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Click here for the full text of this decision FACTS:Air Routing International Corp. and Air Routing International (Canada) contracted with Royal Bank of Canada to operate a credit-card system for the aviation industry called “Jet Card.” Britannia Airways Ltd. was one of the users of Jet Card. After several years of paying invoices presented by Jet Card, Britannia learned that more than $8 million in charges had been billed for services never performed. Britannia sued Air Routing, seeking to recover the payments. Britannia alleged theories of fraud, negligent misrepresentation, civil conspiracy and liability under the Texas Theft Liability Act. Air Routing asserted counterclaims, seeking a declaration that they were a third-party beneficiary of certain contracts between Britannia and Royal Bank. The trial court granted Air Routing’s motion for summary judgment on Britannia’s Theft Act claim. Later, at a trial in March 2002, the trial court granted Air Routing’s motion for directed verdict on Britannia’s negligent misrepresentation and civil conspiracy claims, and the jury ruled for Air Routing on Britannia’s fraud claim. The trial court denied Air Routing’s request for declaratory judgment. The parties had a bench trial on the issue of attorneys’ fees under the Theft Act, which requires a trial court to award attorneys’ fees to a party who successfully defends a Theft Claim Act without any prerequisite finding that the claim was groundless, frivolous or brought in bad faith. Britannia urged the trial court to force Air Routing to segregate out the attorneys fees it expended in defense of the Theft Act claim, and its defense of the other claims. Air Routing refused to segregate its costs, instead presenting exhibits and witnesses to establish the amount of attorneys’ fees and the reasonableness of those fees. The trial court ruled that Air Routing had to segregate its fees. In its findings of fact and conclusions of law, the trial court found that because Air Routing would not adequately segregate those fees incurred in connection with its defense against the Theft Act claim, it was not entitled to recover any attorneys’ fees in the litigation. HOLDING:Affirmed in part; reversed and remanded in part. The court finds the issue of whether the Theft Act’s attorneys’ fees provisions require segregation is governed by the standard set down in Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1 (Tex. 1991). That case requires segregation of fees, except when the claims they are based on are “inextricably intertwined.” Application of this standard requires determinations as to whether the claims in question arise out of the same transaction and whether they depend on proof or denial of essentially the same facts. These determinations, in turn, involve an analysis of both the claims asserted and the facts upon which these claims are based. The court establishes that the trial court’s denial of attorneys’ fees was based entirely on Air Routing’s failure to segregate its fees. The court also establishes that the award of “$0″ for reasonable and necessary fees was not also based on Air Routing’s failure to segregate and so was not a true measure of what the trial court deemed reasonable or necessary. The court then reviews whether the “inextricably intertwined” exception to the requirement to segregate fees applies in this case. Britannia urges two legal standards that could be used to apply this exception from Sterling: 1. the legal elements standard, and 2. the impracticability standard. Regarding the legal elements standard: In determining whether the defense of the claims entails proof or denial of essentially the same facts, the court must consider the facts Britannia would have to prove for each element of the different claims to see if the claims are proven by the same factual allegations and legal elements. Regarding the impracticability standard: To show that it falls under the “inextricably intertwined” exception, a party should have to introduce specific evidence demonstrating that attempts were actually made to separate the fees by claim at the time the fees were incurred and that further separation of the time was impracticable. The court rules that neither standard is proper under current Texas law. Although, to some extent, the legal elements of the claims will be factored into the segregation analysis in determining whether the prosecution or defense of the claims entails proof or denial of essentially the same facts, the plain meaning of Sterling’s legal standard does not require that the legal elements of the claims be the same or substantially similar. The impracticability standard is from federal law, and, based on differences in the way the federal system works, the court finds reliance on this standard to be misplaced. The court instead finds that the language used in Sterling indicates that if a party proves that the claims arise out of the same transaction and are so interrelated that their prosecution or defense entails proof or denial of essentially the same facts, then the fees are deemed to be “intertwined to the point of being inseparable,” and the party seeking attorneys’ fees may recover the entire amount of fees covering all claims. The court thus holds that for Air Routing to show that the “inextricably intertwined’ exception applies here, it would have to show: 1. the attorneys fees incurred are in connection with claims arising out of the same transaction; and 2. the claims are so interrelated that their prosecution or defense entails proof or denial of essentially the same facts. The court then goes through a detailed review of the evidence provided at the bench trial on attorneys’ fees. Air Routing provided several exhibits and witnesses; Britannia did not offer anything. Looking at the statements made in Britannia’s second amended petition, and the court finds that all of Britannia’s claims involve allegations that Air Routing deceived Britannia into paying for services never performed. Britannia’s response to Air Routing’s motion for summary judgment on the Theft Act claim, as well as the exhibits attached to that response, all indicate that Britannia thought all of its claims arose out of the same set of facts. The court, thus, concludes that all of Britannia’s claims against Air Routing arose out of the same transaction and were so interrelated that their prosecution or defense entailed proof of essentially the same facts. The court affirms the remainder of the trial court’s judgment. OPINION:Frost, J.; Edelman, Frost and Guzman, JJ.

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