Adam v. Marcos

SOUHAIL ADAM, Appellant/Cross-Appellee v. JAVIER MARCOS, JR. AND LAW OFFICES OF MARCOS & ASSOCIATES, P.C., Appellees/Cross-Appellants

NO. 14-18-00450-CV

State of Texas in the Fourteenth Court of Appeals

November 17, 2020

On Appeal from the 189th District Court Harris County, Texas

Trial Court Cause No. 2014-21616

OPINION

These cross appeals stem from a dispute over an alleged partnership agreement between a lawyer and his client. Attorney Javier Marcos, Jr. and his law firm, the Law Offices of Marcos & Associates, P.C., sued Souhail Adam and entities in which Adam had an ownership interest, alleging Marcos and Adam had agreed to enter a 50/50 partnership to own and operate future joint ventures. Marcos's claims included breach of the partnership agreement, breach of fiduciary duties, fraud, and quantum meruit for unpaid legal services, among others. Adam counterclaimed for defamation, among other things, and asserted Marcos had breached his fiduciary duties to Adam.

At the close of evidence, the trial court granted directed verdicts against Marcos on his breach of fiduciary duty and fraud claims and against Marcos's law firm on all claims. The court also entered directed verdicts in favor of the entities in which Adam had an ownership interest on all claims. The jury then found that Marcos and Adam entered a partnership regarding two business entities, Adam failed to comply with the partnership agreement, and Marcos thereby suffered damages of $891,500. The jury found, however, that Marcos failed to comply with his fiduciary duties to Adam, although no damages question was asked about this failure to comply. The jury additionally found that Marcos performed compensable work for Adam for which he was not paid, but the jury assessed the value of the uncompensated work at "$0." The jury also found that Marcos incurred reasonable and necessary attorney's fees of $590,270 in prosecuting his claims. The jury determined that Marcos did not defame Adam.

After post-trial briefing, the trial court disregarded the jury's findings that Adam breached the partnership agreement and the value of Marcos's unpaid legal services was $0, and it entered a judgment notwithstanding the verdict (JNOV) favoring Marcos on his quantum meruit claim in the amount of $405,000. The court also awarded Marcos attorney's fees of $590,000.

Adam raises three issues in this appeal. In his first two issues, he contends the trial court erred in awarding Marcos quantum meruit damages because at least some evidence supports the jury's finding of $0 in damages and the evidence does not conclusively establish damages of $405,000. In his third issue, Adam assertsthe trial court erred in permitting Marcos to put on evidence of his attorney's fees because he failed to properly disclose information during discovery and in awarding Marcos attorney's fees of $590,000 because that amount does not bear a reasonable relationship to the damages awarded.

In a conditional cross-appeal, Marcos also raises three issues, asserting that the trial court erred in (1) directing a verdict on Marcos's breach of fiduciary duty and fraud claims, (2) disregarding the jury's finding that Adam breached the partnership agreement, and (3) considering the fee agreement between Marcos and his trial counsel in determining the amount of quantum meruit damages. Although Marcos's law firm is listed as a party in the notice of cross-appeal, no issues or arguments are raised pertaining to the law firm.

Concluding that the evidence was sufficient to establish some quantum meruit damages but not the amount awarded by the trial court and that the trial court erred in directing a verdict against Marcos's fraud claims, we reverse and remand for a new trial on the quantum meruit and fraud claims. We affirm the remainder of the judgment.

Background

Adam owns and operates several small businesses in the Houston area. Marcos owns his own small law firm. Marcos worked as the primary attorney representing Adam and his businesses for several years, and the men became close friends. Beyond those facts, Marcos and Adam presented largely contradictory views at trial of their business relationship. Marcos asserted that at one point, he and Adam entered a partnership agreement to split profits from future joint ventures evenly. Adam asserted that Marcos merely gave him funds to invest in Adam's businesses as Adam saw fit to make a return for Marcos on his investment. Adam insists that there was no agreement under which Marcos was to have anownership interest in any of the businesses.

Marcos's position. According to Marcos, in 2006, after he and his law firm had been performing legal services for Adam and several of his businesses for several years, he and Adam agreed to form a partnership on future joint ventures, sharing costs and profits evenly. The pair would agree on what future joint ventures to undertake, Marcos would be in charge of all legal matters, and Adam would run day-to-day operations. They purportedly sealed the agreement with a celebratory "fist bump," but no agreement was ever reduced to writing. Marcos said that at Adam's request, Marcos would be a "silent" partner, with his name left off the formational documents for any joint venture entity they created.

Marcos also explained that he and Adam had become close friends by that point and even though Adam had previously rejected the idea of partnering with Marcos, he agreed in 2006 because his legal needs had increased as his businesses had expanded. To support the partnership, Marcos said that he agreed to provide legal services free of charge—at first just for the joint ventures but ultimately for all the entities in which Adam had an interest. For this reason, Marcos says that he did not bill or invoice Adam or his companies from sometime in 2006 until the relationship fell apart in 2014, despite providing thousands of hours in legal services.

Marcos also asserted that he provided an initial $250,000 to fund the first joint venture, Metro Vehicle Storage, LP, a vehicle towing and impound storage lot. Marcos borrowed money from his bank and presented Adam with two checks, each for $100,000, plus an additional $50,000 in cash. Meanwhile, Adam also provided cash for the venture and personally guaranteed a loan of $1 million. According to Marcos, all profits from the joint ventures were initially to be used to pay down this note, so it was understood that there would be no partnershipdistributions for an extended period. Other entities the partnership allegedly formed or purchased as joint ventures included Athena Investments, L.P., EBF Auto, Inc., and McKaskle Industrial Complex, Inc. At trial, Marcos claimed a 50 percent interest in each of these businesses.

Marcos testified that Adam did not correct Marcos or Marcos's wife when they referred to Marcos and Adam on several occasions as business partners. Marcos's wife also testified that Adam told her that he and Marcos were partners. By late 2013, however, Marcos began having concerns about the partnership's finances, the lack of distributions, and the remaining balance on the initial note, and he asked Adam for access to financial records. According to Marcos, Adam was initially evasive but ultimately told Marcos he did not want to be partners any longer. Marcos said that he later learned Adam had been taking profits from the joint ventures and not using them to pay down the note as agreed. Marcos then brought the current lawsuit.

As part of his evidence, Marcos prepared and presented a spreadsheet and an affidavit that sought to recreate hours Marcos spent providing legal services to Adam and his businesses that were never billed or invoiced. Marcos asserted that the unpaid fees amounted over $1.8 million dollars. An attorney's fees expert supported Marcos's conclusion but expressly stated that he did not undertake a quantum meruit determination of the allegedly unpaid legal services. Marcos also testified that he had paid certain legal expenses and fees for Adam and his businesses which had not been reimbursed. Marcos acknowledged, however, that Adam had paid him $230,000 before trial as a reimbursement for the money Marcos had initially contributed to the purported Metro joint venture.

Adam's position. According to Adam, he consistently rejected Marcos's suggestion that the two of them enter a partnership together and the alleged fistbump deal never happened. Instead, Adam explained that Marcos gave him the two $100,000 checks plus an additional $30,000 in cash for Adam to invest in his businesses as he saw fit to provide a return for Marcos on his money. Adam emphasizes that none of the formational documents of the alleged joint ventures—documents that Marcos himself drafted—list Marcos as a member, partner, or shareholder. Adam also points out that Marcos failed to reveal his alleged ownership interest in several legal contexts where such recognition would have been required or expected, including when he represented the entities in hearings before the Texas Department of Licensing Regulations (TDLR). Adam also signed loan guarantees for the entities, Marcos did not, partnership K1 forms for the entities showing taxable income did not list Marcos as a party, and Marcos did not report any income for the entities or the alleged partnership on his tax returns, but Adam did. Adam also insisted that he paid Marcos $85,000 in cash over the years as earnings on the investment and returned all the $230,000 Marcos gave him before trial.

Regarding the legal services Marcos provided from 2006 until 2014, Adam minimized the amount of work actually performed and indicated that he had performed services in exchange for Marcos, including automobile repairs after two wrecks. Adam also asserted he had paid Marcos back for legal expenses. Adam's expert on attorney's fees excoriated Marcos's spreadsheet, affidavit, and testimony on fees, arguing that the evidence was so unbelievable and unreliable...