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DALLAS — Two former clients have sued Howrey partner Michael Dowler and the firm, alleging breach of fiduciary duty after an alleged deal to buy a patent for $1 million went sour. On April 2, the plaintiffs filed Guardian Media Technologies Ltd., et al. v. Howrey LLP, et al. in Harris County’s 234th District Court. Guardian, a Texas limited partnership, and GMT Management Co., a Texas corporation that is the general partner in Guardian, acquire and license patents. They allege in their petition that Dowler, a partner in Howrey’s Houston office, was their lawyer in a variety of patent matters and that he brought a patent to them for potential purchase, demanded an “under the radar” verbal deal for 50 percent of net profits to be derived from the patent, and breached his fiduciary duty by “misrepresent[ing] the value of the patent.” “It’s improper for a lawyer to bring a prospect to a client and then ask for 50 percent,” says Steven Smoot, a Houston solo practitioner who represents Guardian and GMT in the suit. Stephen Cagle, managing partner of Howrey’s Houston office, denies the allegations against the firm and Dowler. “I think they’re categorically false,” Cagle says. Cagle says the dispute is really between Tom Coverstone, principal of Guardian and GMT, and California attorney Hoyt Fleming, owner of the patent in question. Coverstone recently moved to California from Texas, Smoot says. Dowler did not return two telephone calls seeking comment. Chris Reynolds, a partner in Gibbs & Bruns in Houston, who is representing Howrey and Dowler in the suit, says he is investigating the claims but “so far as I’m aware, they’re without merit.” Fleming, a resident of Idaho, declines comment. From 1994 to 1997, he was an associate with Arnold, White & Durkee, which merged with Howrey & Simon in 2000 to form Howrey Simon Arnold & White. The firm is now known as Howrey. �AS GOOD AS I’VE SEEN’ Austin-based Guardian and GMT (both referred to as “Guardian” in the petition) allege the following: Coverstone hired Howrey in 2003 to represent Guardian in patent matters that included “patent investigation, acquisition, licensing, validity, infringement, enforceability and litigation” and continued to use Howrey’s services until February 2008. Early in the relationship, Dowler became the principal Howrey partner in charge of the Guardian representation. Dowler told Coverstone in an e-mail dated Oct. 8, 2007, that he had been studying a patent for global positioning system-enabled radar detectors owned by Fleming, a friend of Dowler’s. Dowler told Coverstone that “the patent looks about as good as I’ve seen” and that “he was �putting together an investment group to buy the patent.’” He asked Coverstone if he “might be interested in this opportunity.” Coverstone expressed interest on Guardian’s behalf. Dowler then told Coverstone that the selling price was a nonnegotiable $1 million. “Coverstone justifiably assumed however that as the lawyer for Guardian, Dowler would look out for the best interests of Guardian,” the plaintiffs allege in the petition. Dowler, Fleming, and Coverstone met at a Las Vegas trade show, where Dowler allegedly demanded 50 percent of the net profits that Guardian would eventually derive from the patent. “When Coverstone asked Dowler what his contribution would be to the joint venture, Dowler replied that his investment of some $600,000 in due diligence investigating the patent and his bringing the patent to Guardian was his contribution.” UNDER THE RADAR When Coverstone sought a written agreement memorializing the profit division, Dowler allegedly responded “that he did not desire to enter into a written agreement because such a document would be discoverable in any subsequent litigation involving the patent.” Instead, the plaintiffs allege, he wanted his involvement to be kept “under the radar.” Coverstone made a $10,000 wire transfer to Fleming as earnest money. Coverstone, the plaintiffs allege, then investigated the patent, “unfortunately learning that the patent did not in fact, contrary to what had been represented by Dowler and Fleming, provide protection from the potential commercial competitors in the marketplace for the product envisioned by the patent and actually had little to no value.” Coverstone discovered that the principal makers of radar detectors already were marketing GPS-enabled radar detectors and were “not concerned about infringing the patent that Dowler had so highly touted.” Coverstone then backed out of the deal. Guardian alleges in the petition that Howrey and Dowler breached their fiduciary duties owed to the plaintiffs. “Dowler misrepresented the value of the patent to the advantage of his self and his �personal friend’ Hoyt Fleming,” the plaintiffs allege. “Dowler never disclosed . . . to Coverstone or Guardian, Dowler’s true interests, or of the nature and effect of the conflicts of interests engendered by the ongoing representation and the patent transaction.” After the deal broke down, court records show that Fleming sued Coverstone individually for breach of contract and other causes of action in the U.S. District Court for the District of Idaho and the U.S. District Court for the Southern District of California. Fleming, a partner in the Davis, Calif., firm Park, Vaughan & Fleming, declined comment on those suits. One of Fleming’s attorneys, Brad Frazer, of counsel at Hawley Troxell Ennis & Hawley in Boise, Idaho, says that the Idaho suit likely will be dismissed in favor of the California suit, but he otherwise declines comment. Carey Cooper, a shareholder in the San Diego and Los Angeles offices of the firm Klinedinst, who represents Coverstone in the Fleming litigation, denies that Fleming’s allegations have merit. “There was no contract for purchase” of the patents, she says. A message left for Coverstone was not returned. As alleged in the suit, the plaintiffs, who no longer are Howrey clients, seek the return of fees previously paid to Howrey and a declaration that they need not pay $400,000 in outstanding fees billed by Howrey “for services rendered while Howrey and Dowler and Guardian suffered severe conflicts of interest.” Smoot says that Guardian plaintiffs seek the disgorgement of up to $5 million in fees paid over five years to Howrey. A successful breach of fiduciary duty claim makes an attorney vulnerable to fee disgorgement under the 1999 Texas Supreme Court opinion Burrow v. Arce, et al., says James A. “Sandy” McCorquodale, a partner in Kleiman Lawrence Baskind Fitzgerald in Dallas, whose practice includes legal ethics matters. Arce allows a trial judge to require fee forfeiture when attorneys breach duties to their clients, even if the clients suffer no damages. Smoot represented the plaintiffs in that case. Arce claims “are very attractive to plaintiffs attorneys,” McCorquodale says.
Jonathan Fox is a reporter for Texas Lawyer , the ALM publication where this article originally appeared.

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