Tuesday, February 9, 2010

Settlement Agreement Enforced

Houston Court of Appeals reverses trial court's refusal to enforce settlement agreement breached by defendant in legal malpractice suit.

Hernandez v. Labella
(Tex.App.- Houston [14th Dist.] Feb. 9, 2010)($100K settlement agreement reached after jury trial in malpractice lawsuit against lawyer enforced)(breach of settlement agreement addressed in same suit as underlying claim tried to jury)


Appellant, Salomon Juan Hernandez, sued appellees, Joseph J. LaBella and LaBella, Dennis & Associates, P.L.L.C., for breach of fiduciary duty arising out of their legal representation of appellant. After the jury rendered a verdict in favor of appellant, the parties negotiated a settlement of the dispute. Following a short delay by a third party in the completion of one of the terms of the settlement agreement, the trial court entered a final judgment holding that (1) the settlement agreement was unenforceable; (2) the issue of damages in the case was a question of law for the court; and (3) appellant’s damages were limited to the forfeiture of the $1,000.00 fee collected by appellees. We reverse.

* * *

After a bench trial on the disputed Settlement Agreement, the trial court entered a final judgment holding (1) the Settlement Agreement was unenforceable and the case was returned to its posture before the attempted settlement; (2) the issue of damages for breach of fiduciary duty is a question of law;[2] and (3) appellees were to forfeit their $1,000.00 fee as damages for their breach of fiduciary duty. This appeal followed.


While appellant raises five issues on appeal, they can be divided into two groups. First, appellant contends the trial court erred when it (1) ruled the issue of damages for breach of fiduciary duty is a question of law for the trial court, (2) disregarded the jury’s damages finding, and (3) determined appellant’s damages were limited to appellees’ forfeiting their $1,000.00 fee. Second, appellant argues the trial court erred when it determined the Settlement Agreement was breached and unenforceable as a result of a third party’s failure to perform, thereby allowing appellees to elect the remedy of setting the Settlement Agreement aside. Because they are dispositive, we need only address appellant’s second group of issues.[3]

I. Did the trial court err when it refused to enforce the Settlement Agreement?

A. The Standard of Review

The law of contracts is applicable to settlement agreements. Shaw v. Kennedy, Ltd., 879 S.W.2d 240, 247 (Tex. App.—Amarillo 1994, writ denied). Once the parties accept the terms of the settlement, the agreement is binding and can be enforced by the courts. Id. When, as in this case, the contract is unambiguous and the relevant facts are undisputed, we interpret the contract and determine whether a party has breached the contract as a matter of law. Gupta v. E. Idaho Tumor Inst., 140 S.W.3d 747, 756 (Tex. App.—Houston [14th Dist.] 2004, pet. denied).

B. Was the Settlement Agreement enforceable?

Citing Murray v. Crest Const., Inc., appellees argued in the trial court and again here that Medley’s January 22, 2008 letter constituted an anticipatory repudiation or breach of the Settlement Agreement which permitted appellees to elect not to go forward with the Settlement Agreement. Murray v. Crest Const., Inc., 900 S.W.2d 342, 344 (Tex. 1995). We disagree.

If a settlement agreement is breached by one of the parties, the other party may treat the agreement as repudiated and claim rights either under the settlement or the underlying cause of action. Shaw, 879 S.W.2d at 247. An anticipatory repudiation of a contract may consist of either words or actions by a party to a contract which indicate an intention that he or she is not going to perform the contract according to its terms in the future. Builders Sand, Inc. v. Turtur, 678 S.W.2d 115, 120 (Tex. App.—Houston [14th Dist.] 1984, no writ). The intention to abandon a contract must be expressed in positive and unconditional terms. Pollack v. Pollack, 39 S.W.2d 853, 856–57 (Tex. Comm’n App. 1931, holding approved).

A party claiming anticipatory breach of a contract must establish the following three elements: (1) a party to a contract has absolutely repudiated the obligation; (2) without just excuse; and (3) the other party is damaged as a result. Id. at 855; Hauglum v. Durst, 769 S.W.2d 646, 651 (Tex. App.—Corpus Christi 1989, no writ). Appellees’ claim of anticipatory repudiation falls short on each element; however, we need only address the first.

We conclude that no party to the Settlement Agreement absolutely repudiated an obligation under the Settlement Agreement when appellant forwarded Medley’s January 22, 2008 letter to appellees’ attorney. The January 22, 2008 letter from Medley cannot represent an absolute repudiation by a party as neither Stephen Dennis nor Kandis Renee Garrett Dennis, Medley’s clients, were parties to the Settlement Agreement. See Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006) (holding that shareholder of corporate defendant was not a party to agreement as he had no duties under the agreement and refused to sign the agreement); see also Haddad v. Bagwell, 317 S.W.2d 781, 786 (Tex. App.—Amarillo 1958, writ ref’d n.r.e.) (holding architects were not parties to contract at issue in litigation even though the parties to the contract agreed architects would do certain things).

Appellees attempt to avoid this simple fact by arguing appellant’s forwarding Medley’s letter to appellees’ attorney constituted a material breach of a contractual duty to obtain a signature from the Dennis parties. Appellees’ argument is not persuasive. Even if we were to accept appellees’ contention that appellant alone had the contractual duty to obtain the Dennis parties’ signatures on documents dismissing the LaBella-Dennis litigation, the fact appellant’s attorney forwarded, without comment, a copy of Medley’s letter to appellees, is insufficient to constitute a distinct and absolute refusal to perform the Settlement Agreement by appellant. See McKenzie v. Farr, 541 S.W.2d 879, 882 (Tex. App.—Beaumont 1976, writ ref’d n.r.e.) (holding that a party not in default will be justified in treating the contract as repudiated or abandoned only where the other party to the agreement by his conduct or misconduct, clearly shows a fixed intention during nonperformance to repudiate the agreement and not to comply with its terms in the future). The undisputed evidence also demonstrates that appellant continued his efforts to obtain the Dennis parties’ approval of the dismissal of the LaBella-Dennis litigation and attempted to deliver the executed LaBella-Dennis settlement documents two days later on January 24, 2008, which appellees would not accept. Therefore, we hold that (1) appellant did not repudiate or breach the Settlement Agreement as a result of Medley’s initial refusal to execute the LaBalla-Dennis dismissal documents, and (2) the Settlement Agreement was an enforceable contract between appellant and appellees.

C. Did appellees breach the Settlement Agreement?

Finally, the undisputed evidence establishes appellees materially breached the Settlement Agreement when they rejected the delivery of the LaBella-Dennis dismissal documents and refused to pay appellant the required $100,000.00 settlement amount. Therefore, we sustain appellant’s third, fourth, and fifth issues on appeal.[4]


Having sustained appellant’s third, fourth, and fifth issues, we reverse the judgment of the trial court and render judgment that (1) the Settlement Agreement was enforceable; (2) appellees breached the Settlement Agreement when they refused to perform their obligation to pay appellant $100,000.00; and (3) appellant recover $100,000.00 from appellees. We remand to the trial court for further proceedings to determine appellant’s entitlement to prejudgment interest and the calculation of the amount of prejudgment interest to be awarded, if any.

Hernandez v. Labella (Tex.App.- Houston [14th Dist.] Feb. 9, 2010)(Anderson) (breach of settlement agreement in attorney malpractice case, settlement agreement enforced)(fee forfeiture for breach of fiduciary duty by lawyer to client, election of remedies in breach of contract case, repudiation of settlement agreement, anticipatory repudiation, rescission of contract)
Justice Anderson
Before Chief Justice Hedges, Justices Anderson and Boyce
14-08-00327-CV Salomon Juan Hernandez v. Joseph J. Labella and LaBella Dennis & Associates, P.L.L. C. | Appeal from 284th District Court of Montgomery County (name of trial court judge not shown on docket)

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