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Firm associates owe a fiduciary duty to their employers with regard to referring cases to other lawyers, but it’s a limited duty, the Texas Supreme Court held on March 21. The court ruled 8-0 in Johnson, et al. v. Brewer & Pritchard that an associate can’t accept a fee or other compensation for referring a matter to a lawyer outside his or her firm. “However, on balance, we think it unwise to impose an absolute fiduciary duty upon associates of a law firm to abstain from directing those with legal needs to a firm other than the associate’s employer,” Justice Priscilla Owen wrote for the court. With Justice Harriet O’Neill abstaining, the high court affirmed a 1999 judgment by Houston’s 1st Court of Appeals. However, the Texas Supreme Court applied different reasoning to reach its decision. The appeals court did not distinguish between kinds of duty, says Grant Cook, who represents Houston personal injury lawyer Nick Johnson in the case. If associates have a blanket fiduciary obligation, it’s possible that a firm could sue for damages if associates change jobs before cases on which they’ve worked are finalized, Cook, a partner in Houston’s Thompson & Knight, says. Limiting an associate’s duty to a prohibition on profiting from a referral is better for the public, says Robert Schuwerk, a professor of legal ethics at the University of Houston Law Center and chairman of the State Bar of Texas Committee on the Texas Disciplinary Rules of Professional Conduct. “Clients really shouldn’t be treated like merchandise. Brewer & Pritchard’s position would have done that,” Schuwerk says. “A lawyer’s duty to his client trumps any duty to his employer,” says Tom McDade, attorney for former Brewer & Pritchard associate James W. Chang. REFERRAL FEES Brewer & Pritchard sued Chang and Johnson for a $3 million referral fee that Johnson was paid following settlement of a personal injury suit stemming from a 1995 helicopter crash near Flower Mound, Texas. The Texas Supreme Court’s opinion said several members of a delegation from China — including the father of Henry King, one of Chang’s close personal friends — were severely injured in the crash. Chang allegedly told two partners in Brewer & Pritchard that the firm might be retained to represent the crash victims, but King signed a contingent-fee agreement with Johnson, one of several personal injury attorneys Chang had contacted for King, the opinion indicated. Brewer & Pritchard alleged that Chang billed faxes and long-distance calls related to the crash to the firm’s business development account. The opinion said Chang did not tell Brewer & Pritchard that King was a friend whom he intended to assist without payment. “What he did seems to be inconsistent with why he said he did it,” says Schuwerk, who questions why Chang went to Johnson instead of going directly to a firm that could handle the case. “That’s what’s got everybody’s eyebrows up,” Schuwerk says. The Texas Supreme Court noted in the opinion that Jamail & Kolius was one of the firms Chang took King to see. The opinion also said that Johnson was a friend to Chang and King. McDade says Johnson is a capable personal injury lawyer who could handle the case. However, the case involved dealing with a number of Chinese nationals and Bell Helicopter, which was named as a defendant in the suit filed by Johnson and Jamail, he says. “There was going to a lot of expense if Bell stonewalled it,” McDade adds. McDade says when he has an expensive case he likes to associate with a lawyer who has “deep, deep pockets,” and Jamail does. “This man [Chang] actively went out on our nickel to land the case,” alleges Brewer & Pritchard shareholder J. Mark Brewer. The firm, which filed its suit in 1998, also alleged that Johnson had knowingly assisted Chang in the breach of fiduciary duty, the Texas Supreme Court noted in the opinion. The day after signing King as a client, Johnson reached an agreement with the Houston firm of Jamail & Kolius, one of the firms with which Chang and King had previously met, the opinion said. According to the opinion, Joe Jamail and Johnson subsequently met with other victims of the crash and were retained to represent them and survivors of a victim who died in the accident. In October 1996, Jamail settled the claims of all the victims for $15 million, and Johnson received $3 million in fees that Brewer & Pritchard allege he shared with Chang. “We believe he [Chang] concocted a scheme to hide the money,” Brewer alleges. Brewer & Pritchard argued that it’s entitled to the entire $3 million that Johnson was paid on the ground that the amount represents the firm’s lost business opportunity. The firm, which Brewer says practices transactional law and litigation, apparently planned to refer the case. “There is evidence in this case that Brewer & Pritchard had little or no experience with personal injury claims and had never taken to trial a claim involving catastrophic personal injuries,” the Texas Supreme Court said in the opinion. McDade, a partner in Houston’s McDade Fogler Maines, says there is no evidence in the record that Chang received anything. Although Chang and Johnson are now law partners, McDade says their partnership wasn’t formed until a year after the settlement was reached. He also says that Johnson did much of the work on the case and didn’t simply refer it to Jamail. OPEN CASE Both sides claim the Texas Supreme Court’s decision as a victory. “It was a complete victory,” Brewer says. The important thing, he says, is that the trial court had disposed of the case on a no-evidence motion for summary judgment, and the state supreme court said it had no right to do that. But Rob Galloway, another Thompson & Knight partner representing Johnson, says Brewer & Pritchard was trying to establish a general fiduciary duty over associates who work at firms. “That’s what the court rejected,” Galloway says. The supreme court held that Brewer & Pritchard’s policy forbidding an associate from referring a case to another lawyer without compensation to the firm may have been a contractual condition of Chang’s employment. “But a contractual obligation does not generally give rise to a fiduciary duty,” Owen wrote. Cook says the ruling allows an associate of one firm to steer clients to another firm as long as the associate doesn’t personally benefit from the referral. “The only way they [Brewer & Pritchard] can establish liability is if they show [Chang] got something,” he says. Judge Pat Hancock, of Houston’s 113th District Court, had granted a summary judgment favoring Johnson and Chang on Brewer & Pritchard’s claims of breach of fiduciary duty, constructive fraud, actual fraud, conspiracy, conversion and negligence. The stated supreme court agreed with the appeals court that Hancock erred in granting summary judgment on the claims for breach of fiduciary duty and constructive fraud because Johnson and Chang failed to present no-evidence arguments in support of those claims, which were remanded to the trial court. McDade says Brewer & Pritchard can’t do further discovery and that the case will be over when Chang files an affidavit with the trial court that he didn’t receive anything of value as a result of the referral. “Bottom line — this case is over,” he says. “When we get to trial level, it may be all over for them; it’s not over for us,” says Patrick Zummo, attorney for Brewer & Pritchard. Zummo, a partner in Houston’s Zummo, Mitchell & Perry, says discovery is still open and pleadings can be filed. “If they had won and there wasn’t any more case, the [Texas] Supreme Court would have said so.”

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