CaptranTanglewood LLC v. Thomas N. Thurlow & Associates et al
Filing
97
MEMORANDUM AND ORDER denying 88 Opposed MOTION for Attorney Fees, denying 87 Opposed MOTION for Attorney Fees.(Signed by Judge Ewing Werlein, Jr) Parties notified.(kcarr, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CAPTRAN/TANGLEWOOD LLC,
§
§
Plaintiff,
§
§
v.
§
§
THOMAS N. THURLOW & ASSOCIATES, §
A PROFESSIONAL CORPORATION;
§
THOMAS N. THURLOW; LAW OFFICES §
OF TONY MARTINEZ, P.C.; PETROFF §
& ASSOCIATES, LTD., L.L.P.;
§
and ABRAHAM, WATKINS, NICHOLS, §
SORRELS, MATTHEWS & FRIEND,
§
§
Defendants.
§
CIVIL ACTION NO. H-08-2374
MEMORANDUM AND ORDER
Pending are Plaintiff CapTran Tanglewood, LLC’s Motion for
Attorneys’ Fees (Document No. 88) and Defendant Law Offices of Tony
Martinez, P.C.’s Rule 54(d)(2) Motion for Attorney’s Fees (Document
No.
87),
in
which
the
two
adversaries
each
seek
to
recover
attorney’s fees from the other, an almost predictable epilogue to
a case that from its start has been about contingent fee referral
agreements, the taking of future attorney’s fees as security for a
litigation lender’s loan, and the relative rights and liabilities
of the parties claiming entitlement to the contingent fees.
I.
Background
CapTran Tanglewood, LLC (“CapTran”), the litigation lender,
filed this suit against its debtors, Thomas N. Thurlow & Associates
and
Thomas
certain
law
N.
Thurlow
firms
with
(collectively,
whom
Thurlow
“Thurlow”),
had
made
and
against
contingent
fee
referral agreements, to recover amounts it had loaned to Thurlow.
As part of the loan agreement, Thurlow granted to CapTran a first
priority security interest in all of Thurlow’s contingent fees on
cases he had referred to the Law Offices of Tony Martinez, P.C.
(“Martinez”), and certain other law firms.1
Martinez was timely
notified of Thurlow’s assignment to CapTran, and Martinez made at
least
fourteen
payments
to
CapTran
of
referral
fees
due
to
Thurlow.2
After much pretrial discovery and analysis to reconcile the
discrepancies in the calculations of the fees Martinez owed to
Thurlow, and owed to CapTran by virtue of Thurlow’s subsequent
December 18, 2009 assignment, CapTran’s counsel by August 2010
claimed
that
Martinez
had
underpaid
CapTran
$614,794.59.3
Subsequent joint analysis of the records indicated that after
correction
for
mathematical
error,
Martinez’s
underpayment
to
CapTran was in fact $402,000.4
1
Document No. 1 at 4, 8-12 (Plaintiff’s Orig. Complt.).
2
Id. at 5, 8-12.
3
See Document No. 89, ex. 2 at 1 (email from McCloskey to
Whittington).
4
See Document No. 87 at 7.
2
Shortly before the scheduled trial date, the parties settled,
with
Martinez
agreeing
to
pay
to
CapTran
$388,000,
leaving
unresolved pending claims for attorney’s fees for determination by
the Court.5
CapTran claims attorney’s fees as the prevailing party
under two Texas statutes: Texas Civil Practice and Remedies Code
§
38.001
and
Texas
Business
and
Commerce
Code
§
9.607(d).6
Martinez’s counterclaim for attorney’s fees is predicated on his
allegation that CapTran acted in bad faith and obstinance in its
prosecution of the case.7
II.
A.
CapTran’s Motion for Attorney’s Fees
Legal Standard
“State law controls both the award of and the reasonableness
of fees awarded where state law supplies the rule of decision.”
Mathis v. Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002).
Under
the Civil Practice and Remedies Code, “[a] person may recover
reasonable attorney’s fees from an individual or corporation, in
addition to the amount of a valid claim and costs, if the claim is
for . . . an oral or written contract.”
TEX . CIV . PRACT . & REM . CODE
ANN. § 38.001(8) (West 2008).
5
See Document No. 86 (Settlement Conf. Min. Entry).
6
Document No. 88 at 4-8.
7
Document No. 87 at 11.
3
The
Business
and
Commerce
Code
permits
a
secured
party
to deduct “reasonable expenses of collection and enforcement,
including reasonable attorney’s fees and legal expenses incurred by
the secured party” from amounts collected from
“an account debtor
or other person obligated on collateral . . . .”
TEX . BUS . & COM .
CODE §§ 9.607(a)(3) & (d).
1.
Breach of Contract
“In order to recover attorney fees in a suit ‘founded on’ a
written contract under [the predecessor statute to Tex. Pract. &
Rem.
Code
§
38.001],
a
plaintiff
must
plead
and
prove
that
presentment of a contract claim was made to the opposing party and
that the party failed to tender performance.”
Ellis v. Waldrop,
656 S.W.2d 902, 905 (Tex. 1983); see also Wilson v. Ferguson, 747
S.W.2d 499, 504 (Tex. App.-- Tyler 1988, writ denied) (“[S]ection
38.002 requires a plaintiff to plead and prove that presentment of
the contract claim was made to the opposing party and that the
party failed to tender performance.” (emphasis in original));
Huddleston v. Pace, 790 S.W.2d 47, 51 (Tex. App.--San Antonio 1990,
writ denied) (“A condition precedent to the recovery of attorney
fees under Art. 2226 (now § 38.001) is the pleading and proof of a
‘valid claim’ as described in the statute, and a judgment obtained
on that claim.” (collecting cases)).
Further, “a party must
recover in the right in which he sues and upon proof of the facts
4
stated in his pleadings, and he cannot recover through a right not
asserted.”
Jay Fikes and Assocs. v. Walton, 578 S.W.2d 885, 889
(Tex. Civ. App.--Amarillo 1979, writ ref’d n.r.e.) (citing Starr v.
Ferguson, 166 S.W.2d 130, 132 (1942)).
A final pretrial order supersedes all prior pleadings and
thereafter
“control[s]
the
subsequent
course
of
the
action.”
Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397, 1409 (2007)
(quoting Fed. R. Civ. P. 16(e)).
This includes the incorporation
of new causes of actions not contained in earlier pleadings.
Id.
(citing Syrie v. Knoll Int'l, 748 F.2d 304, 308 (5th Cir. 1984)
(“[I]ncorporation of a[new] claim into the pre-trial order . . .
amends
the
previous
pleadings
to
state
[the
new]
claim.”)).
Therefore, in order to recover attorney’s fees under Section
38.001, CapTran was required to plead, if not in its Original
Complaint, then at least in the Joint Pretrial Order, a breach of
contract claim against Martinez.
In
challenging
CapTran’s
entitlement
to
attorney’s
fees,
Martinez argues that CapTran did not sue it for breach of contract,
and
therefore
38.001(8).
cannot
recover
attorney’s
fees
under
section
Indeed, although CapTran pled breach of contract
against the Thurlow parties in paragraphs 30-32 of its Original
Complaint, it did not plead a breach of contract claim against
Martinez.8
8
Document No. 1 ¶¶ 30-32 (Orig. Cmplt.).
5
CapTran argues that its action against Martinez included a
breach of contract claim because CapTran is the assignee of the
contract between Thurlow and Martinez.
However, Thurlow’s assign-
ment to CapTran was not made until December 18, 2009, almost
eighteen
months
Martinez.9
after
CapTran
filed
its
Complaint
against
After receiving the assignment, CapTran never sought
leave to amend its complaint to assert a contract claim against
Martinez.
CapTran in its “Contentions . . . as to Martinez” in the Joint
Pretrial Order sets forth no breach of contract claim against
Martinez but only a claim to recover from Martinez under the
security documents by which CapTran purports to have obtained a
“first lien priority security position in all fees earned by
Thurlow.”
Thus,
CapTrain
in
its
Martinez,”
makes
no
Martinez.10
Embedded in a list of more than 50 “Contested Issues
assertion
“Contentions
of
a
contract
.
.
claim
.
as
to
against
of Law” in the Joint Pretrial Order, is the stated issue whether
Thurlow and Martinez had a contract “which CapTran is entitled to
enforce.” However, there is never an assertion of a contract claim
against Martinez.
Because CapTran did not plead a contract claim
against Martinez, and no such claim was tried by consent, CapTran
9
See
CapTran).
10
Document
No.
88,
ex.
Id. at 5.
6
1
(Thurlow’s
assignment
to
is not entitled to recover from Martinez attorney’s fees under
section 38.001(8) of the Texas Civil Practice and Remedies Code.
2.
Action Against Account Debtor
CapTran did plead a cause of action against Martinez as an
account
debtor
undisputed
under
that
the
Thurlow
Uniform
granted
to
Code.11
Commercial
CapTran
a
first
It
is
priority
security interest in all of Thurlow & Associates’s right, title,
and interest in all legal fees payable to it in connection with the
Fen-Phen cases and that CapTran gave sufficient notice of the
assignment to Martinez.12
The contingent fee contracts between Thurlow and Martinez gave
Thurlow the right to be paid and therefore constitute an “account.”
See TEX. BUS . & COM . CODE § 9.102; see also Hennigan v. Hennigan, 666
S.W.2d 322, 325 (Tex. App.-–Houston [14th Dist.] 1984, writ ref’d
n.r.e.)
(finding
that
an
attorney
may
assign
“his
accounts
receivable, consisting of current or future, earned or unearned,
attorney fees as property securing a transaction” under the Texas
Business and Commerce Code).
Under section 9.607, “a secured party may deduct from the
collections made pursuant to Subsection (c) reasonable attorney’s
fees and legal expenses incurred by the secured party.”
TEX . BUS .
11
See Document No. 1 ¶ 42.
12
See Document No. 82 at 9-10 (Joint Pretrial Order).
7
& COM. CODE § 9.607(d); see also Timothy Zinnecker, The Default
Provisions of Revised Article 9 of the Uniform Commercial Code:
Part I, 54 BUS . LAW . 1113, 1134 & n.132 (May 1999) (“[Section 9-607]
permits a creditor to deduct from any collections all reasonable
expenses incurred in the collection and enforcement process, ‘including reasonable attorney’s fees and expenses.’”); accord Donald
J. Rapson, Default and Enforcement of Security Interests Under
Revised Article 9, 74 CHI -KENT L. REV . 893, 905-907 (1999).13
Section 9.608 outlines the allocation of the proceeds from the
“payment or performance of an obligation” and directs the secured
party to “apply or pay over for application the cash proceeds” to
satisfy “the reasonable expenses and attorney’s fees.”
BUS. & COM. CODE § 9.608(a)(1)(A).
See TEX .
In sum, the plain language of
section 9.607(d) provides that CapTran, as the secured party, may
deduct from its collections on the obligation its reasonable
expenses in collecting sums due from Martinez; but neither section
9.607 nor 9.608 provides for recovery of attorney’s fees over and
above the amount of the obligation.
See TEX . BUS . & COM . CODE
§§ 9.607(d), 9.608.
Here,
CapTran
enforced
the
account
debtor’s
(Martinez’s)
obligation to Thurlow, as it was authorized to do by section
13
Previous law, in section 9-502(2) of the Uniform Commercial
Code, allowed a creditor to “deduct his reasonable expenses of
realization from the collections.” Zinnecker, The Default
Provisions of Revised Article 9 of the Uniform Commercial Code:
Part I, 54 BUS . LAW . at 1134 n.132.
8
9.607(a)(3), and collected from Martinez the sum of $388,000.00.
Out of that, CapTran may deduct its reasonable attorney’s fees and
credit the balance to Thurlow’s obligation.
CapTran’s recourse
then is against Thurlow for any deficiency, not against Martinez.
CapTran relies on two cases for support of its claim for
attorney’s fees from Martinez.
The first of these, Taubenhaus v.
Jung Factors, Inc., 478 S.W.2d 149, 151-52 (Tex. Civ. App.--Houston
[14th Dist.] 1972, no writ), arose from a 1966 sale of accounts
receivable to a factor, which predated Texas’s adoption of the
Uniform Commercial Code.
In its original opinion (corrected on
rehearing) the court mistakenly cited the not-yet-effective Texas
Uniform Commercial Code in affirming a judgment of $957.44 plus
$400.00 in attorney’s fees in favor of the factor and against the
original debtor, who had failed to tender the amount owed to the
factor after receiving notice of the assignment.
Id. at 152.
Taubenhaus constitutes no precedent for applying section 9.607 of
the Texas Business and Commerce Code because that provision formed
no basis for its holding.
CapTran’s other case is In re Apex Oil Co., 297 F.3d 712 (8th
Cir. 2002).
In Apex Oil the Eighth Circuit was obliged to apply
Texas law, after enactment of the Uniform Commercial Code, and in
one unexplained sentence with a citation to one case--Taubenhaus-the court stated that “an assignee who recovers against an account
debtor is entitled to recover the attorney’s fees that accrued from
9
the pursuit of its claim,” and affirmed a recovery of attorney’s
fees in addition to the indebtedness.
Id. at 717.
The Eighth
Circuit took no note of the Taubenhaus court having acknowledged on
rehearing that the Uniform Commercial Code did not apply in that
case.
Moreover, the Eighth Circuit did not cite–-or purport to
apply or distinguish--Texas Business and Commerce Code section
9.607 or any other portion of the Uniform Commercial Code.
The plain language of section 9.607 is that attorney fees are
to be deducted from, rather than added to, the amount collected.
See TEX. BUS . & COM . CODE § 9.607 (emphasis added).
The Texas version
of the U.C.C. was amended in 1999, and section 9.607(d) is new.
See id. & comment 1.
CapTran cites no case, and the Court is aware
of none, construing Texas Business and Commerce Code § 9.607(d) to
permit an award of attorney’s fees against the account debtor in
addition to the collections on the debt made by the secured party.
The Court is of the opinion that the Fifth Circuit would not follow
Apex Oil as a correct application of section 9.607(d). CapTran has
not shown its entitlement to fees under section 9.607 from Martinez
because the statute provides only for a deduction of attorney’s
fees from the amount collected from the account debtor.
III.
Martinez’s Motion for Attorney Fees
The Court has carefully considered Martinez’s Motion for
Attorney’s Fees, based on his contentions that CapTran acted in bad
10
faith
by
filing
suit
against
Martinez,
was
obstinate
during
pendency of the suit, and made an excessive demand upon Martinez,
and finds no merit in the motion.
against
Martinez
as
an
account
CapTran filed a valid action
debtor
and
prevailed
on
that
claim with Martinez’s eve-of-trial agreement to pay to CapTran
$388,000.00 in settlement.
Although the case from start to finish
was long, complex, and often hotly contested, no good reason
has been shown to adjudge against the prevailing party a liability
for
the
payment
of
Defendant
Martinez’s
attorney’s
fees.
Martinez’s Motion for Attorney’s fees is therefore DENIED.
IV.
Order
Accordingly, it is
ORDERED that Plaintiff CapTran Tanglewood, LLC’s Motion for
Attorneys’ Fees (Document No. 88), and Defendant Law Offices of
Tony Martinez, PC’s Rule 54(d)(2) Motion for Attorney’s Fees
(Document No. 87), are both DENIED.
The Clerk shall notify all parties and provide them with a
true copy of this Order.
SIGNED at Houston, Texas, on this 21st day of July, 2011.
____________________________________
EWING WERLEIN, JR.
UNITED STATES DISTRICT JUDGE
11
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