Houston Firm Loses Appeal Over Fen-Phen Referral Contract - Law360

Houston Firm Loses Appeal Over Fen-Phen Referral Contract - Law360
by Michelle Casady
Law360, Houston (November 17, 2015, 10:13 PM ET) -- Houston law firm Fleming & Associates LLP breached a contract for referral fees tied to a $339 million Fen-Phen settlement when it deducted litigation expenses from fees owed to another firm, a Texas appeals court said Tuesday, upholding a lower court ruling.

The Fourteenth Court of Appeals found that Fleming & Associates violated two contracts it entered into with Kirklin Law Firm PC in May and October of 2001 that stated Kirklin would retain a 40 percent referral fee for each client suing Wyeth over the FDA-recalled weight-loss drug Fen-Phen who was accepted by Fleming.

The appeals court rejected Fleming's arguments that the referral agreements shouldn't have been ruled ambiguous, finding the lower court was right to look at evidence outside the terms of the contract. The court also rejected Fleming's claims that the agreements created a joint venture, which would have entitled Fleming to shift some of the litigation expenses to Kirklin.

“Because the referral agreements are susceptible of more than one reasonable interpretation, we conclude that the trial court did not err when it held them ambiguous,” the panel wrote. “Further, because the referral agreements are ambiguous, the trial court did not abuse its discretion when it admitted parol evidence to prove the parties’ intent.”

In 2008, Fleming was slapped with a directed verdict on the fraud claims by the trial court and then a jury determined damages were owed Kirklin for breach of contract in the amount of $660,000. The jury also found that the agreement did not form a joint venture.

Fleming litigated 8,000 Fen-Phen cases for five years before reaching a $339 million settlement agreement with the drug's manufacturer. Kirklin had referred more than 500 clients and was given more than $2 million in fees, according to the opinion.

At trial, a former attorney for the Fleming firm, Jim Doyle, who signed the contracts with Kirklin on behalf of Fleming, said he believed he was fired over the disagreement, according to the opinion.

“Doyle testified that Fleming [terminated him] because Doyle would not go along with Fleming’s decision to charge litigation expenses to the referring firms,” according to the opinion.

During trial, a jury also awarded Kirklin attorneys' fees in the case of $150,000, but the trial judge struck that down, saying precedent doesn't allow for attorneys' fees to be awarded against a limited liability partnership.

Kirklin appealed that issue, saying the court erred in not holding Fleming individually liable and also that the Fleming firm hadn't kept up with Texas Revised Partnership Act requirements to maintain its LLP status.

“We disagree because the Kirklins failed to establish, as a matter of law, that the Fleming firm did not meet the statutory requirements to qualify as a limited liability partnership,” the panel wrote.

The parties did not immediately respond to a request for comment Tuesday.

The case was before Justices Martha Hill Jamison, Brett Busby and Marc Brown.

The appellant is represented by Erin Hilary Huber, David M. Gunn and John S. Adcock ofBeck Redden LLP and Adele O. Hedges of Adele Hedges Attorney At Law.

The appellee is represented by Paul S. Kirklin of the Kirklin Law Firm PC.

The case is George Fleming and Fleming & Associates LLP v. The Kirklin Law Firm PC, Charles Kirklin and Stephen Kirklin, case number 14-14-00202-CV in the Fourteenth Court of Appeals in Texas.