Axel D. Haubold v. Medical Carbon Research Institute, LLC MCRI, Inc. And On-X Life Technologies ( 2014 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-11-00115-CV
Axel D. Haubold, Appellant
v.
Medical Carbon Research Institute, LLC; MCRI, Inc.;
and On-X Life Technologies, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. D-1-GN-08-002054, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING
MEMORANDUM OPINION
This appeal arises from a longstanding employment dispute between appellant
Axel D. Haubold and his former employer Medical Carbon Research Institute, LLC, (Medical
Carbon) and related companies, MCRI, Inc., and On-X Life Technologies (jointly MCRI). Haubold
appeals the trial court’s order granting partial summary judgment dismissing his claims against
MCRI and final judgment awarding MCRI attorney’s fees on its counterclaim following a jury trial.
For the reasons that follow, we affirm the trial court’s judgment except as to the award of attorney’s
fees. We reverse the trial court’s award of attorney’s fees and render judgment that MCRI take
nothing on its counterclaim.
FACTUAL AND PROCEDURAL BACKGROUND
Haubold’s employment with Medical Carbon began in 1994. According to a letter
to Haubold from Medical Carbon CEO Jack Bokros dated April 29, 1994, Medical Carbon was to
pay Haubold “an annual salary of $10,000 and $25,000[] deferred compensation to be paid when the
company is profitable and has the resources to do so.” The letter also provided that Haubold was
to “become a member” and “receive 400 Incentive Units and 125 Special Incentive Units.” Haubold
maintains, and MCRI disputes, that in a subsequent oral agreement, Bokros, on behalf of Medical
Carbon, also promised Haubold additional amounts of $20,000 and $125,000 per year to be deferred
for four years, at which time Haubold would begin to receive an annual salary of $125,000, and that
he would retain the 125 special incentive units even after the company was in a position to pay the
deferred compensation. Haubold worked for Medical Carbon from 1994 until January 2000.
Haubold initially received $10,000 annual compensation in cash, the cash compensation was
incrementally increased, and in May 1998, his annual cash compensation was increased to $125,000.
In approximately 2007, Medical Carbon reorganized, converting from a limited
liability company to a corporation and becoming a subsidiary of On-X Life Technologies. The
parties disagree as to the effect of the reorganization on Haubold’s special incentive units. MCRI
contends that they were converted to common stock in the new corporation, MCRI, Inc., and are
reflected as such in the corporate records. Haubold contends he never received any stock certificates
and the reorganization “extinguished” his “repayment priority.” In 2008, a dispute arose between
Haubold and MCRI, Inc., regarding Haubold’s deferred compensation. Through counsel, Haubold
asserted a claim for breach of contract and requested payment of $85,987.44 for deferred
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compensation. MCRI, Inc., responded by filing a declaratory judgment action seeking a declaration
that Haubold was not entitled to the deferred compensation he sought under the terms of the parties’
employment agreement. Haubold filed a counterclaim for breach of contract, naming Medical
Carbon and On-X Life Technologies as third-party defendants and asserting that MCRI had failed
to pay deferred compensation in the amount of $85,987.44 owed under the parties’ agreement.
In April 2008, the parties entered into a settlement agreement whereby Medical
Carbon/MCRI, Inc., agreed to pay Haubold $85,987.44 and Haubold agreed to release “any and all
claims which have been raised or could have been raised by the Parties relating solely to Haubold’s
present entitlement to the deferred compensation he sought in the above-styled lawsuit.” Six weeks
later Haubold filed the suit underlying this appeal alleging breach of contract and seeking $500,000
in deferred salary and/or repayment priority based on Medical Carbon’s alleged oral agreement to
defer $125,000 annual salary for four years and issue Haubold 125 special incentive units. MCRI
counterclaimed for breach of the settlement agreement and sought damages in the form of attorney’s
fees, as well as attorney’s fees under Chapter 38 of the Civil Practices and Remedies Code. See Tex.
Civ. Prac. & Rem. Code § 38.001–.006. Haubold subsequently added claims for conspiracy, fraud,
breach of fiduciary duty, fraudulent transfer, stock fraud, and violations of the Texas Securities Act,
see Tex. Rev. Civ. Stat. art. 581-33, and sought equitable relief in connection with these claims.
MCRI filed a motion for summary judgment “as to all claims of . . . Haubold” on the
grounds that the claims were barred by the statute of frauds, accord and satisfaction based on the
settlement agreement, the applicable statutes of limitations, and the economic loss rule. The trial
court granted MCRI’s motion, without specifying the grounds on which it relied, and dismissed “all
3
claims of . . . Haubold . . . in their entirety and with prejudice.” MCRI’s counterclaim remained
pending. Seven days before trial, on the deadline set by the trial court for amending pleadings,
MCRI filed its third amended counterclaim, asserting for the first time that the damages it incurred
in the form of attorney’s fees were “the natural, probable, and foreseeable consequence” of
Haubold’s breach of the settlement agreement. Haubold filed a motion to strike MCRI’s third
amended petition on the grounds of untimeliness and surprise and a motion to dismiss MCRI’s
counterclaim on the ground that MCRI had asserted no statutory or common law basis for recovery
of attorney’s fees, both of which the trial court denied. The trial court granted MCRI’s motion to
realign parties, and the case proceeded to a jury trial on MCRI’s claim for breach of the settlement
agreement. MCRI presented evidence of the attorney’s fees it had incurred in defending Haubold’s
claims and prosecuting its counterclaim. The jury found that Haubold breached the settlement
agreement and awarded MCRI damages in the form of attorney’s fees in the amounts of $103,000
for preparation and trial, $20,000 for an appeal to the court of appeals, and $10,000 for an appeal to
the supreme court. The trial court entered a final judgment in favor of MCRI and awarded attorney’s
fees in accordance with the jury’s verdict. Haubold filed a motion for new trial or alternatively
motion to modify judgment, which the trial court denied. This appeal followed.
DISCUSSION
Partial Summary Judgment
In his fifth issue, Haubold contends that the trial court erred in granting summary
judgment in favor of MCRI on his various causes of action. Initially, Haubold contends that the trial
court’s summary judgment exceeded the scope of MCRI’s motion because the motion addressed only
4
his claim for deferred salary and not his “shareholder claims” for termination of his special incentive
units and their repayment priority as set forth in the operating agreement governing the special
incentive units. However, having failed to assert this argument in his response to MCRI’s motion
as an issue precluding summary judgment, Haubold cannot raise it on appeal as a reason to reverse
the summary judgment. See Tex. R. Civ. P. 166a(c) (“Issues not expressly presented to the trial
court by written motion, answer or other response shall not be considered on appeal a grounds for
reversal.”); Pinnacle Anesthesia Consultants, P.A. v. Fisher, 309 S.W.3d 93, 105–07 (Tex.
App.—Dallas 2009, pet. denied) (applying Rule 166a(c) and holding appellant could not raise on
appeal arguments not made in its response to motion for summary judgment); see also Tex. R. App.
P. 33.1 (preservation of error prerequisite to presenting complaint appeal). Therefore, we will not
disturb the summary judgment on this basis. See Pinnacle Anesthesia, 309 S.W.3d at 105–07;
Anderton v. Cawley, No. 05-10-00693-CV, 2012 Tex. App. LEXIS 3621, at *40 (Tex. App.—Dallas
May 8, 2012, no pet.) (mem. op.).1
1
Even if Haubold had not waived this argument, however, we would not find it persuasive.
Although Haubold’s pleadings are somewhat confusing, it is clear that he sought the same
damages—$500,000 in deferred salary and/or repayment priority of the 125 special incentive units
allegedly promised in the employment agreement—for all of his causes of action. Although Haubold
alternatively requested equitable relief in connection with his non-contractual claims, those remedies
were requested in lieu of or as a means of enforcing payment of these same damages. All of
Haubold’s claims, even to the extent of his claims for extinguishment of the special incentive
units allegedly resulting form the reorganization, stemmed from the alleged promises in the
employment agreement.
In its motion, MCRI challenged Haubold’s breach of contract claim and argued that all of
Haubold’s non-contractual claims sought the benefit of the bargain of the employment contract and
“presupposed the existence of an agreement to defer $500,000 in salary in exchange for 125 special
incentive units.” Thus, MCRI’s motion for summary judgment addressed “all of the claims” of
Haubold, including his claim for the special incentive units, regardless of the capacities in which he
asserted them, and stated sufficient grounds to support the summary judgment. See Tex. R. Civ. P.
5
MCRI sought summary judgment on four grounds: that Haubold’s claims were
barred by (1) the statute of frauds, (2) accord and satisfaction based on the settlement agreement,
(3) the applicable statutes of limitations, and (4) the economic loss rule. The trial court granted
summary judgment on all of Haubold’s claims without specifying the grounds. On appeal, Haubold
challenges the summary judgment on grounds (1) and (2), but not on grounds (3) or (4).2 When the
trial court does not specify the basis for its summary judgment, the appellant must attack all
independent bases or grounds that support the judgment. Worldwide Asset Purchasing, L.L.C.
v. Rent-A-Center East, Inc., 290 S.W.3d 554, 559 (Tex. App.—Dallas 2009, no pet.); Jack
v. Holiday World of Houston, 262 S.W.3d 42, 49 (Tex. App.—Houston [1st Dist.] 2008, no
pet.); Britton v. Texas Dep’t of Criminal Justice, 95 S.W.3d 676, 681 (Tex. App.—Houston
[1st Dist.] 2002, no pet.); Barefield v. Lone Star Beef Prod., No. 03-12-000329-CV,
2012 Tex. App. LEXIS 7540, at *3 (Tex. App.—Austin Aug. 31, 2012, no pet.) (mem. op.). Where
166a(c) (motion for summary judgment shall state specific grounds therefor); FDIC v. Lenk,
361 S.W.3d 602, 610 n.7 (Tex. 2012) (citing Westchester Fire Ins. Co. v. Alvarez, 576 S.W.2d 771,
772–73 (Tex. 1978), overruled on other grounds by City of Houston v. Clear Creek Basin Auth.,
589 S.W.2d 671, 678 (Tex. 1979)) (purpose of Rule 166a(c) is to provide opposing party adequate
information to oppose motion and define issues for summary judgment); Bever Props., L.L.C. v.
Jerry Huffman Custom Builder, L.L.C., 355 S.W.3d 878, 889 (Tex. App.—Dallas 2011, no pet.)
(citing Dear v. City of Irving, 902 S.W.2d 731, 734 (Tex. App.—Austin 1995, writ denied)) (grounds
for motion for summary judgment are sufficiently specific if motion gives fair notice of claim
involved). Therefore, were we to consider this argument, we would conclude that the trial court’s
summary judgment dismissing all of Haubold’s claims did not exceed the scope of MCRI’s motion
for summary judgment.
2
Although Haubold’s brief includes a single general assertion that MCRI failed to establish
all the elements of all of its affirmative defenses, the brief does not contain any further discussion
of the statutes of limitation or economic loss rule defenses. Thus, Haubold has waived any
complaint with regard to those two defenses. See Tex. R. App. P. 38.1(i) (requiring brief to contain
clear and concise argument with appropriate citations to authorities and to the record).
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a judgment may rest upon more than one ground, an appellant who does not challenge each ground
waives his right to complain of the ruling to which no error was assigned, and the judgment will be
affirmed on the ground as to which no complaint is made. Humphries v. Advanced Print Media,
339 S.W.3d 206, 208 (Tex. App.—Dallas 2011, no pet.); Britton, 95 S.W.3d at 681; Johnson
v. Coggeshall, 578 S.W.2d 556, 560 (Tex. Civ. App.—Austin 1979, no writ). This rule is based on
the premise that an appellate court normally cannot alter an erroneous judgment for a reason not
raised in a point of error on appeal. See Walling v. Metcalfe, 863 S.W.2d 56, 58, (Tex. 1993);
Britton, 95 S.W.3d at 681. If the independent ground is of a type that could, if meritorious, fully
support the judgment, but the appellant assigns no error to that independent ground, then we must
accept the validity of that unchallenged ground, and any error in the grounds challenged on appeal
is harmless because the unchallenged independent ground fully supports the judgment. Jack,
262 S.W.3d at 49–50; Britton, 95 S.W.3d at 681; Ward v. Ward, No. 12-11-00368-CV,
2012 Tex. App. LEXIS 5264, at *6 (Tex. App.—Tyler June 29, 2012, no pet.) (mem. op.); Yazdchi
v. Bennett, No. 01-04-01057-CV, 2006 Tex. App. LEXIS 3122, at *4 (Tex. App.—Houston [1st
Dist.] Apr. 20, 2006, no pet.) (mem. op.).
Ground (3), that all of Haubold’s claims were barred by the applicable statutes of
limitations, is an independent ground of the type that could, if meritorious—an issue we need
not decide—support the partial summary judgment dismissing Haubold’s claims. See Jack,
262 S.W.3d at 50; Britton, 95 S.W.3d at 680–81; Barefield, 2012 Tex. App. LEXIS 7540, at *3;
Ward, 2012 Tex. App. LEXIS 5264, at *7. Because Haubold has not challenged all independent
bases or grounds that could, if meritorious, support the partial summary judgment dismissing his
7
claims, we must affirm the trial court’s partial summary judgment. We overrule Haubold’s
fifth issue.
MCRI’s Third Amended Counterclaim
We turn next to Haubold’s fourth issue, in which he complains that the trial court
erred in failing to strike MCRI’s third amended counterclaim, filed on November 8, 2010—which
was seven days before trial and the deadline for amended pleadings specified in the trial court’s
discovery control order. Haubold contends that in claiming for the first time that its attorney’s fees
were the “natural, probable, and foreseeable consequence” of his breach of the settlement agreement,
MCRI asserted a new cause of action that was untimely under the trial court’s discovery order
requiring the parties to plead all affirmative claims and counterclaims by June 15, 2010.
Alternatively, Haubold maintains that because the amendment contained a new cause of action, it
operated to surprise him. See Tex. R. Civ. P. 63 (governing pleading amendments prior to trial).
We review a trial court’s decision to grant or strike a pleading amendment for an
abuse of discretion. See Greenhalgh v. Service Lloyds Ins. Co., 787 S.W.2d 938, 939–40 (Tex.
1990). A trial court abuses its discretion when its ruling is arbitrary, unreasonable, or without
reference to any guiding rules or legal principles. K-Mart Corp. v. Honeycutt, 24 S.W.3d 357, 360
(Tex. 2000) (per curiam). Rule 63 provides that parties may amend their pleadings “as they may
desire . . . at such time as not to operate as a surprise to the opposite party; provided, that . . . within
seven days of the date of trial or thereafter” any pleading amendments may be filed only with prior
leave of court, “which leave shall be granted” unless the opposing party makes a showing of surprise.
See Tex. R. Civ. P. 63. Because MCRI’s third amended counterclaim was filed seven days before
8
trial, no leave of court was necessary under Rule 63, and the trial court was required to allow the
amendment unless Haubold showed that it operated to surprise him. See id.; Sosa v. Central Power
& Light, 909 S.W.2d 893, 895 (Tex. 1995) (per curiam) (citing comment to Rule 63 stating supreme
court’s intent to authorize amendment without leave if filed seven days or more before trial and
holding that Rule 4 governs computation of time under Rule 63 so that pleading filed seven days
before trial is not “within seven days of trial” and does not require leave of court). The amended
pleading was also timely under the trial court’s discovery control order unless it asserted a new
claim. Thus, whether MCRI’s third amended petition was untimely under the trial court’s discovery
control order or operated to surprise Haubold turns on whether the amended pleading asserted a new
cause of action. We conclude that it did not.
Haubold argues that MCRI’s new assertion that its attorney-fee damages were the
“natural, probable, and foreseeable consequence” of his breach of the settlement agreement
constituted a new cause of action for recovery of “common law” attorney’s fees and “was a surprise.”
However, beginning with its original answer and counterclaim, MCRI sought to recover, under its
breach of contract claim, its reasonable attorney’s fees as “damages arising from [Haubold’s] breach
of the settlement agreement in excess of the minimum jurisdictional limits of this Court.”3 The
addition of language in the third amended counterclaim asserting that the attorney-fee damages
previously asserted were the “natural, probable, and foreseeable consequence” of Haubold’s breach
of the settlement agreement added neither a new cause of action nor a new basis for recovery of
3
In separate paragraphs, MCRI also sought attorney’s fees under Chapters 37 and 38 of the
Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem. Code §§ 38.001–.006, 37.001–.011.
9
attorney’s fees; both before and after the amendment, MCRI sought damages in the form of
attorney’s fees for its claim that Haubold breached the settlement agreement, and the amendment did
not change the sole substantive issue remaining for trial. See Chapin & Chapin, Inc. v. Texas Sand
& Gravel Co., 844 S.W.2d 664, 665 (Tex. 1992) (per curiam) (verified denial was in nature of
procedural change and amendment adding it did not change any substantive issue for trial);
Greenhalgh, 787 S.W.2d at 939–40 (post-trial amendment that changed only amount of damages to
conform to jury verdict raised no new substantive matters). Further, Haubold presented no evidence
of surprise. See Chapin, 844 S.W.2d at 665; compare Greenhalgh, 787 S.W.2d at 940–41 (party
opposing post-trial amendment changing amount of damages to conform to jury verdict presented
no evidence of surprise) with Stevenson v. Koutzarov, 795 S.W.2d 313, 321 (Tex. App.—Houston
[1st Dist.] 1990, writ denied) (party opposing amendment showed surprise where pleading filed
seven days before trial added five causes of action and increased damages sought from $30,000 to
$16.5 million). Thus, the trial court could have reasonably concluded that the amendment was
timely under Rule 63, did not allege a new cause of action, making it also timely under the trial
court’s discovery control order, and did not operate to surprise Haubold. On this record, we
conclude that the trial court did not abuse its discretion in refusing to strike the pleading. See Tex.
R. Civ. P. 63; Chapin, 844 S.W.2d at 665; Greenhalgh, 787 S.W.2d at 940–41. We overrule
Haubold’s fourth issue.
Attorney’s Fees
In his first three issues, Haubold complains of the trial court’s award of attorney’s fees
to MCRI on its counterclaim for breach of the settlement agreement. Haubold first contends that
10
MCRI is not entitled to attorney’s fees on its breach of contract claim as a matter of law because
MCRI did not establish any actual damages in addition to its attorney’s fees and costs, as required
under Chapter 38. See Tex. Civ. Prac. & Rem. Code § 38.001(8). We agree.
Generally, we review a trial court’s award of attorney’s fees under an abuse of
discretion standard. See Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 2004).
However, here the issue is whether Texas law recognizes a particular basis for the recovery of
attorney’s fees, which is a question of law that we review de novo. See Holland v. Wal-Mart Stores,
Inc., 1 S.W.3d 91, 94 (Tex. 1999) (per curiam) (availability of attorney’s fees under particular statute
is question of law); Heckman v. Williamson Cnty., 369 S.W.3d 137, 150 (Tex. 2012) (appellate
courts review questions of law de novo). “Texas law distinguishes between recovery of attorney’s
fees as actual damages and recovery of attorney’s fees incident to recovery of other actual damages.”
Haden v. David J. Sacks, P.C., 222 S.W.3d 580, 597 (Tex. App.—Houston [1st Dist.] 2007) (op. on
reh’g), rev’d in part on other grounds, 263 S.W.3d 919 (Tex. 2008) (per curiam). Attorney’s fees
are ordinarily not recoverable as actual damages in and of themselves.4 Worldwide Asset
Purchasing, 290 S.W.3d at 570; Haden, 222 S.W.3d at 597 (citing Tana Oil & Gas Corp. v. McCall,
104 S.W.3d 80, 81–82 (Tex. 2003)). Attorney’s fees incident to other actual damages are ordinarily
not recoverable unless they are authorized by contract or statute. MBM Fin. Corp. v. The Woodlands
Operating Co., L.P., 292 S.W.3d 660, 669 (Tex. 2009) (citing Tony Gullo Motors I, L.P. v. Chapa,
4
There are some exceptions to this general rule, none of which is applicable in the
present case. See Quest Commc’ns Int’l, Inc. v. AT&T Corp., 114 S.W.3d 15, 32–33
(Tex. App.—Austin 2003), rev’d in part on other grounds, 167 S.W.3d 324 (Tex. 2005)
(discussing equitable and other exceptions); see also RAS Grp., Inc. v. Rent-A-Center East, Inc.,
335 S.W.3d 630, 641 (Tex. App.—Dallas 2010, no pet.) (discussing two equitable exceptions).
11
212 S.W.3d 299, 310–11 (Tex. 2006) (“Texas has long followed the ‘American Rule’ prohibiting
[attorney’s] fee awards unless specifically provided by contract or statute.”). Section 38.001(8)
provides for the recovery of attorney’s fees in a suit on a contract. See Tex. Civ. Prac. & Rem.
Code § 38.001(8). A party generally may not recover attorney’s fees on a breach of contract
claim when the party fails to recover damages. Mustang Pipeline Co. v. Driver Pipeline Co.,
134 S.W.3d 195, 201 (Tex. 2004); Keys v. Litton Loan Servicing, L.P., No. 14-07-00809-CV,
2009 Tex. App. LEXIS 9017, at *20 (Tex. App.—Houston [14th Dist.] Nov. 24, 2009, no pet.)
(mem. op.); see Worldwide Asset Purchasing, 290 S.W.3d at 570 (party not entitled to attorney’s fees
incident to recovery unless party independently recovers actual damages).
MCRI sought the attorney’s fees it incurred in defending Haubold’s claims and
prosecuting its counterclaim both as the actual damages resulting from Haubold’s breach of the
settlement agreement and pursuant to section 38.001, and the trial court awarded MCRI the full
amount sought “as their reasonable and necessary attorney’s fees through trial” and in the event of
appeal to this Court and to the supreme court. However, because MCRI claimed no damages other
than the attorney’s fees it incurred in this suit as a result of Haubold’s breach of the settlement
agreement, MCRI’s is not entitled to its attorney’s fees on either ground.5 MCRI’s attorney’s fees
incurred in this case do not constitute actual damages in this case. See RAS Grp., Inc.
v. Rent-A-Center East, Inc., 335 S.W.3d 630, 641 (Tex. App.—Dallas 2010, no pet.) (attorney’s fees
incurred in defending breach of contract and tort claims not actual damages); see also Worldwide
5
It is undisputed that the settlement agreement did not provide for the recovery of attorney’s
fees in an action brought for breach of its terms.
12
Asset Purchasing, 290 S.W.3d at 571 (attorney’s fees incurred in defending fraud and false
representation claims not actual damages); Haden, 222 S.W.3d at 597–98 (attorney’s fees incurred
in asserting counterclaims under DTPA not actual damages).
Further, section 38.001 provides that a successful party in an action for breach of
contract may recover reasonable attorney’s fees in addition to the amount of a valid claim and costs.
See Tex. Civ. Prac. & Rem. Code § 38.001(8). “[T]here must be a recovery of money, or at least
something of value; otherwise, the attorney’s fee award cannot be described as an ‘addition’ to the
claimant’s relief.” Kenneth Leventhal & Co. v. Reeves, 978 S.W.2d 253, 257–58 (Tex.
App.—Houston [14th Dist.] 1998, no pet.) (quoting ITT Commercial Fin. Corp. v. Riehn,
796 S.W.2d 248, 257 (Tex. App.—Dallas 1990, no writ)). Because MCRI’s attorney’s fees in the
underlying suit were not actual damages, there was no evidence to support an award of attorney’s
fees under section 38.001(8). See RAS Grp., 335 S.W.3d at 642; Worldwide Asset Purchasing,
290 S.W.3d at 571; Kenneth Leventhal & Co., 978 S.W.2d at 258.
MCRI argues that it is entitled to recover its attorney’s fees as actual damages because
they were the natural, probable, and foreseeable result of Haubold’s breach of the settlement
agreement. While it may be true as a general rule that actual damages may be recovered when the
loss is the natural, probable, and foreseeable consequence of the defendant’s conduct, MCRI has
cited no authority, and we have found none, for its contention that attorney’s fees incurred in the
same case in which they are sought are recoverable as actual damages. Nor do we find the cases
MCRI cites in support of its argument controlling on the facts of this case. In Ganske v. WRS Grp.,
Inc., No. 10-06-00050-CV, 2007 Tex. App. LEXIS 2991 (Tex. App.—Waco Apr. 18, 2007, no pet.)
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(mem. op.), which MCRI contends is virtually identical to this case, the court held that the Ganskes
could recover prior attorney’s fees incurred in prior litigation defending claims brought by WRS,
allegedly in breach of the parties’ settlement agreement. Id. at *12. However, the court expressly
distinguished between the Ganskes’ prior attorney’s fees and their subsequent attorney’s fees
incurred in prosecuting the current claim for the prior attorney’s fees, noting that the appeal
addressed “only those attorney’s fees claimed as damages for breach of the settlement agreement”
and that “[r]ecovery of attorney’s fees incurred in the current litigation is governed by Chapter 38
of the Civil Practices and Remedies Code.” Id. at *5.
Similarly, in Guffey v. Clark, No. 05-93-00849-CV, 1997 Tex. App. LEXIS 1609
(Tex. App.—Dallas Mar. 31, 1997, writ denied) (not designated for publication), the court concluded
that Clark’s attorney’s fees incurred in prior litigation were recoverable as the foreseeable
consequence of Guffey’s breach of the parties’ settlement agreement. Id. at *11–12. The court then
separately addressed Clark’s attorney’s fees in the current litigation and held that because Clark
prevailed on his breach of contract claim and recovered prior attorney’s fees as damages, he was
entitled to recover attorney’s fees incurred while prosecuting the current claim under section
38.001(8). Id. at *14; accord Nationwide Mut. Ins. Co. v. Holmes, 842 S.W.2d 335, 342 (Tex.
App.—San Antonio 1992, writ. denied) (upholding award of prior attorney’s fees incurred in
obtaining indemnification as actual damages in subsequent action under DTPA on equitable
principles and on ground that, because fees awarded were not incurred in defending underlying suit,
prohibition against award of such attorney’s fees should not apply); Texas Beef Cattle Co. v. Green,
883 S.W.2d 415, 430 (Tex. App.—Beaumont 1994), rev’d on other grounds, 912 S.W.2d 203 (Tex.
14
1996) (attorney’s fees incurred in prior litigation can be recovered as damages in later suit as
exception to general rule that attorney’s fees not recoverable unless provided by contract or statute).
MCRI’s reliance on Tana Oil & Gas Corp. v. McCall, 104 S.W.3d 80 (Tex. 2003),
is equally misplaced. MCRI contends that in Tana Oil the supreme court “implicitly recognized”
that attorney’s fees can be reasonably foreseeable damages by reversing the award of attorney’s fees
on a claim for tortious interference, not because attorney’s fees can never be actual damages but
because there was no causal relationship between the interference and the fees incurred. See id. at
82. However, this construction of Tana Oil ignores the fact that, as in Ganske and Guffey, the fees
at issue were incurred in prior litigation.6 See id. at 81. Similarly misplaced is MCRI’s reliance on
In re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168 (Tex. 2013). In that case, a law firm sued
Nalle for breach of contract, alleging that Nalle failed to pay its attorney’s fees. MCRI cites to the
supreme court’s rejection of “the idea that attorney’s fees can never be considered compensatory
damages.” See id. at 174. The full import of the supreme court’s holding, however, was that
“[w]hile attorney’s fees incurred in prosecuting this claim are not compensatory damages, the fees
comprising the breach-of-contract damages are.” See id. at 175. The supreme court further held that
“[i]f the underlying suit concerns a claim for attorney’s fees as an element of damages, as with [the
law firm’s] claim for unpaid fees here, then those fees may properly be included in a judge or jury’s
compensatory damages award.” Id. (citing Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. National
Dev. & Research Corp., 299 S.W.3d 106, 111 (Tex. 2009) (holding that plaintiff in legal malpractice
6
Because the issue is not before us, we express no opinion as to whether attorney’s fees
incurred in a prior action are recoverable as actual damages in a subsequent action.
15
suit may recover damages for attorney’s fees paid in underlying suit)). In other words, when the
actual damages are attorney’s fees, then they are recoverable. Unlike the law firm in In re Nalle,
MCRI does not seek to recover attorney’s fees as actual damages for breach of a contract for the
payment of attorney’s fees; it seeks to recover the fees incurred in defending and prosecuting the
claims in this case, which the supreme court expressly held are not recoverable. See id. We do not
find the authority cited by MCRI controlling.7 MCRI has cited no Texas cases, and we have found
none, holding that attorney’s fees incurred to defend or prosecute an action are recoverable in that
same action as actual damages. We sustain Haubold’s first issue.8
7
MCRI also cites a federal case in which the court held that attorney’s fees are
recoverable as damages for the breach of a release agreement. See Widener v. Arco Oil & Gas Co.,
717 F. Supp. 1211, 1217 (N.D. Tex. 1989). The Widener court reasoned, as MCRI argues, that
because the purpose of a release is to avoid litigation, the damages resulting from a breach of the
release are the attorney’s fees incurred in defending the subsequent, wrongfully-brought action. Id.
However, this case is not controlling, and our review of other federal court opinions reveals that “the
majority of jurisdictions that have considered the issue have applied the American Rule to bar the
award of attorney fees and costs in cases involving a breach of release.” See Noise Reduction, Inc.
v. Nordam Corp., No. 90 C 6497, 1991 U.S. LEXIS 17830, at *20–21 (N.D. Ill. Dec. 6, 1991)
(observing that majority of jurisdictions have held award of attorney’s fees for breach of release
appropriate only if release or a statute specifically authorizes recovery of fees and concluding that
implicit in majority reasoning is recognition that there would be no reasoned way to contain an
exception to the American Rule that could be invoked by characterizing attorney’s fees as subject
of lawsuit because release is raised as defense); see also Bunnett v. Smallwood, 793 P.2d 157,
161–62 (Colo. 1990) (observing most jurisdictions have applied American Rule barring award of
attorney’s fees for breach of release and holding that attorney’s fees should not be awarded for
breach of release unless provided by release, statute, or court rule). We decline to follow the
reasoning of the court in Widener.
8
Because we sustain Haubold’s first issue, we do not reach his second and third issues. See
Tex. R. App. P. 47.1.
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CONCLUSION
We reverse the trial court’s award of attorney’s fees to MCRI on its counterclaim and
render judgment that MCRI take nothing on its counterclaim. We affirm the trial court’s judgment
in all other respects.
__________________________________________
Melissa Goodwin, Justice
Before Chief Justice Jones, Justices Puryear and Goodwin
Affirmed in Part; Reversed and Rendered in Part
Filed: March 14, 2014
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