A Texas jury just issued a large verdict in a case against the Houston-based law firm of Andrews Kurth LLP in a case that involved a business dispute between two brothers. While it is too soon to reach any final conclusions, the magnitude of the jury’s award—more than $167 million—provides us with an opportunity to consider some important lessons for both lawyers and family business owners. Chief among those are to remember the sage advice we received from our mothers: if you don’t have anything nice to say, don’t say it at all (even in an internal email to co-counsel).
The Jury Verdict
On November 11, 2015, a jury in Harris County, Texas awarded Scott Martin damages of more than $167 million in a legal malpractice suit against his former lawyers at Andrews Kurth. The amount of the final judgment could rise to more than $197 million if the trial court includes legal fees and interest.
The jury found that Andrews Kurth had mishandled a settlement agreement between the two brothers, Scott and Ruben Martin, relating to their family business, SKM Partnership. The brothers attempted to mediate their disputes and signed off on a settlement proposal. Andrews Kurth allegedly crafted a revised version of a settlement agreement and then assured Scott that his brother “could be legally compelled to perform the obligations of the Settlement Agreement because it was an enforceable contract.”
Scott later sued Ruben to enforce the settlement agreement, but a Texas appellate court ultimately determined that the settlement agreement was an unenforceable agreement to agree, rather than a binding contract. Many additional lawsuits followed, and Scott blamed the failed settlement agreement for the litigation. The brothers finally ended their litigation when Scott and SKM agreed to sell all of their shares back to the company. In the lawsuit that Scott filed against Andrews Kurth, he alleged that the law firm was negligent for having failed to draft a settlement agreement that was enforceable. The jury agreed and awarded damages resulting from the value of Scott’s lost ownership in MRMC.
Following trial, the court has granted a continuance to December 14, 2015, to permit the parties to argue competing motions to uphold and set aside the jury’s verdict. It is anticipated that Andrews Kurth will also be filing a motion for new trial.
Grounds for Appeal and New Trial
While Andrews Kurth has not yet filed any post-verdict papers, the firm is expected to present a wide array of objections to the jury’s verdict. These challenges are likely to include the following, among others: (i) lack of causation, i.e., nothing the law firm did caused the damages claimed by Scott; (ii) there was no breach of fiduciary duty by Andrews Kurth as a matter of law based on the court’s interpretation of a legal document; (iii) the jury’s charge does not explain or support the value that the jury awarded for Scott’s interest in the business; and (iv) a negligence claim for malpractice does not authorize an award of legal fees.
Early Lessons Learned
While the jury’s verdict will be subject to many challenges both to the trial court and on appeal, this Post reviews some early warning signals for business owners and their counsel.
First, most family business lawsuits present intense conflicts. Due to the personal nature of these disputes, it is critical to prepare a broad settlement agreement in an effort to resolve all possible claims. At a minimum, the settlement agreement should include the following terms: (i) a broad release to provide a full, final release of any and all claims between the parties; (ii) an anti-fraud and disclaimer-of-reliance provision that precludes future claims based on any alleged false statements, promises, or omissions outside of the contract terms; and (iii) a recitation that all parties have had ample opportunity to investigate the facts and have made their own independent judgment to enter into the settlement based on the advice of their own counsel.
Second, given the intense emotions that exist among family members in litigation arising out of a family business, it is a good idea for trial counsel to document in writing the advice they provide to their clients. In connection with a settlement agreement documenting a settlement of a family business dispute, the lawyer’s written advice to the client should summarize the material terms of the settlement agreement, explain the pros and the cons of resolving the client’s disputes without a trial, and explain the continuing obligations that the parties will likely have under the terms of the agreement.
Third, as a cautionary note to outside counsel, some of the most damning evidence the jury considered in the trial were hostile emails that Andrews Kurth wrote about Scott, its own client. This underscores the point that emails are often the most incriminating evidence in civil litigation. Lawyers may believe that a client will never see their internal, firm emails. But, in a malpractice case, that belief is misguided. The bright-line message here is that lawyers should never send emails that demean their own clients.
Jury verdicts approaching $200 million will always receive media attention, particularly when the verdict is against a prominent, well-established law firm. While this large verdict will face many challenges going forward, we do not need to wait until the outcome is final to reflect on some of the verdict’s lessons. In brief, settlements of family business disputes should be clear and comprehensive; the settlement’s critical terms should be carefully reviewed in writing for the client; and most importantly, follow your mother’s advice: don’t write hostile emails about your own clients, even when they are sent internally to other lawyers working on the case.
Our firm does not represent any of the clients in this litigation and we were not involved in any way in the lawsuit or in any post-verdict proceedings.