Davis Oretsky, P.C.
1415 Louisiana, Suite 4200
Houston, Texas 77002
(713) 659-1010
(713) 659-1122 (fax)
INTRODUCTION
Since the Spring of 2000 edition, few new cases have been published in the professional liability law area worthy of detailed comment. However, a few cases do stand out and are highlighted herein for your consideration and review.
I.
EFFECTIVENESS OF RELEASE AND ABILITY OF EXCESS INSURER
TO SUE FOR LEGAL MALPRACTICE
In Keck, Mahin & Cate v. National Union Fire Insurance Company, 20 S.W.3d 692 (Tex. 2000), the Texas Supreme Court addressed the issues of the validity of a release signed during the attorney-client relationship and the ability of an excess insurer to sue the attorneys hired by the primary insurer for legal malpractice. This case came to the Texas Supreme Court through the Houston Fourteenth District Court of Appeals; the appeals court reversed summary judgments granted by the trial court, and the supreme court affirmed the appellate court but on different grounds as to the release issues.
This case arose out of a dispute between Wolf Point Shrimp Farm ("Wolf Point") and Granada Food Corporation ("Granada"). Wolf Point claimed that it had been damaged by Granada's alleged improper processing and marketing of shrimp grown and harvested at Wolf Point. Granada hired Keck, Mahin & Cate ("KMC") as its attorneys, and KMC later tendered defense of the case to Granada's primary insurer, Insurance Company of North America ("INA"), and to the excess carrier, National Union Fire Insurance Company of Pittsburgh, Pa ("National"). INA's policy covered a maximum of $1 million per occurrence and National's umbrella policy provided an additional $9 million in excess coverage. See Id. at 695.
Under a reservation of rights, INA agreed to defend Granada, and INA chose to keep KMC as counsel in the case. National's excess policy did not require it to investigate or defend claims made against Granada since the primary insurer was providing Granada with a defense; National did have the right to be involved in the litigation, but it did not exercise that right.
Two weeks before the Wolf Point trial, KMC entered into a release agreement with Granada; part of this agreement was a release by Granada of "all demands, claims or causes of action of any kind whatsoever, statutory, at common law or otherwise, now existing or that might arise hereafter, directly or indirectly attributable to the rendition [of] professional legal services by KMC to Granada between June 1, 1988 and April 1, 1992." Id. at 696. In exchange for this release, KMC agreed to forgive Granada's unpaid legal fees. See Id.
During the course of the litigation, Wolf Point demanded $3.6 million to settle the suit. INA and National were both apprised of the demand, but KMC informed them that the case could probably be settled for half that amount. The case was set for trial on April 28, 1992; KMC attempted to continue the case, but they were unsuccessful. On the first day of the trial, INA tendered its policy limits to National. National then settled the case for $7 million and judgment was entered on that amount. National subsequently filed the present suit against INA and KMC to recover the money it paid to settle with Wolf Point. National claimed that INA and KMC had mishandled the litigation, thus forcing National to settle the suit in order to protect themselves and Granada from a large judgment. National also claimed that INA was guilty of gross negligence and violations of the Texas Insurance Code. See Id. at 695-696.
INA denied responsibility, cross-claimed against KMC for malpractice and asserted an affirmative defense against National, claiming National's contributory negligence or comparative responsibility. KMC also denied responsibility, and it pled that the release between it and Granada barred National's and INA's claims. KMC also asserted the affirmative defenses of contributory negligence and comparative responsibility against National. All parties moved for summary judgment. The trial court granted a majority of these motions, leaving only National's negligence claim against INA. Specifically, the trial court granted KMC's motion based upon the KMC-Granada release; INA's and National's negligence claims against KMC were severed, and the trial court rendered take-nothing judgments on them. The trial court also granted summary judgment in favor of National on KMC's and INA's contributory negligence and comparative responsibility affirmative defenses. The trial court found in favor of INA on National's gross negligence and Insurance Code violation claims. See Id. at 696.
The appeals court affirmed the trial court as to the gross negligence and Insurance Code violation claims; that decision was not appealed to the supreme court. The appeals court reversed the take-nothing judgments on negligence claims against KMC, stating the release did not bar INA's and National's claims against KMC. The appeals court also reversed on the issue of National's comparative responsibility, but it limited the time period to which the doctrine could be applied to the time after INA had tendered its policy limits.
KMC and Granada signed the release on April 10, 1992, during the course of KMC's representation of Granada. As stated, the release referred to unpaid fees and professional legal services provided by KMC to Granada between the dates of June 1, 1988 and April 1, 1992. The appeals court based its reversal upon a narrow interpretation of the recital's "unpaid fees" language, stating that, in combination with the release's failure to specifically name the Wolf Point litigation, the release was ineffective to bar INA's and National's claims. It only applied to unpaid fees, not to legal malpractice claims. The appeals court cited the Supreme Court case Victoria Bank and Trust Co. v. Brady, 811 S.W.2d 931 (Tex. 1991) in support of its position. See Keck, Mahin & Cate, 20 S.W.3d at 697.
The Supreme Court disagreed with the appeals court, stating that the Brady decision did not apply to the present case, since the release in that case was very specific, and the present release was far more broad, allowing for broader interpretation. The Supreme Court permitted the release to apply to all fees and services prior to April 1, 1992. Further, no implied limitations on the release language existed due the recitals. However, the supreme court found that even if KMC could benefit from the release, its plain terms would not apply to National's and INA's claims "based solely on services KMC rendered after April 1, 1992." Id. at 698. As to the validity of the release, the Supreme Court found that KMC did not meet its summary judgment burden.
For a release made during the course of the attorney-client relationship to be valid, the agreement must be permitted by law and the client must be independently represented in making the agreement. See Id. at 699; TEX. DISCIPLINARY R. PROF'L CONDUCT 1.08(g). Also, because the attorney-client relationship is fiduciary in nature, contracts such as the release in question are closely scrutinized and there is a "presumption of unfairness or invalidity" attaching to them. See Keck, Mahin & Cate at 699.
According to the supreme court, KMC had the burden of offering summary judgment proof that the release was fair and reasonable. KMC had to prove that Granada was "informed of all material facts relating to the release." Id. The summary judgment record showed that the only evidence KMC presented relating to the reasonableness of the release was a recitation in the text of the release which read that KMC "advised Granada in writing that independent representation [would be] appropriate in connection with the execution in this agreement." Id. The court found that this recitation was insufficient to rebut the presumption of unreasonableness and, therefore, it found that KMC failed to meet its summary judgment burden. See Id.
As to National's right to sue KMC and INA, the Supreme Court found that while a non-client cannot sue an attorney for malpractice, an excess carrier can stand in the shoes of the insured and assert the insured's claims without burdening the attorney-client relationship with additional duties or conflicts of interest. See Id. at 700. In this case, INA and KMC claimed that National's damages were caused by its own negligence in failing to participate in the Wolf Point litigation. The Supreme Court disagreed, stating "where the insured maintains both primary and excess policies, . . . the excess liability insurer is not obligated to participate in the defense until the primary policy limits are exhausted." Id. at 700. Therefore, while INA and KMC may assert the affirmative defenses of contributory negligence and comparative responsibility, for, the purposes of those defenses, the court may only look at the time period after the primary insurer has tendered its policy limits. See Id.
In terms of the $7 million settlement, KMC claims that National should bear some responsibility for the excessive settlement, in that there was a $3.6 million demand weeks before the trial. The court again disagreed, stating "[a]n excess insurer owes its insured a duty to accept reasonable settlements, but that duty is also not typically invoked until the primary insurer has tendered its policy limits." Id. In the present case, the policy limits were not tendered by INA until weeks after the $3.6 million demand had been withdrawn. The Supreme Court found, in fact, that National's duty to act with ordinary care in dealing with the Granada case did not arise at all until INA had tendered its policy limits. See Id. at 701. The only time that National's pre-tender conduct would be relevant is when that conduct can actually be shown to have harmed the insured's defense. See Id.
Finally, KMC claimed that National is not entitled to equitable subrogation because it voluntarily settled the case for the $7 million. Once again, the Supreme Court disagreed. The court stated that an insurer is not a volunteer when it pays a third-party claim against its insured, "if the payment is made in good faith and under a reasonable belief that the payment is necessary to its protection." Id. at 702. The court goes on to say that when an excess insurer pays to settle a suit against its insured, that payment is presumptively involuntary. See Id.
Causation in this case was a hotly contested issue and it was an issue remanded to the trial court. According to the Supreme Court, there are two specific matters that National must prove in order to recover any of the $7 million settlement. First, National must prove that the "$7 million settlement was excessive in the abstract, yet reasonable under these circumstances because of the defense provided for Granada." Id. at 703. If National can prove that the settlement was excessive, it must then prove that INA or KMC mishandled the litigation and that KMC's malpractice would have resulted in a judgment in excess of the case's value. Essentially, if these two things are proven, National's recovery would amount to the "difference between the true value and inflated value less any amount saved by the settlement." Id.
II.
LEGAL MALPRACTICE BY CRIMINAL DEFENSE ATTORNEYS
Owens v. Harmon, 2000 WL 1253667 (Tex. App.-Texarkana 2000)(not released for publication) is a case involving a claim of legal malpractice against a criminal defense attorney. The appellate court addressed the question of whether a convicted criminal defendant who, at all times, maintains his innocence may sue her defense attorney for legal malpractice. In doing so, the court refused to limit the application of the Texas Supreme Court's decision in Peeler v. Hughes & Luce, 909 S.W.2d 494 (Tex. 1995) by declining to confine Peeler to cases in which the criminal defendant confesses her own guilt.
In Owens, the plaintiff, Coy Lynn Owens ("Owens"), was convicted of fraud, fraud by mail, aiding and abetting fraud by mail and using fire to commit a felony. At all times, Owens maintained that he was innocent. Multiple appeals failed to reverse that conviction, and Owens subsequently sued his attorney, Eldred Harmon ("Harmon"), for legal malpractice. The trial court granted a summary judgment in favor of Harmon, citing that Owens had not been adjudged not guilty and, therefore, could not maintain a cause of action against his defense attorney for legal malpractice. See Id. at 1.
The Texarkana court found that Harmon committed errors in the trial; for example, Harmon directed Owens not to testify, not knowing whether Owens was aware of his right to testify if he so chose. Despite this, the court, relying upon the Peeler decision, refused to reverse the trial court's summary judgment against Owens on his legal malpractice claim.
In Peeler, the Texas Supreme Court held that a criminal defendant does not have a cause of action for legal malpractice unless he has been exonerated of the crime of which he is accused. See Peeler, 909 S.W.2d at 497-498. The reasoning behind this holding is that the alleged attorney malpractice cannot be the proximate cause of the defendant's conviction; instead, the proximate cause of the conviction was the defendant's commission of the crime. See Id. at 496-497. Unlike the Owens facts, however, the Peeler case involved a criminal defendant who had pleaded guilty to a crime, as opposed to the situation in Owens, where the criminal defendant was convicted but continues to maintain his innocence.
In Owens, the court refused to limit the Supreme Court's decision to cases involving guilty pleas, stating, "[t]he opinion makes clear that a person convicted of a crime cannot pursue a malpractice claim against his attorney unless he has established his innocence by direct appeal, post-conviction relief, or other legal proceedings." Owens, 2000 WL 1253667 at 2. In short, the appellate court affirmed the trial court's summary judgment against Owens. This ruling was not without its opponents, however. The concurrence of Justice Grant, who, echoing Justice Phillips' dissent in Peeler, points out that a criminal defense attorney who is incompetent is well-protected by the Peeler decision, in that if he "bungles" the case badly enough, his client will never be exonerated, and he will never have to bear legal responsibility for his malpractice.
III.
CRIMINAL DEFENSE ATTORNEY LIABILITY FOR BREACH OF CONTRACT
In Van Polen v. Wisch, 23 S.W.3d 510 (Tex. App.-Houston [1st Dist.] 2000, pet. filed, August 18, 2000), the Houston Court of Appeals addressed the question of whether the parents of a convicted defendant ("Van Polens") have a cause of action for breach of contract against a criminal defense attorney hired by them to defend their son. This case also dealt with the convicted defendant's claim of legal malpractice; the court upheld the trial court's summary judgment denying the convicted son's claim, since he had not been exonerated. However, the appeals court reversed as to the Van Polens' breach of contract claim, finding a question of material fact as to whether Wisch had breached the contract.
The plaintiffs in this case, the Van Polens and their son, Robert Hinojosa ("Hinojosa"), hired attorney Steven Wisch ("Wisch") to defend Hinojosa on drug possession and probation violation charges. The Van Polens, Hinojosa and Wisch were all parties to the attorney-client contract in which Wisch agreed to defend Hinojosa. Wisch subsequently failed to appear in court, albeit under questionable circumstances. The criminal court appointed substitute counsel for Hinojosa, who was convicted and sentenced to 12 years. See Id. at 513.
The Van Polens and Hinojosa subsequently filed suit against Wisch for breach of contract. The suit claimed that by failing to appear at the adjudication hearing, Wisch had breached his contract with the Van Polens and Hinojosa. See Id. The trial court granted summary judgment in favor of Wisch without stating the specific grounds for its ruling. See Id. at 514.
With regard to Hinojosa's claims of legal malpractice and breach of contract, the appeals court found that Hinojosa had no viable causes of action against Wisch. The court, citing Peeler, noted that Hinojosa had not been exonerated of the crimes of which he had been convicted. This alone barred his legal malpractice claims. Further, the court pointed out that, in Hinojosa's situation, the breach of contract claim is nothing more than a rehashed legal malpractice claim, and that it must fail under Peeler. See Id. at 515-516.
Conversely, the court reversed the trial court's summary judgment against the Van Polens on the breach of contract claim. First, Wisch claimed that the Van Polens were merely Hinojosa's agents and had no independent cause of action. The appeals court disagreed, noting that the Van Polens were actually parties to the contract, and "[p]arties to a contract may contract for their own benefit, as well as for the benefit of the third party." Id. at 516. The Van Polens claim that they contracted with Wisch for him to defend their son in court. Since Wisch did not appear in court, a court appointed attorney was selected for Hinojosa.
Instead of suing for negligence, the Van Polens sued Wisch for breach of contract. They claim that Wisch failed to perform under the contract, as he failed to appear at a hearing on a motion to adjudicate. The court found that the summary judgment evidence offered by the Van Polens raised a question of material fact as to whether Wisch breached his contract with them; therefore, the appellate court reversed the trial court's summary judgment.
Finally, Wisch argued that all plaintiffs repudiated the contract for Hinojosa's defense by filing pro se motions with the court and by requesting the court to appoint counsel. However, in his affidavit, Hinojosa claims that Wisch failed to appear at more than two trial settings, that Wisch was unaware of the status of the case, that he was rude to Hinojosa on the phone, and that he failed to appear at the final hearing. It appears that Hinojosa did not request appointed counsel until the last hearing. See Id. at 517. Hinojosa also states in his affidavit that he never intended to discharge Wisch. Wisch's affidavit apparently painted a different picture, but as the court is required to weigh all evidence favorable to the non-movants, the summary judgment was reversed due to a fact issue. See Id.
IV.
LEGAL MALPRACTICE LIABILITY FOR CRIMINAL DEFENSE ATTORNEYS
FOR PRE-TRIAL PROCEEDINGS AND OCCURRENCES
Satterwhite v. Jacobs, 2000 WL 637012 (Tex. App.-Houston [1st Dist.] 2000) (not released for publication) involved the courts' continuing interpretation of Texas Supreme Court's decision in Peeler v. Hughes & Luce, 909 S.W.2d 494 (Tex. 1995). The issue in Satterwhite was whether an attorney may be sued for legal malpractice for acts occurring prior to trial even if the plaintiff has a standing conviction in that criminal matter.
William Satterwhite ("Satterwhite") hired George Jacobs ("Jacobs") as his attorney to defend him against criminal charges. A bond hearing was held which could have permitted Satterwhite to be released from jail pending trial. At that hearing, the State's Motion to Hold Defendant Without Bond was granted and Satterwhite was incarcerated pending trial. After the bond hearing, Satterwhite hired another attorney who represented him at the criminal trial. At trial, Satterwhite entered a guilty plea and was sentenced to probation which was subsequently revoked.
Satterwhite sued Jacobs for negligence and breach of duty related to the bond hearing. Satterwhite alleged that Jacobs' negligence put him at a disadvantage as to other legal matters and that he sustained mental and emotional distress as a result of that negligence.
Relying on Peeler, Jacobs filed a motion for summary judgment proving Satterwhite's guilty plea and that the conviction had not been overturned. The summary judgment was granted by the trial court.
On appeal, Satterwhite argued that a genuine issue of material existed which precluded the entry of summary judgment. In reversing the trial court's entry of summary judgment, the appellate court held that since Jacobs' actions at issue in the malpractice litigation occurred prior to the criminal trial, Peeler did not apply. Since Satterwhite's "claim is not based on the legal representation he received during his criminal trial . . . his conviction in that proceeding is irrelevant to the claim he now asserts against Jacobs." This is not an issue which involves Satterwhite's ultimate guilt or innocence. Therefore, the appellate court declared that the Peeler factors were not present in this case and Satterwhite's subsequent conviction was "irrelevant."
Therefore, the appellate court reversed the entry of summary judgment since Jacobs did not demonstrate as a matter of law that Satterwhite was precluded from asserting the cause of action against him.
V.
FAILURE OF ATTORNEYS TO ADVISE CLIENTS
OF POSSIBLE CONFLICT OF INTEREST
Spera v. Fleming, Hovenkamp & Grayson, 25 S.W.3d 863 (Tex. App.-Houston [14th Dist.] 2000, no pet.) is a case involving the failure of attorneys to advise their clients of a possible conflict of interest. It centers around a series of hearings in which a court decided the fairness of attorneys fees in a mass tort suit. The court found that the question of whether Fleming, Hovenkamp & Grayson's ("FHG") failure to inform its clients of a possible conflict of interest was a question of fact precluding summary judgment.
This case arises out of an aggregate settlement of polybutylene pipe litigation ("Pipe Litigation"). Even though there were over thirty thousand plaintiffs in various cases across Texas, a class was not certified. Several of these litigants were the parties represented by FHG in the Pipe Litigation. FHG had contingency fee agreements with its clients, according to which FHG would receive 40% of all sums recovered by judgment or settlement. In December of 1995, an aggregate settlement was reached with two of the pipe manufacturers consisting of $170 million in cash payments and the replacement of the defective pipe in the homes of the plaintiffs. See Id. at 866-867.
In March of 1996, after the settlement was finalized, the trial court ordered a series of "fairness hearings" to determine the reasonableness of the contingency fees sought by FHG under the agreements. At this time, FHG did not inform its clients that the fee dispute could cause a conflict of interest between them and the firm.
After the fairness hearing, the trial court reduced FHG's fees from 40% of the whole settlement plus $20 million in out-of-pocket expenses to 20% of the cash settlement and $10 million in out-of-pocket expenses. See Id. at 867. In a December 1996 newsletter to its Pipe Litigation clients, FHG announced its intent to appeal the fee decision. In that same newsletter, FHG for the first time acknowledged the conflict of interest created by the fee dispute. See Id. at 867-868.
FHG subsequently appealed. Between July of 1997 and September of 1998, thousands of FHG's Pipe Litigation clients settled the fee disputes with FHG; however, many did not.
In February of 1998, many of the non-settling clients (the "Spera Plaintiffs") brought suit against FHG for breach of fiduciary duty based upon the alleged conflict of interest. The Spera Plaintiffs sought forfeiture of all or part of the attorneys' fees already paid to FHG. See Id.
In September of 1998, FHG moved for summary judgment. The grounds for the motion for summary judgment were (1) collateral estoppel; (2) impermissible collateral attack; (3) judicial estoppel; (4) previous fee settlements by the other pipe plaintiffs; (5) impermissible attack on the order by the trial court; (6) FHG's conduct did not support the Spera Plaintiffs' claims as the settlement had already been found by a court to be acceptable; (7) the Spera Plaintiffs were not damaged by the undisclosed conflicts; and (8) because all of the disputed funds were in an escrow account, the Spera Plaintiffs could not prove damages. See Id. at 868. The court granted the motion for summary judgment against the Spera Plaintiffs, but failed to designate the grounds. The Spera Plaintiffs appealed, in relevant part, on these eight grounds.
The first point of error involves collateral estoppel. The Spera Plaintiffs contend that collateral estoppel does not apply in this case. The elements of collateral estoppel are (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action. See Id. at 869. The appellate court found that collateral estoppel does not apply since the sole issue in the Pipe Litigation was the reasonableness of the contingency fees; in the present case, the facts to be litigated center around FHG's failure to disclose a conflict of interest, not the reasonableness of the fees themselves. See Id. at 870.
The second point of error is impermissible collateral attack. "A collateral attack is an attempt to avoid the effect of a judgment in a proceeding brought for some other purpose." Id. citing Gus M. Hodges, Collateral Attacks on Judgments, 41 TEX. L. REv. 163, 163-164 (1962). The appellate court found that the Spera Plaintiffs were not attempting to avoid the judgment awarding the reduced fees to FHG--they were attempting to prove a breach of fiduciary duty by
FHG. Therefore, the court found that this legal malpractice suit did not constitute a collateral attack.
The third point of error is the applicability of the doctrine of judicial estoppel. This doctrine "bars a party, who has successfully maintained a position in a prior judicial proceeding, from later adopting an inconsistent position. " Spera, 25 S. W. 3d at 87 1. The elements of judicial estoppel are (1) a sworn, prior inconsistent statement made in a judicial proceeding; (2) the party now sought to be estopped successfully maintained the prior position; (3) the prior inconsistent statement was not made inadvertently or because of mistake, fraud, or duress; and (4) the statement was deliberate, clear, and unequivocal." Id.
FHG based its claim of judicial estoppel on a sentence found in the Spera Plaintiffs' Amended Motion for Class Certification. The sentence read "[a]ll issues of reasonableness for attorneys' fees have been determined by orders of the [3]34th Judicial District Court." However, the statement in the motion was not sworn and, therefore, at least one of the elements of judicial estoppel is not satisfied. Therefore, this point of error was sustained.
In their fourth point of error, the Spera Plaintiffs contended that it would have been error for the trial court to dismiss their claims based upon releases executed by FHG's other Pipe Litigation clients. On appeal, FHG admitted that none of the Spera Plaintiffs finalized such a release. Therefore, the appellate court sustained point of error four.
In points of error five and six, the court addressed correspondence between FHG and its Pipe Litigation clients. Essentially, FHG offered to "resolve" the fee conflict and settle the matter. On appeal, the Spera Plaintiffs claimed that this correspondence "memorialized" FHG's wrongful conduct. The appellate court found the correspondence to be admissible and created a fact issue precluding summary judgment because it was being used to show FHG's failure to disclose a known conflict. See Id. at 872.
Points of error seven and eight concern the issue of whether the Spera Plaintiffs suffered any actual damages due to the alleged breach of fiduciary duty. On appeal, "FHG conceded that, in the context of the attorney-client relationship, proof of damages is not required with a request for fee forfeiture in a breach of fiduciary duty claim." Id. at 873. With respect to the breach of fiduciary duty claims, points seven and eight are sustained. Since all other legal malpractice claims require proof of damages and none was submitted to the trial court, the appellate court granted this point of error only to the breach of fiduciary duty claims. See Id. at 873-874.
VI.
LEGAL MALPRACTICE BY MEDIATORS
In Lehrer v. Zwernemann, 14 SW.3d 775 (Tex. App.-Houston [1st Dist.] 2000, writ denied), the Houston First District Court of Appeals discussed the legal malpractice liability of a mediator in a court-ordered mediation. The court found that plaintiff Kenneth Lehrer ("Lehrer") failed to meet his burden in response to the mediator's no evidence motion for summary judgment to show that he was injured as a result of defendant's actions.
Lehrer hired two attorneys to represent him in a divorce. Unhappy with the results of that litigation, Lehrer hired another attorney, James Supkis ("Supkis"), to sue his divorce attorneys for legal malpractice. The trial court ordered mediation; all counsel agreed upon Donald Zwernemann ("Zwernemann") as the mediator. The result of the mediation was a voluntary settlement agreement. See Id. at 776. Supkis and opposing counsel filed a motion to dismiss under the settlement which was granted by the trial court. Later, Supkis filed a motion for new trial and a motion to withdraw, stating that he moved to dismiss without his client's permission. Lehrer fired Supkis and filed an additional motion for new trial which was denied. See Id.
Lehrer subsequently sued Supkis, opposing counsel in the underlying legal malpractice action, and Zwernemann. Lehrer claimed that the defendants failed to inform him that opposing counsel had a prior professional relationship with Zwernemann and that Supkis had conducted no discovery in the case. As to Zwernemann specifically, Lehrer pled causes of action for negligence, breach of contract, breach of fiduciary duty, Deceptive Trade Practices Act violations, fraud, and conspiracy to commit fraud. Zwernemann filed a no evidence summary judgment, which was granted by the court. See Id. at 776.
In affirming the summary judgment, the appellate court cited the general rule that a cause of action accrues "when a wrongful act causes some legal injury." Id. at 777. The appellate court found that no evidence was presented that Zwernemann caused Lehrer any legal injuries. Even though Lehrer claims that if he had known of Zwernemann's prior relationship with opposing counsel, he would not agreed to have Zwernemann as the mediator, he failed to prove that he would not have entered into the settlement agreement if this was disclosed. Id. Further, while Lehrer outlined specific economic damages caused by Supkis, Lehrer failed to list any specific damages he suffered due to Zwernemann's participation in the mediation. See Id. at 778. Since Lehrer failed to produce summary judgment evidence of any legal injury he suffered by way of Zwernemann's acting as mediator, the summary judgment was affirmed.1
VII.
TOLLING OF STATUTE OF LIMITATIONS IN LEGAL MALPRACTICE
In Parsons v. Turley, 2000 WL 1137287 (Tex. App.-Dallas 2000) (not released for publication), the Dallas Court of Appeals discusses the tolling of the statute of limitations in the legal malpractice context. The issue in this case was when the two-year legal malpractice statute of limitations began to run.
In this case, plaintiff Roger Parsons ("Parsons") sued Windle Turley and Windle Turley, P.C. ("Turley") for legal malpractice with regard to Turley's alleged mishandling of a wrongful death claim. The case was found to be completely barred by the applicable statute of limitations.
This case arises out of a plane crash in September of 1991 in which Parsons' wife, a passenger on the plane, was killed. The plane was owned by E.I. DuPont de Nemours and Company ("DuPont"), which also employed the pilots of the plane; Parsons' wife was employed by Conoco, Inc. ("Conoco"), a former subsidiary of DuPont, which was responsible for overseeing the health and physical competency of the pilots. See Id. at 1. Parsons hired Turley to represent him and his wife's estate.
Parsons instructed Turley to file suit against both DuPont and Conoco in Texas state court. Turley filed suit, but he did so only against DuPont; the case was subsequently removed to federal court. In a separate action, Turley later filed suit against Conoco in state court; he was unsuccessful in his attempts to join the DuPont and Conoco suits in federal court. The trial court eventually granted Conoco's motion for summary judgment in state court on June 13, 1994. The state court entered final judgment dismissing Parsons' claims against the pilots' estates and all other remaining claims on April 25, 1995. Turley filed a motion for new trial on May 26, 1995. The motion was denied, and the appeal was dismissed for lack of jurisdiction due to the fact that the motion for new trial was filed one day outside of the trial court's plenary power. See Id.
The suit against DuPont was tried to a jury in federal court. The jury entered a verdict for Parsons, and it awarded actual damages on negligence and gross negligence in the amount of $4.75 million to Parsons and $1 million to his wife's parents. DuPont moved for judgment as a matter of law on the gross negligence claims, which was sustained by the court. The federal court awarded Parsons the actual damages found by the jury plus pre- and post-judgment interest and costs on July 27, 1994. Turley filed a notice of appeal on Parsons' behalf, but on December 5, 1994, Parsons sent Turley a letter informing him that Parsons hired new counsel and that Turley and his firm were "relieved of all responsibility with respect to the appeal of [Parsons'] case, effective now." Id. at 1. On June 12, 1996, the decision of the federal district court on the gross negligence claims was affirmed by the United States Fifth Circuit Court of Appeals.
Turley later sent, at DuPont's request, a letter to DuPont calculating the principal, prejudgment and post-judgment interest. An argument ensued as to whether or not the interest should be simple or compound. As a result of depositions taken in March and April of 1998, it was discovered that Conoco was aware that the pilot of the plane had a problem with alcohol abuse. On June 12, 1998, Parsons' sued Turley, claiming that Turley negligently failed (1) to discover and use the evidence of the pilots' alcohol problem and (2) to bring suit originally against both DuPont and Conoco in state court. Turley subsequently moved for summary judgment, claiming that Parsons' suit was barred by limitations, collateral estoppel and lack of causation; the trial court granted the motion without specifying its grounds. See Id. at 2.
The central issue on appeal was that of the statute of limitations. In Texas, legal malpractice claims sound in tort and carry a two-year statute of limitations. See Id. According to the appellate court, "[a] cause of action accrues when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred." Id. The discovery rule applies in the legal malpractice context, delaying the running of the statute of limitations until such time that the "plaintiff knew or in the exercise of reasonable diligence should have known of the wrongful act and resulting injury." Id. In legal malpractice cases, to establish the affirmative defense of limitations, a defendant has the burden of showing when the cause of action accrued and negating the discovery rule by proving that there is no genuine issue of fact about when the plaintiff discovered or should have discovered the facts establishing the cause of action. See Id. at 3.
In the legal malpractice context, the case of Hughes v. Mahaney & Higgins, 821 S.W.2d 154 (Tex. 1991) dictates that legal malpractice claims are tolled until all appeals in the underlying litigation are exhausted. See Id. at 2. However, Murphy v. Campbell, 964 S.W.2d 265 (Tex. 1997) expressly limits the application of Hughes to situations where a litigant might be forced to take inconsistent positions (i.e., if the attorney to be sued is representing the plaintiff in another matter resulting in litigation, the statute of limitations will be tolled until such time that the other matter is resolved or alternate counsel has been hired). See Id. at 3.
In the present case, Turley's representation of Parsons apparently ended with Parsons' letter on December 5, 1994. Parsons argued that Turley's representation had not been terminated. Instead, Parsons claimed that his letter meant that he was hiring additional counsel to handle the federal appeal, not that he was terminating Turley's representation. The appeals court points out, however, that the underlying litigation was complete when the federal court entered its final judgment on July 27, 1994; at that point, all that remained was the appeal. Even if the date that the representation ended is extended to the date the state court appeal was dismissed, October 12, 1995, Parsons' suit was filed outside the two-year statute of limitations. The date the federal appeal was final, June 12, 1996, is not relevant, as Parsons himself argued that Turley did not represent him in the federal appeal. Even at the latest date of termination of the attorney-client relationship, Parsons' filed outside the statute of limitations; therefore, the appeals court affirmed the trial court's summary judgment in favor of Turley.
VIII.
ASSOCIATES' FIDUCIARY DUTY TO FIRM
On October 4, 2000, the Texas Supreme Court heard arguments in the appeal of Brewer & Pritchard v. Johnson, 7 S.W.3d 862 (Tex. App.-Houston [1st Dist.] 1999, pet. granted August 24, 2000). Houston attorneys Nick Johnson ("Johnson") and James Chang ("Chang") are appealing a 1999 decision by the Houston First District Court of Appeals which held that associates owe a fiduciary duty to their respective law firms. Another issue before the court involves the splitting of referral fees without a client's consent.
In the case, the firm of Brewer & Pritchard ("Brewer") claims that Chang breached his fiduciary duty to the firm by helping a friend who had been involved in a helicopter crash retain Johnson (not a member of Chang's firm) to represent him. The suit was eventually referred to Joseph Jamail, who settled the case for $15 million. Johnson and Chang each received a portion of the referral fee. Brewer claims that Chang should have brought the case to the firm, and it claims that the firm is therefore entitled to the $3 million referral fee. The appellate court held that associates owe their firms a fiduciary duty, regardless of their status as at-will employees. For a full analysis of the opinion of the appeals court, see Texas Association of Defense Counsel Professional Liability (Non-Medical) Newsletter, Spring 2000. This will definitely be an opinion to look for next year.
A. This article was written by Matthew C. Guilfoyle, Robert M. Browning, and Jennifer P. Powell formerly associated with the Firm.
1 Summary judgment was also granted, and later affirmed, in favor of opposing counsel. See Lehrer v. Weinberg, 1999 WL 312327 (Tex. App.-Houston [1st Dist.] 1999, pet. denied) (not released for publication).
