at NAICO, reviewed the agreement and asked questions about the fee
structure. Gilmore communicated Evans’ concerns to DePalma, and DePalma
made the requested changes.
On January 7, 2011, DePalma sent the revised agreement to Gilmore.
DePalma’s e-mail stated that Greenberg “made some adjustments: (1) you
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indicated you wanted a defined trigger for extra work, so I inserted one, [and] (2)
we also needed to add some language on the arbitration portion that worked for the
joint representation . . . .” Specifically, Greenberg altered the arbitration provision
to clarify that NAICO would be “speaking for both NAICO and for Okie” in the
joint representation agreement.
The arbitration language in the executed agreement appears in a separate
section titled “Arbitration,” and reads:
By signing this letter, Clients agree that, to the extent permitted by
law, any dispute arising out of or relating to this Agreement, our
relationship, any billing statements forwarded to Clients or our
services, including but not limited to any alleged claims for legal
malpractice, breach of fiduciary duty, fraud, breach of contract or
other claim against the Firm for any alleged inadequacy of such
services, shall be resolved by submission to confidential, final,
binding arbitration in Dallas, Texas . . . .
The agreement further reads:
If Clients agree to arbitration, they will also be agreeing to waive
any right to a jury or court trial. If the clients do not wish to agree
to arbitration of any disputes, claims, or controversies, please draw a
line through and initial this paragraph. . . . By executing this
engagement agreement without striking through the arbitration clause
above, NAICO further warrants and represents the following: NAICO
is authorized to execute and bind Okie Foundation Co., Inc. to the
arbitration provision above in accordance with any insurance
agreements governing the NAICO-Okie business relationship.
(Emphasis in original).
After the agreement was executed, DePalma left Greenberg to join the law
firm of FisherBroyles, LLP on August 1, 2011. On August 9, 2011, DePalma sent
an engagement letter to NAICO to retain his services as a member of
FisherBroyles. Neither DePalma, at FisherBroyles, nor any attorney from
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Greenberg timely filed a notice of appeal for the Okie appeal. On August 31, 2011,
DePalma informed NAICO that the failure to file a notice of appeal made it
impossible for Okie to perfect its appeal.
B. The Trial Court’s Order Denying Greenberg’s Motion to Compel
Arbitration
Because of the parties’ failure to file a notice of appeal, NAICO filed suit
against DePalma, FisherBroyles, and Greenberg for negligence and breach of
fiduciary duty. Greenberg moved to compel arbitration among all parties under the
Texas Arbitration Act (the TAA). The trial court denied Greenberg’s motion to
compel arbitration and issued an order detailing its findings.
As to Okie, the trial court held that, “[Okie] is not a signatory in any way to
the arbitration agreement, and should not, therefore, be compelled to arbitrate.”
Similarly, the trial court signed a separate order denying Greenberg’s motion and
NAICO and Okie’s alternative motion to compel DePalma and FisherBroyles to
arbitrate.
As to NAICO, the court concluded that the arbitration provision was
unenforceable because “a longstanding fiduciary relationship existed between
[Greenberg] and attorney Steve Carlin, on the one hand, and NAICO on the other
hand before the contract for legal services was entered into.” The court held that,
“[i]n light of this longstanding fiduciary relationship, [Greenberg] and Carlin had
an exceedingly high duty of disclosure,” and they failed to meet that duty by
disclosing the arbitration provision to NAICO. The court determined that
Greenberg failed to meet this duty of disclosure in several ways, and stated its
findings as follows:
• This was the first contract between the parties in their
longstanding relationship which contained an arbitration clause;
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• [Greenberg] and Carlin failed to adequately call NAICO’s
attention to the arbitration clause despite it being contained on
page 6 of a 10 page legal agreement;
• [Greenberg] and Carlin knew or should have known that
NAICO did not like or favor arbitration clauses;
• In fact, [Greenberg] and Carlin knew that NAICO avoided
arbitration agreements unless they were unavoidable; and
• [Greenberg] did not disclose that in a legal malpractice action
an arbitration may be a much more favorable venue to an
attorney than to the attorney’s clients, nor did it disclose the full
ramifications of waiving a right to trial by jury, and the right to
appeal for errors of law and fact.
Because it determined that Greenberg failed to adequately disclose the
existence and nature of the arbitration provision to NAICO, the trial court held that
the provision was “unenforceable under the doctrine of constructive fraud . . . .”
This appeal followed.
STANDARD OF REVIEW
Arbitration cannot be ordered in the absence of an agreement to arbitrate.
Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994). Thus, despite strong
presumptions that favor arbitration, a valid agreement to arbitrate is a threshold
requirement to compel arbitration. See In re Kellogg Brown & Root, Inc., 166
S.W.3d 732, 737–38 (Tex. 2005) (orig. proceeding). Courts apply state contract
law in determining whether there is a valid agreement to arbitrate. See In re
Rubiola, 334 S.W.3d 220, 224 (Tex. 2011) (orig. proceeding). Once the arbitration
movant establishes a valid arbitration agreement that encompasses the claims at
issue, a trial court has no discretion to deny the motion to compel arbitration unless
the opposing party proves a defense to arbitration. In re FirstMerit Bank, N.A., 52
S.W.3d 749, 753–54 (Tex. 2001) (orig. proceeding).
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The trial court conducts a summary proceeding to make the gateway
determination of arbitrability. See In re Weekley Homes, L.P., 180 S.W.3d 127,
130 (Tex. 2005) (orig. proceeding). The trial court’s determination of the
arbitration agreement’s validity is a legal question that we review de novo. J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). If the court’s factual
findings are in dispute, we review the court’s denial of the motion under a legal
sufficiency or “no evidence” standard of review. Id. at 233.
ISSUES AND ANALYSIS
On appeal, the main dispute centers on whether Greenberg had a duty to
disclose to NAICO and Okie the existence and nature of the arbitration provision
in the retainer agreement. The parties also dispute whether Okie, as a non-
signatory, is bound by the arbitration agreement. Furthermore, NAICO
conditionally requests that, should we reverse the trial court’s order denying
Greenberg’s motion to compel arbitration, we should likewise reverse the trial
court’s order denying arbitration of the claims against DePalma and FisherBroyles.
I. Did Greenberg have a duty to disclose the nature and existence of the
arbitration clause in the retainer agreement to NAICO?
The trial court’s finding of a “longstanding” fiduciary relationship between
NAICO and Greenberg is undisputed. Instead, the parties dispute whether that
relationship imposed a fiduciary duty on Greenberg to disclose implications of the
arbitration provision to NAICO.
Greenberg asserts that it did not owe a duty to NAICO and Okie, relying on
our decisions in Labidi v. Sydow, 287 S.W.3d 922 (Tex. App.—Houston [14th
Dist.] 2009, no pet.), and In re Pham, 314 S.W.3d 520 (Tex. App.—Houston [14th
Dist.] 2010, orig. proceeding [mand. denied]). In Labidi, we rejected a plaintiff’s
argument in a legal malpractice case that state public policy required heightened
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disclosures by the attorney regarding an arbitration provision in an engagement
letter. Labidi, 287 S.W.3d at 929. We reemphasized our holding in Pham, stating:
[W]e believe that such policy arguments are better directed to the
legislature. Indeed, the legislature has already considered limitations
on arbitration agreements in certain contexts, as demonstrated by
section 171.002 of the Texas Civil Practice and Remedies Code, and
has yet to see fit to include attorney-client contracts among those
requiring restrictions.
Pham, 314 S.W.3d at 526. We acknowledged, though, that “it is not impossible for
a special, fiduciary, or attorney-client relationship to arise prior to entering a
formal agreement . . . .” Id. at 527. Because the appellant in Pham did not present
evidence of a preexisting fiduciary relationship, we declined to hold that the
attorney was obligated to disclose the implications of the arbitration provision in
the retainer agreement between the parties. Id. at 527–28.
NAICO’s primary position on appeal is that its relationship with Greenberg
is exactly the type of preexisting relationship we contemplated in Pham. Therefore,
NAICO argues, Greenberg breached its fiduciary duty when it failed to disclose the
nature and existence of the arbitration provision in the agreement.
The trial court’s order does not specify the source of the “longstanding
fiduciary relationship” that it found existed between Greenberg and NAICO.
Though the source of the fiduciary relationship is unclear, NAICO insists that
Greenberg’s duty of disclosure arises out of an attorney-client relationship or an
informal fiduciary relationship based on trust and confidence. Even accepting the
trial court’s undisputed finding that a longstanding fiduciary relationship existed
between NAICO and Greenberg, we are unconvinced that the relationship, whether
informal or attorney-client in nature, imposed an overarching duty on Greenberg to
disclose the arbitration provision.
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Although the relationship between parties may be fiduciary in character,
their fiduciary duties extend only to dealings within the scope of the underlying
relationship of the parties. Rankin v. Naftalis, 557 S.W.2d 940, 944 (Tex. 1977);
see also Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 159 (Tex. 2004)
(applying this principal to attorney-client relationships). In this case, extending the
scope of Greenberg’s longstanding relationship with NAICO—and its
accompanying fiduciary duties—to the commencement of a new representation
presents three distinct problems. 1
First, it conflicts with the parties’ own agreement. The retainer agreement
between the parties specifies that “[t]he representation of NAICO and Okie
addressed in this agreement relates only to the [Okie appeal].” The agreement
further states that the engagement would commence “upon [Greenberg’s] receipt
of the signed copy of this letter.” If Greenberg owed NAICO fiduciary duties
which extended to the commencement of all future representations, such language
would be unnecessary. Second, a holding that a lawyer’s duties to a repeat-client
insurance company extend to the commencement of future representations, even in
the absence of a retainer agreement to that effect, would transform arms-length
negotiations for services between the insurance-defense bar and its primary
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NAICO cites numerous cases in support of its argument that a duty of disclosure
relating to new representations arises out of a longstanding fiduciary relationship. See Archer v.
Griffith, 390 S.W.2d 735, 739 (Tex. 1964); Cooper v. Lee, 12 S.W. 483, 486 (Tex. 1889);
Waterbury v. City of Laredo, 5 S.W. 81, 85 (1887). Those cases are not helpful here. Waterbury
states that contracts between attorneys and clients in new transactions be closely scrutinized
because the attorney is “in an attitude to exert a strong influence over the actions and interests of
the client.” Waterbury, 5 S.W. 85. But Waterbury concerns only the reasonableness of fees in
future representations, which is now embodied in Rule 1.04 of the Texas Disciplinary Rules of
Professional Conduct. Similarly, Cooper reflects the modern rule requiring fairness in an
attorney’s business transactions with a client. See Tex. Disciplinary R. Prof’l Conduct 1.08(a).
Archer concerns an attorney-client contract relating to compensation in a representation already
in existence, not a new representation.
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customers into fiduciary transactions. And third, as we noted in Pham, the
legislature has already considered limitations on arbitration agreements in certain
contexts, evidenced by section 171.002 of the Texas Civil Practice and Remedies
Code, but has not seen it necessary to extend such protections to the attorney-client
context.
For these reasons, we conclude that Greenberg did not have a fiduciary duty,
in spite of its longstanding relationship with NAICO, to disclose the implications
of an arbitration provision in a retainer agreement for a new representation.
II. Is Okie, as a non-signatory, bound by the terms of the retainer
agreement?
Okie does not contend that Greenberg owed it a fiduciary duty to disclose
the arbitration provision in the retainer agreement—nor could it, because our
holding in Pham is directly on point. The trial court did not find that any
preexisting special, fiduciary, or attorney-client relationship existed between
Greenberg and Okie. Therefore, Okie’s relationship to Greenberg is the same as
the attorney-client relationship we considered in Pham: a client whose fiduciary
relationship with its attorney began with the execution of the attorney-client
contract. See Pham, 314 S.W.3d at 522. In this scenario, the attorney is not
required to disclose to the prospective client the implications of the arbitration
provision. Id. at 528.
Instead, Okie insists that we affirm the trial court’s finding that it could not
be bound by the arbitration provision as a non-signatory. The TAA provides that a
“written agreement to arbitrate is valid and enforceable if the agreement is to
arbitrate a controversy that: (1) exists at the time of the agreement; or (2) arises
between the parties after the date of the agreement.” Tex. Civ. Prac. & Rem. Code
§ 171.001(a). The “agreement” need not meet all the formal requirements of a
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contract, but it must be supported by mutual assent. Rachal v. Reitz, 403 S.W.3d
840, 845 & n.4 (Tex. 2013). Typically, a party manifests its assent by signing the
agreement. Id. In this case, the trial court found that Okie did not sign the
agreement and, therefore, could not be bound by its terms.
But under the doctrine of direct benefits estoppel, a party who is seeking the
benefits of a contract or seeking to enforce it is estopped from simultaneously
attempting to avoid the contract’s burdens, such as the obligation to arbitrate
disputes. Id. at 486 (citing In re Kellogg Brown & Root, Inc., 166 S.W.3d at 739).
If the claims are based on the agreement, they must be arbitrated, but if the claims
can stand independently of the agreement, they may be litigated. Id. Thus, a non-
signatory should be compelled to arbitrate only if it seeks, through its claims, to
derive a direct benefit from the contract containing the arbitration provision. In re
Kellogg Brown & Root, Inc., 166 S.W.3d at 741.
Here, Okie’s claims are based on the retainer agreement, which explicitly
states that the “engagement will commence upon [Greenberg’s] receipt of the
signed copy of this letter.” Each claim that Okie asserts—negligence, malpractice,
and breach of fiduciary duty—is based on Greenberg’s legal representation of
Okie, which arises out of the agreement. See In re Morgan Stanley & Co., 293
S.W.3d 182, 190 (Tex. 2009) (orig. proceeding) (Brister, J., concurring) (stating
that breach of fiduciary duty, negligence, and malpractice claims were based on
client’s contract with broker). Because Okie insists that Greenberg violated various
duties owed to Okie as a client, it cannot avoid the arbitration provision in the
agreement providing for Okie’s legal representation. See Rachal, 403 S.W.3d at
846.
Having concluded that Greenberg did not have a duty to disclose the
implications of the arbitration provision to NAICO, and that Okie is bound by the
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arbitration provision, we reverse the trial court’s order denying Greenberg’s
motion to compel arbitration.
CROSS-POINT
Although NAICO and Okie opposed Greenberg’s motion to compel
arbitration in the trial court, they also filed an alternative motion requesting that
FisherBroyles and DePalma be required to arbitrate if Greenberg’s motion was
granted. When the trial court denied Greenberg’s motion, it issued a separate order
denying NAICO and Okie’s alternative motion. After Greenberg filed its notice of
appeal to dispute the trial court’s order denying Greenberg’s motion to compel
arbitration, NAICO and Okie filed a notice of appeal to dispute the trial court’s
denial of their alternative motion. NAICO and Okie’s notice of appeal was served
on all parties. Because we reverse the trial court’s order denying Greenberg’s
motion to compel arbitration, NAICO and Okie request in a cross-point that we
also reverse the trial court’s separate order denying their alternative motion to
compel DePalma and FisherBroyles to arbitrate.
After DePalma left Greenberg to join FisherBroyles, NAICO and Okie
executed an engagement letter that provided:
FSB will continue the representation of Okie on the same terms and
conditions stated in the Engagement Agreement between NAICO and
Greenberg Traurig, LLP as to any issues, provision or terms not
discussed herein. As to any conflict between this engagement letter
and the Agreement between NAICO and Greeberg Traurig, this letter
controls.
The FisherBroyles engagement letter does not discuss arbitration. Therefore,
NAICO and Okie contend that the FisherBroyles agreement incorporates the
arbitration provisions of the Greenberg agreement. FisherBroyles and DePalma
have not filed any response to NAICO’s cross-point, and Greenberg does not
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dispute it. We agree with NAICO and Okie that the FisherBroyles agreement
incorporates the arbitration provisions of the Greenberg agreement. We therefore
sustain the cross-point and reverse the trial court’s order denying NAICO and
Okie’s alternative motion to compel arbitration.
CONCLUSION
We reverse the trial court’s order denying Greenberg’s motion to compel
arbitration with NAICO and Okie. We further reverse the trial court’s order
denying NAICO and Okie’s alternative motion to compel arbitration with
FisherBroyles and DePalma. We render judgment ordering all parties to arbitrate
NAICO and Okie’s claims, and we remand this case to the trial court for further
proceedings consistent with this opinion, including the grant of an appropriate stay.
See Tex. Civ. Prac. & Rem. Code § 171.025(a).
_____________________________
Justice Ken Wise
Panel consists of Justices Boyce, Busby, and Wise.
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