Campbell Harrison & Dagley, L. L.P. v. Hill

CAMPBELL HARRISON & DAGLEY, L.L.P., et al., Plaintiffs, v. ALBERT G. HILL III, et al., Defendants.

Civil Action No. 3:12-CV-4599-L

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

Dated: May 28, 2014

MEMORANDUM OPINION AND ORDER

Before the court is Albert G. Hill, III's and Erin Hill's Motion to Vacate or, in the Alternative, to Modify Arbitration Award (Doc. 28), filed on January 31, 2013; CHD and CNBW's Application to Confirm Arbitration Award (Doc. 1), filed November 14, 2012; and CHD and CNBW's Motion for Hill III Family to Provide Security and to Disclose Trust Transactions (Doc. 53), filed September 3, 2013. After considering the motions, briefs, evidence, record, and applicable law, the court denies in part and grants in part Albert G. Hill, III's and Erin Hill's (the "Hills") Motion to Vacate or, in the Alternative, to Modify Arbitration Award (Doc. 28); denies in part and grants in part CHD and CNBW's Application to Confirm Arbitration Award (Doc. 1); denies CHD and CNBW's Motion for Hill III Family to Provide Security and to Disclose Trust Transactions (Doc. 53); and dismisses with prejudice this action.

As set forth herein, the court grants the Hills' motion to vacate the arbitration award to the extent that the court: (1) vacates as against public policy the portion of the arbitrators' award that provides for $22,524,096.60 in contingent attorneys to CHD and $2,502,677.40 in contingent attorneys' fees to CNBW under the fee agreements; (2) vacates and remands the portion of the award that grants $6,643,085.60 in attorneys' fees to Plaintiffs as prevailing parties in thearbitration, which includes $2,353,136 in hourly attorneys' fees incurred by arbitration counsel Wright & Close, LLP and an additional sum of $4,289,949.60 representing the contingency fee portion of the contract between Plaintiffs and Wright & Close, LLP; (3) vacates and remands the portion of the arbitrators' judgment that awards $69,046.59 to CHD and $48,344.86 to CNBW, as prevailing parties, for the portion of the fees, expenses and arbitrators' compensation of the American Arbitration Association previously incurred by Plaintiffs; and (4) vacates the portion of the arbitrators' award that provides for postjudgment interest at a rate of five percent per annum. The court denies the motion to vacate in all other respects.

With respect to CHD and CNBW's Application to Confirm Arbitration Award, the court grants the motion and confirms the arbitrators' award of (1) $3,150,000 in hourly attorneys' fees to CHD for legal work done prior to termination by the Hills; (2) $152,167 in hourly attorneys' fees to CNBW for legal work done prior to termination by the Hills; and (3) prejudgment interest on these amounts at a rate of five percent per annum. The court denies the motion to confirm in all other respects.

I. Factual and Procedural Background

This case concerns the final resolution of a protracted fee dispute between the Hills and their former attorneys, Campbell Harrison & Dagley L.L.P. ("CHD") and Calloway, Norris, Burdette and Weber, PLLC ("CNBW") (collectively, "Plaintiffs"). On October 17, 2008 the Hills and CHD signed an agreement in which the parties agreed that CHD would act as counsel for the Hills in connection with a multitude of pending legal matters. Doc. 28-1 at 220-34. That agreement specifically outlined the fee structure under which CHD was to be paid for its services. Id. at 221-25. The Hills entered into a separate agreement with CNBW, which contained similar terms. Doc. 28-2 at 1-13.

The fee agreement contracts between the Hills and their attorneys each contained an arbitration clause whereby claims or disputes arising under or in connection with the legal services provided would be subject to binding arbitration. Doc. 28-1 at 228-29 & Doc. 28-2 at 7-8. The arbitration clauses mandated that the arbitration was to be conducted "pursuant to the Texas General Arbitration Act and the applicable rules of the American Arbitration Association." Id.

Approximately one year after the execution of the fee agreements, the Hills terminated their attorney-client relationship with CHD and CNBW because of their dissatisfaction with litigation outcomes during the year. Doc. 28-1 at 74-76. When the parties were unable to reach agreement as to payment of the outstanding legal fees, CHD and CNBW filed a motion to compel arbitration, which was granted by United States District Judge Reed O'Connor on February 18, 2011. See Campbell Harrison & Dagley LLP v. Hill, No. 3:10-CV-2269-O, Doc. 88. The parties subsequently submitted evidence before an arbitration panel regarding the merits of their positions. Doc. 28-5 at 155. The arbitrators ruled in favor of CHD and CNBW by entering an award for (1) $3,150,000 in hourly attorneys' fees to CHD for legal work done prior to termination by the Hills; (2) $152,167 in hourly attorneys' fees to Dallas counsel CNBW for legal work done prior to termination by the Hills; (3) $22,524,096.60 in contingent attorneys' fees to CHD and $2,502,677.40 in contingent attorneys' fees to CNBW under the Attorneys' Hourly Rate and Contingency Fee Agreement (the "CHD Fee Agreement") signed on October 17, 2008 and the Dallas Counsel Attorneys' Fee Agreement (the "CNBW Agreement") signed on March 18-19, 2009¹; (4) prejudgment and postaward interest at a rate of five percent simple interest per annum;(5) $6,643,085.60 in attorneys' fees granted to Plaintiffs, as prevailing parties in the arbitration, which includes $2,353,136 in hourly attorneys' fees incurred by arbitration counsel Wright & Close, LLP and an additional sum of $4,289,949.60 representing the contingency fee portion of the contract between Plaintiffs and Wright & Close, LLP; and (6) $69,046.59 to CHD and $48,344.86 to CNBW for the portion of the fees, expenses and arbitrators' compensation of the American Arbitration Association previously incurred by Plaintiffs. Id. at 161.

Plaintiffs seek to confirm the award. Displeased with the arbitrators' decision, the Hills filed this Motion to Vacate or Modify Arbitration Award, contending that the arbitrators' decision is tainted by evident partiality; that the award violates fundamental Texas public policy; that the award exceeds the scope of the arbitrators' authority; or in the alternative, that the court should exercise its inherent authority to modify the award in the best interests of the Hills' minor children. Doc. 28. CHD and CNBW argue that the award was proper and that the Hills fail to meet the stringent burden imposed upon a movant seeking to vacate an arbitration award in Texas. Doc. 30.

II. Judicial Review of Arbitration Awards Under Texas Arbitration Act

The contracts at issue contain a choice of law provision stating that the agreement "shall be construed under and in accordance with the laws of the State of Texas" and that arbitration shall take place "pursuant to the Texas General Arbitration Act." See Doc. 28-1 at 227-29; Doc. 28-2 at 6-7. While the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"), preempts state anti-arbitration laws, it does not prohibit parties from arbitrating under state law rules rather than the rules of the FAA. Volt Info. Sci., Inc. v. Board of Tr. of Leland Stanford Junior Univ., 489 U.S. 468, 478-79 (1989). Since the parties agreed to apply Texas law to their disputes, the court willapply Texas law and the Texas Arbitration Act ("TAA"), Tex. Civ. Prac. & Rem. Code Ann. § 171.001, et seq.

Texas law strongly favors arbitration, and therefore judicial review of an arbitration award is "extraordinarily narrow." East Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271 (Tex. 2010); see also CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) ("Arbitration of disputes is strongly favored under federal and state law."). "Subjecting arbitration awards to judicial review adds expense and delay, thereby diminishing the benefits of arbitration as an efficient, economical system for resolving disputes." CVN Group, Inc., 95 S.W.3d at 238.

The Texas Civil Practice and Remedies Code dictates that the court shall, upon application of a party, confirm the award unless grounds are offered for vacating, modifying, or correcting it under other specified sections of the code. See Tex. Civ. Prac. & Rem. Code Ann. § 171.087. Thus, "confirmation is the default result unless a challenge to the award has been or is being considered." Hamm v. Millennium Income Fund, L.L.C., 178 S.W.3d 256, 262 (Tex. App.—Houston [1st Dist.] 2005, pet. denied). The grounds for vacating an arbitration award are set out in section 171.088(a), which states:

On application of a party, the court shall vacate an award if:

(1) the award was obtained by corruption, fraud, or other undue means;

(2) the rights of a party were prejudiced by:

(A) evident partiality by an arbitrator appointed as a neutral arbitrator;

(B) corruption in an arbitrator; or

(C) misconduct or wilful misbehavior of an arbitrator;

(3) the arbitrators:

(A) exceeded their powers;

(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;

(C) refused to hear evidence material to the controversy; or

(D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that substantially prejudiced the rights of a party; or(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, and the party did not participate in the arbitration hearing without raising the objection.

Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a). "These grounds reflect severe departures from an otherwise proper arbitration process and are of a completely different character than ordinary legal error." Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 684 (Tex. App.—Dallas 2010, pet. denied) (citation omitted). Because of the significant...