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The Texas Supreme Court heard arguments on Oct. 4 in a suit that not only may help determine if a Houston firm has a valid claim to a $3 million referral fee, but also may determine the broader question of whether associates owe a fiduciary duty to their firms. Counsel representing Houston lawyers Nick Johnson and James W. Chang are appealing a December 1999 ruling from the 1st Court of Appeals that holds that associates owe a fiduciary duty to their law firms. Grant Cook, a partner in Thompson Knight Brown Parker & Leahy in Houston, and William P. Maines, a partner in McDade, Fogler & Maines in Houston, argued that associates owe a duty of loyalty, but not a fiduciary duty, to their firms. Cook said the associate-firm relationship is not fiduciary because associates do not have the power to bind the firm to contracts. “I’ve never seen a law firm that allows an associate to open a matter, let alone enter into a contingent-fee relationship, without approval of a partner,” Cook said during arguments at the University of Houston Law Center. The state supreme court heard arguments on Oct. 2 at South Texas College of Law, on Oct. 3 at Texas Southern University Thurgood Marshall School of Law, and on Oct. 4 at U of H. In 1997, the Texas legislature passed a law allowing the court to conduct business outside Austin. In one of two suits argued Oct. 4, Houston firm Brewer & Pritchard is suing former associate Chang and Houston personal-injury lawyer Johnson for a $3 million referral fee from a personal-injury suit filed over a helicopter crash in 1995. The firm alleges Chang should have brought the suit to the firm because one of the men injured in the crash is the father of Chang’s good friend, Henry King. The firm alleges Chang assisted King in hiring Johnson, who referred the suit to Houston plaintiffs’ lawyer Joseph Jamail, who settled it in 1996 for $15 million. The firm also alleges that Chang shared in the $3 million referral fee that went to Johnson, now Chang’s partner, and that the entire referral fee should go to the firm because of the breach of duty. J. Mark Brewer, a shareholder in Brewer & Pritchard, told the justices they wouldn’t be making new law to hold associates to a fiduciary duty standard. He said the court’s ruling in Kinzbach Tool Co. v. Corbett-Wallace Corp. established the fiduciary duty in 1942. Brewer suggested that if the state supreme court ruled in favor of Chang and Johnson on the fiduciary duty question, it would encourage associates to go out and run cases. “There is no additional burden to expect an employee to be honest,” Brewer said. Justice Craig Enoch asked Brewer to distinguish between a suit that comes to an associate through friendship and one that he finds because he’s an employee of a firm. “Let’s face it, we’re lawyers 24 hours a day,” Brewer responded. The appeals court ruling remands the suit for a trial on the issues of whether Chang owes his former firm a duty of loyalty and whether Johnson’s alleged transfer of money to a client was a constructive fraud to channel the referral fee to Chang. But Cook and Maines also want the supreme court to overturn the 1st Court’s ruling that Brewer & Pritchard was entitled to receive a referral fee, even though disciplinary rules require the client to consent when lawyers split a fee. According to pleadings filed by Cook and Maines, King testified he does not want Brewer & Pritchard sharing in the fee. Brewer & Pritchard, meanwhile, is asking the supreme court to overturn the lower court’s ruling in Nick Johnson, et al. v. Brewer & Pritchard that rejects its claims of conspiracy, conversion, actual fraud and negligence in the suit for failing to raise material issues of fact.

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