attorney liability/attorney malpractice · b. “beauty pageant” in b.f. goodrich co. v. formosa...

ATTORNEY LIABILITY/ATTORNEY MALPRACTICE

ALISTAIR B. DAWSONBECK, REDDEN & SECREST

1221 McKinney, Suite 4500Houston, Texas 77010

Advanced Personal Injury Law CourseJuly 10-12, Dallas, TX

July 24-26, San Antonio, TXAugust 21-23, Houston, TX

CHAPTER 28

ALISTAIR B. DAWSONMr. Dawson became a partner of the Firm on January 1, 1998. He graduated magna cum laudefrom Vanderbilt University in 1986 with a degree in International Economics and InternationalBusiness. He graduated with honors from the University of Texas School of Law in 1989, wherehe served as an Editor of the Texas Law Review, and was also a member of the prestigiousChancellor’s Society. Mr. Dawson joined Vinson & Elkins in May 1989, and joined Beck,Redden & Secrest in March 1993. He is admitted to practice before all state courts in Texas, theUnited States Supreme Court, United States Court of Appeals, Fifth Circuit, United StatesDistrict Court for the Southern District of Texas, Western District of Texas, the Northern Districtof Texas, and the Eastern District of Texas.

Mr. Dawson’s practice includes virtually every aspect of commercial litigation. He has defendeda Fortune 100 company in a nationwide class action, a major oil company in a suit by the State ofTexas for unpaid royalties, and a Fortune 100 company in a nationwide antitrust case. Mr.Dawson is currently defending several nationwide class action cases. Mr. Dawson has alsodefended numerous Fortune 500 companies in antitrust cases alleging monopolization, conspiracyand predatory pricing. Recently, Mr. Dawson successfully tried a case in New York on behalf ofa New York investor involved in an oil and gas prospect in East Texas. Mr. Dawson led a team often lawyers and over twenty experts in suits on behalf of AT&T to gain entry into the local phonemarkets in Texas, Oklahoma and Kansas. Mr. Dawson has handled multi-million dollar casesinvolving misappropriation of trade secrets, usurpation of corporate opportunities and breaches offiduciary duty. Mr. Dawson successfully defended Marathon Oil in a multi-million dollar royaltydispute brought in Henderson, Texas (in which more than 200 of the plaintiffs were Hendersonresidents). Mr. Dawson has served on the Defense Steering Committee in a national mass tortcase. He has successfully defended two attorney malpractice cases. He also has extensiveexperience in product liability cases, including on behalf of several Fortune 500 companies. Mr.Dawson has also handled various oil and gas disputes, involving both breach of contract, take-or-pay and royalty disputes. Mr. Dawson has been involved in various aspects of environmentallitigation, including Superfund clean-ups and issues related to the Environmental ProtectionAgency and additional experience in labor and insurance disputes.

Mr. Dawson is also active in local and state bar associations. He has served on numerouscommittees of the Houston Bar Association and currently serves on the Litigation Council of theState Bar of Texas, chairs the CLE Committee of the Litigation Section State Bar of Texas and isa member of Garland Walkers Inns of Court. He is a Texas Bar Foundation Fellow, a HoustonBar Foundation Fellow, and University of Texas Keeton Fellow. Mr. Dawson also serves on theCommercial and Business Litigation Committee of the American Bar Association. Mr. Dawson isalso active in local charitable associations, serving on the Board of Literacy Advance of Houstonand the Parish School.

ATTORNEY LIABILITY/ATTORNEY MALPRACTICE Chapter 28

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Table of Contents

I. Introduction............................................................................................................................................................1II. The Law of Legal Malpractice ..........................................................................................................................1III. The Attorney-Client Relationship....................................................................................................................1

A. Creation of the Relationship ............................................................................................................................... 1B. “Beauty Pageant”.................................................................................................................................................. 1C. Who is the Client—Corporate Entities .............................................................................................................. 2

IV. Attorney’s Liability...............................................................................................................................................2A. The Texas Disciplinary Rules of Professional Conduct—Prima Facie Evidence of the.......................... 2B. Negligence.............................................................................................................................................................. 3

1. Attorney’s Negligence and Resulting Damages is a Question of Fact..................................................... 32. An Attorney is Required to Know the Clearly Defined Rules of Law..................................................... 33. Acts or Omissions by the Attorney that Resulted in Damages to the Client........................................... 34. Damages ............................................................................................................................................................. 45. The Court Relies On Plaintiff’s Own Pleadings and Expert’s Testimony To Characterize ................. 56. When Attorney Negates An Element of The Legal Malpractice Claim................................................... 5

C. Breach of Fiduciary Duty .................................................................................................................................... 51. Fee Forfeiture As Damages for Breach for Fiduciary Duty....................................................................... 52. Potential Conflicts............................................................................................................................................. 63. Multiple Party Representation....................................................................................................................... 74. Example of Attorney Breach of Fiduciary Duty.......................................................................................... 75. Client May Recover Mental Anguish and Exemplary Damages .............................................................. 86. Breach of Fiduciary Claims Require Expert Testimony............................................................................. 8

D. Breach of Contract as Cause of Action Against Attorney............................................................................. 91. Attorney’s Fees are a Common Source of Disputes between Clients and Attorneys. .......................... 92. Sending a Client a Bill and Ending a Relationship With Them At The Same Time is ...................... 10

E. Statutory Causes of Action................................................................................................................................ 10V. A Legal Malpractice Plaintiff May Not Split His/Her Claims ..................................................................11VI. Defenses to Legal Malpractice Claims ...........................................................................................................12

A. Defenses—Generally.......................................................................................................................................... 12B. Third Party Liability and the Privity Defense................................................................................................ 12C. Statue of Limitations .......................................................................................................................................... 13

1. When is a Claim Not A Legal Malpractice Claim, Such That A Four-year Statute of Limitations . 132. When Does the Action Accrue For the Purpose of the Statute of Limitations?................................... 143. The Hughes/Murphy Rule is Again Just the Hughes Rule ....................................................................... 164. The Hughes Tolling Rule Does Not Apply to DTPA Claims .................................................................. 17

VII. Practical Tips for Avoiding Malpractice Claims ..................................................................................18A. Saying “No” to A Prospective Client .............................................................................................................. 18B. Establish Who Your Clients Are ...................................................................................................................... 18C. Check for Conflicts Before Accepting Representation ................................................................................ 18D. Calendar System.................................................................................................................................................. 18


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ATTORNEYLIABILITY/ATTORNEYMALPRACTICE

I. IntroductionLawyers conduct their day to day

activities in large part insulated from thecritique and judgment of non-lawyers. Thatfact changes when, according to the (former)client, something serious has gone wrong, andthe client, or a third party, files a legalmalpractice claim. Recent studies andstatistics support the general assumptionamong lawyers that legal malpractice claimsare on the rise.1 To that end, the scope of thisarticle is broad. First, this article will focus onthe term legal malpractice. Legal malpracticeis a catch-all phrase that encompasses a groupof causes of action by which clients and thirdparties attempt to recover damages fromlawyers. Second, this article will discuss someof the recent changes that have taken place inTexas legal malpractice law. This article thenwill conclude with what this author believesare practical tips for avoiding malpracticeclaims.

II. The Law of Legal MalpracticeLegal malpractice based on professional

negligence compensates clients and otherplaintiffs for injury caused by a lawyer’saction or inaction. Legal actions againstlawyers are rooted in two common law causesof action. Like a tort action for negligence,the plaintiff in a legal malpractice claim mustestablish that the defendant owed a duty to theplaintiff and that there has been a breach ofthat duty. Generally, that translates intoshowing that the lawyer acted withoutreasonable care. Other elements of anegligence cause of action, such as proximatecause and damages, must also be proven.

A legal malpractice action can also bebased on an action for a breach of contract.That contract can be created in a written

1 See A.B.A. STANDING COMM. ON LAWYER’SPROF’L LIAB., Profile of Legal Malpractice Claims1996-1999 Study 5 (April 2001) (hereinafter,“ABA Study”).

instrument, or it can be implied from theconduct of the parties. From the creation ofthat relationship—i.e., the creation of anagency relationship—it follows that theattorney client relationship imposes the dutiesof a fiduciary upon the attorney. Regardless ofthe theory alleged, the ultimate issue in a legalmalpractice case is whether there has been abreach of duty. This issue—also known as“fracturing”—is discussed in section IV. Seealso Burrow v. Arce, infra.

III. The Attorney-Client RelationshipA. Creation of the Relationship

In Texas, an attorney-client relationship iscreated when the parties manifest, whetherexplicitly or implicitly by their conduct, anintention to create the attorney-clientrelationship. See National Med. Enters., Inc. v.Godbey, 924 S.W.2d 123, 147 (Tex. 1996).The formation of the relationship does notdepend on the payment of a fee. Prigmore v.Harware Mut. Ins. Co., 225 S.W.2d 897, 899(Tex. Civ. App.—Amarillo 1949, no writ).From these general principles it follows that afiduciary relationship can be established evenwhen an attorney merely enters into adiscussion with a potential client. See Nolan v.Freeman, 665 F.2d 738, 739 n.3 (5th Cir.1982). The test of whether the attorney-clientrelationship was formed is the reasonableexpectation of the client in light of all thesurrounding circumstances. See Perez v. Kirk& Carrigan, 822 S.W.2d 261, 265 (Tex.App.—Corpus Christi 1992, writ denied).

B. “Beauty Pageant”In B.F. Goodrich Co. v. Formosa Plastics

Corp., 638 F. Supp. 1050 (S.D. Tex. 1986),plaintiff Goodrich attempted to disqualify theopposing side’s law firm because theirattorney was one of five attorneys interviewedand considered for representation—hence the“beauty pageant.” The court concluded norelationship had been formed, mainly because“Goodrich basically designed and controlledthe structure of each interview…. OnlyGoodrich attorneys met with the candidatesand those attorneys regulated whatinformation was furnished to each candidate.”Id. at 1052. Most important, however, was the

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=TX_caselaw&volume=924&edition=S.W.2d&page=123&id=26880_01


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_5thcircuit&volume=665&edition=F.2d&page=738&id=26880_01


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_distctopinions&volume=638&edition=F.Supp.&page=1050&id=26880_01


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court’s holding that the “fact that the attorney-client relationship had not yet been establisheddoes not mean that the [defendant’s] firmowed no duty whatever to Goodrich.” Id. Insuch instances, then, the lawyer must treat theinformation obtained from even a potentialclient as confidential, even if no attorneyclient relationship is ever formed.

C. Who is the Client—Corporate EntitiesIn terms of delineating who the client is,

representing legal entities poses distinctproblems for lawyers. When an attorneyrepresents legal entities such as corporationsor limited partnerships, the directors or limitedpartners of those entities cannot legitimatelyclaim that they personally have an attorney-client relationship with the attorney. TEX.DISCIPLINARY R. PROF’L CONDUCT 1.12,reprinted in TEX. GOV’T CODE ANN., tit. 2,subtit. G app. A (Vernon Supp. 2002) (Tex.State Bar R. art. X, § 9) (“A lawyer employedor retained by an organization represents theentity.”) The following are general principlesregarding the client in corporations andlimited partnerships.

• Corporations : Rendering legal services to acorporation generally does not, by itself,create a duty for the attorney to thecorporation’s investors, its officers anddirectors, and its shareholders. See Wingate v.Hajdik , 795 S.W.2d 717, 719 (Tex. 1990);Hamlin v. Gutermuth , 909 S.W.2d 114, 116(Tex. App.—Houston [14th Dist.] 1995, writdenied).• Limited Partnerships : Malpractice actionsby limited partners against attorneysrepresenting limited partnerships have beenunsuccessful, usually because of the lack ofany duty to the limited partners personally.Hopper v. Frank , 16 F.3d 92 (5th Cir. 1994).

As discussed at the end of this article, tohelp avoid confusion and malpractice actions,the attorney should clearly set out in a writtenagreement which persons or entities are or arenot the lawyer’s client.

IV. Attorney’s LiabilityThe two most common bases for a

lawyer’s liability are negligence and actual orconstructive breaches of one’s fiduciary dutiesto a client. Of course, every lawyer is alwaysliable for such intentional torts as fraud,malicious prosecution, wrongful attachment orlevy, and civil conspiracy. Statutes, both stateand federal, also provide bases for legalmalpractice claims. And, finally, there are theethical rules and standards which have longgoverned the professional responsibilities oflawyers, and which will be discussed firstbecause they establish many of standards thatgovern lawyers.

A. The Texas Disciplinary Rules ofProfessional Conduct—Prima FacieEvidence of the Standard of Care

The Texas Disciplinary Rules ofProfessional Conduct govern the professionalresponsibilities of attorneys. The Rules areextensive in scope and, thus, will not bediscussed in detail here. Rather, a few generalobservations regarding their impact onmalpractice claims will be noted.

First, a “[v]iolation of a rule does not giverise to a private cause of action nor does itcreate any presumption that a legal duty to aclient has been breached.” TEX. DISCIPLINARYR. PROF’L CONDUCT preamble § 15. Second,Texas courts have repeatedly held that aviolation of the state bar rules does not createa private cause of action. See Dyer v. Shafer,Gilliland, Davis, McCollum & Ashley, Inc.,779 S.W.2d 474, 479 (Tex. App.—El Paso1989, writ denied). Finally, and despite theprevious statement, Texas courts havecontinued to use those same ethical rules asstandards of conduct for attorneys in legalmalpractice cases. Avila v. Havana PaintingCo., 761 S.W.2d 398, 400 (Tex. App.—Houston [14th Dist.] 1988, writ denied)(noting that the code of attorney conductrequired attorney to deliver client fundspromptly, and failure to do so gave rise tocause of action in tort).

Practice in federal court is similar. Thus,though each federal court has its own rules ofadmission and practice, those rules oftenfollow those of the state in which the federal







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courts sits. See Bruce A. Green, Whose Rulesof Professional Conduct Should GovernLawyers in Federal Court and How Should theRules be Created?, 64 GEO. WASH. L. REV.460 (1996); see also In re Dresser Indus., 972F.3d 540, 542-45 (5th Cir. 1992).

The ABA’s Model Rules of ProfessionalConduct, adopted in 1983 (the “ModelRules”), are also influential in settingstandards of conduct. The Model Rules arebased on the ABA’s Model Code ofProfessional Responsibility, adopted in 1969.Though the Model Rules will not be discussedhere, it should be noted that most state andfederal courts base their rules of professionalconduct on the Model Rules. See id.

In addition to the above rules, barassociations, whether national or local,regularly issue ethics advisory opinions thatare not binding on courts. However, good faithreliance on an opinion could be used indefense of a disciplinary or malpractice claim.See generally NATHAN M. CRYSTAL,Professional Responsibility 14 (2nd ed. 2000).

B. NegligenceNegligence is the failure to do that

which a reasonable attorney practicing in thesame locality would do, or not do, under thesame circumstances. Cosgrove v. Grimes, 774S.W.2d 662, 665 (Tex. 1989). Said differently,negligence is when a client claims that alawyer mishandled a legal matter. Lawyerswho practice in a specialized field, such assecurities or tax, are held to the standard ofcare normally exercised by specialists.Rhodes v. Batilla, 848 S.W.2d 833, 843 (Tex.App.—Houston [14th Dist.] 1993, writdenied). As can be expected, the standard ofcare allows for some latitude in strategy. Thus,“[i]f an attorney makes a decision which areasonably prudent attorney could make in thesame or similar circumstances, it is not an actof negligence even if the result isundesirable.” Cosgrove, 774 S.W.2d at 665.

1. Attorney’s Negligence and ResultingDamages is a Question of Fact

The determination of an attorney’snegligence and the amount of damagesproximately caused by that negligence are

usually questions of fact. Millhouse v.Wiesenthal, 775 S.W.2d 626, 627 (Tex. 1989).However, after the jury makes its factualdeterminations, the court then determines thelegal question of “whether such facts found bythe jury constitute professional misconduct. Ifthe trial court determines the facts constituteprofessional misconduct, it then entersjudgment in favor of the plaintiff.” Rhodes,848 S.W.2d at 840 (internal quotationsomitted). Moreover, “[a]lthough proximatecause in a legal malpractice action is usually aquestion of fact, it may be determined as amatter of law if the circumstances are suchthat reasonable minds could not arrive at adifferent conclusion.” Schlager v. Clements,939 S.W.2d 183, 187 (Tex. App.—Houston[14th Dist.] 1996, writ denied).

2. An Attorney is Required to Know theClearly Defined Rules of Law

Not much discussion is required here.Suffice to say, ignorance of the law, even agood faith one, is no defense.2 The followingtwo cases best illustrate the point:

a. An attorney’s good faith belief that hisclients’ claims were barred by thestatute of limitations would not be adefense to a legal malpractice claim.Haussecker v. Childs, 935 S.W.2d930, 934 (Tex. App.—El Paso 1996),aff’d, 974 S.W.2d 31 (Tex. 1998).

b. An attorney may be liable fordamages to a client resulting from theattorney’s incorrect interpretation of astatute. For example, an attorney washeld liable for preparing an agreementin violation of statute where thestatute was unambiguous. Mosaga,S.A. v. Baker & Botts, 780 S.W.2d 3, 5(Tex. App.—Eastland 1989, no writ).

3. Acts or Omissions by the Attorney thatResulted in Damages to the Client

These act or omissions can includeinaction or delay, such as allowing the client’s

2 The ABA Study lists “Failure to Know/ProperlyApply Law” as the reason cited for the highestnumber of alleged attorney errors. See ABA Studyat 12.















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cause of action to become barred by the statuteof limitations, erroneous advice or opinion, thefailure to advice the client of relevantinformation, the improper preparation of legaldocuments, or other omissions. The followingcases are but a small sample of the many casesrecognizing a cause of action for an attorney’sacts or omissions:

a. Attorney liable for failure to answer alawsuit filed against client and hissubsequent failure to overturn theresulting default judgment enteredagainst client. Holland v. Hayden, 901S.W.2d 763 (Tex. App.—Houston[14th Dist.] 1995, writ denied).

b. Attorney liable for filing suit againstpassenger rather than driver, allegingwrong location of accident, and failedto correct error before expiration ofstatute of limitations. Cosgrove v.Grimes, 774 S.W.2d 662, 665 (Tex.1989).3

c. Attorney liable for advising client toget a “paper divorce” to prevent IRScollection attempts. Rhodes, 848S.W.2d at 840.

d. Attorneys owed a duty to clients tomake full and fair disclosure of everyfacet of proposed settlement,especially in class action. Bloyed v.General Motors Corp., 881 S.W.2d422, 436 (Tex. App.—Texarkana1994), aff’d, 916 S.W.2d 949 (Tex.1996).

4. DamagesTo obtain damages in a legal malpractice

suit, the client must prove not only that theunderlying suit would have been successfulbut for the malpractice of the attorney, but hemust also establish the amount of damages hewould have recovered had he been 3 In contrast, see Medrano v. Reyes, 902 S.W.2d176, 178 (Tex. App.—Eastland 1995, no writ),holding that law firm was not liable to file awrongful death action prior to running oflimitations period when the firm set a letter to theclients, the clients retained new counsel, and theletter was received twenty-one months before endof limitations period.

successful—this is also referred to as the “suitwithin a suit.” Fireman’s Fund Am. Ins. Co.v. Patterson & Lamberty, Inc., 528 S.W.2d 67,69-70 (Tex. Civ. App.—Tyler 1975, writ ref’dn.r.e). He must also show that the judgmentwould have been collectible. Cosgrove, 774S.W.2d at 665-66. In a case in which theclient was a defendant and the client alleges hewould have been successful but for theattorney’s malpractice, the client must provehe had a meritorious defense. Heath v.Herron, 732 S.W.2d 748, 753 (Tex. App.—Houston [14th Dist.] 1987, writ denied). TheHeath court, however, affirmed a judgmentagainst an attorney for malpractice based onexpert “settlement value.” This suggests thatTexas courts my allow recovery without theneed to show success in the underlying suit.

The “suit within a suit” scenario leads to afew peculiar situation:

[I]n pursuing such an inquiry in a suitbetween an attorney and client the court is,in a sense, compelled to try a “mootcase,”—a suit without a plaintiff andwithout a defendant. It is impossible to saywhat defenses would have been urged bythe defendants in the compromised cause.It also presents the anomaly of trying twosuits in one, in which the liability ofpersons not parties to the suit on trial inquestion.

Lynch v. Munson, 61 S.W. 140, 142 (Tex. Civ.App.—1901, no writ). No less strange is thefact that the attorney must then take theposition that the earlier suit would have beenunsuccessful even if it had been handledproperly, assuming it was not. See Mathew v.McCoy, 847 S.W.2d 397, 401 (Tex. App.—Houston [14th Dist.] 1993, no writ) (notingthat defending against legal malpractice claimby arguing doctors in the underlying suit didnot commit medical malpractice after pursuingmedical malpractice claim is permissible). InJoachim v. Chambers, 815 S.W.2d 234, 240-41 (Tex. 1991), the attorney-defendants wentso far as to have the judge who presided overthe underlying suit testify in the malpracticesuit. The trial judge refused to strike thejudge’s testimony, and the court of appeals


















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declined to reverse the trial judge. In grantingthe writ of mandamus, the supreme courtnoted, among others, that the judge’s“testimony for defendants confers his veryconsiderable prestige as a judicial officer insupport of defendants’ position.” Id. at 239.

5. The Court Relies On Plaintiff’s OwnPleadings and Expert’s Testimony ToCharacterize Claims as Malpractice Claims

In Mecom v. Vinson & Elkins, No. 01-98-00280-CV (Tex. App.—Houston [1st Dist.]May 10, 2001, pet. dism’d) (not designated forpublication), 2001 WL 493426, the plaintiffsalleged numerous causes of actions involvingestate planning legal services. In affirming thetrial court’s characterization of the client’sclaims as legal malpractice, the court reliedupon the testimony of the client’s own expert.The expert, an attorney, testified that thelawyers “failed to discharge [their] duty ofcare.” Id. at *10. The court further noted thatits “conclusion that this is a legal malpracticeaction is further supported by [the plaintiff’s]own description of her claims and her expert’stestimony that V & E breached their dutiesand the standard of care as attorneys ….” Id.at *11.

6. When Attorney Negates An Element ofThe Legal Malpractice Claim, SummaryJudgment For The Attorney Is Proper On TheAdditional Causes Of Action When TheyArise From The Same Set of Facts

In McDermott v. Nelsen, No. 01-98-01323-CV (Tex. App.—Houston [1st Dist.]April 26, 2001, no pet.) (not designated forpublication) 2001 WL 423287, the trial courtinstructed a verdict against Nelsen, the client,on his legal malpractice claims because of thelack of expert testimony at trial. But the courtpermitted the case to go to the jury onNelsen’s negligence, gross negligence, andDTPA claims. In reversing and renderingjudgment for McDermott, the court of appealsstated, “Texas courts do not permit thefracturing of the malpractice claim into othercauses of actions.” Id. at *3.

C. Breach of Fiduciary DutyThe relationship of attorney and client is

one of the highest trust and confidence. SeeSmith v. Dean, 240 S.W.2d 789, 791 (Tex.Civ. App.—Waco 1951, no writ). Infurtherance of that relationship, the attorneyhas a duty to represent his client withundivided loyalty, to preserve the client’sconfidences, and to disclose to the client anyinformation that might prevent the fulfillmentof these obligations. See NCNB Texas Nat’lBank v. Coker, 765 S.W.2d 398, 399 (Tex.1989); Employers Cas. Co. v. Tilley, 496S.W.2d 552, 559 (Tex. 1973). This dutyapplies equally to prospective clients—i.e.,preliminary consultations between thepotential client and the attorney. Nolan v.Foreman, 665 F.2d 738, (5th Cir. 1982).

Failure to disclose important informationis the most common form of the attorney’sbreach of fiduciary duty. There must becomplete disclosure of all information whichmay impact the quality of the attorney’srepresentation, including an explanation of itslegal significance. See Employers Cas. Co. v.Tilley, 496 S.W.2d 552, 558 (Tex. 1973) (“If aconflict arises between the interests of theinsurer and the insured, the attorney owes aduty to the insured to immediately advise himof the conflict.”); Bloyed v. General MotorsCorp., 881 S.W.2d 422, 436 (Tex. App.—Texarkana 1994), aff’d, 916 S.W.2d 949 (Tex.1996) (holding that attorneys owed a duty toclients to make full disclosure of every facetof proposed settlement, especially in classaction).

1. Fee Forfeiture As Damages for Breach forFiduciary Duty

A lawyer who is found to have acted inviolation of his duty to a client may berequired to forfeit some or all of the hiscompensation for the matter. Fee forfeiture isnot required in every case where an attorneybreaches a fiduciary duty. Burrow v. Arce, 997S.W.2d 229, 241 (Tex. 1999). The remedy offee forfeiture is an equitable one and is highlydependent on the facts of the underlyingbreach of fiduciary duty. Id. The ultimatedecision on the amount of any fee forfeituremust be made by the court. Id. at 245. The












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court must determine whether forfeiture isequitable and just. Id. Also, unlike othercauses of action, the supreme court has heldthat proof that the attorney’s breach of dutyharmed the client is not a prerequisite torecovering fees paid. Id. This is because it “isthe agent’s disloyalty, not any resulting harmthat violates the fiduciary relationship and thusimpairs the basis for compensation.” Id.Burrow v. Arce is discussed fully in sectionIV, C, 4.

2. Potential ConflictsThe prohibition against conflicts of

interests seeks to insure clients that theirlawyers will represent them with undividedloyalty. A client is entitled to be representedby a lawyer whom the client can trust.Because these principles form an importantpart of a fiduciary relationship, conflicts areoften the source of a breach of attorney’s dutyto his client. Conflicts of interest come inmany forms. See generally TEX.DISCIPLINARY R. PROF’L CONDUCT 1.06, 1.08& 1.09. They include adverse representationagainst a current client, multiplerepresentation of clients in a single matter,representation against a former client,advocate-witness conflicts, and conflictsinvolving the lawyer’s own personal orfinancial interest. The Texas DisciplinaryRules require counsel to refuse to accept orcontinue employment if such representationwould involve a “substantially related” matterthat would materially and directly adverse tothe interests of another client, or if suchrepresentation would become limited by theattorney’s responsibilities to another client. Id.1.06(b), 1.15(a)(1). In Goffney v. Rabson, 56S.W.3d 186, 193-94 (Tex. App.—Houston[14th Dist.] 2001, pet. granted) the courtstated: “Breach of fiduciary duty bay anattorney most often involves the attorney’sfailure to disclose conflicts of interest, failureto deliver funds belonging to the client,placing personal interests over the client’sinterests, improper use of client confidences,taking advantages of the client’s trust,engaging in self-dealing, and makingmisrepresentations.” Id. at 193-94.

The test for determining conflict iswhether competent representation of one clientwill or is likely to affect adversely the exerciseof the attorney’s competent representation ofanother client is For example, in J.W. Hill &Sons, Inc. v. Wilson, 399 S.W.2d 152, 154(Tex. Civ. App.—San Antonio 1966, writref’d n.r.e.), the court of appeals held that itwas reversible error for trial judge to deny anattorney’s motion to withdraw fromrepresenting the owner’s of a truck when oneof the passengers, who was also an employeeof the truck’s owner, contended that he was inthe course of his employment during eventsthat led up to the collision and which led to thepassenger/employee’s sustaining damages.Vickery v. Vickery, (Tex. App.—Houston [1stDist.] 1997, pet. denied) (opin’n on reh’g),1997 WL 751995 (not designated forpublication), presents a more obvious conflictsituation. There, the husband, himself anattorney, hired an attorney, who also happenedto be his friend, to represent his wife in theirdivorce. In a jury trial, the jury found that theattorney who handled the divorce breached herfiduciary duty to the wife. The jury also foundthat the husband had also breached hisfiduciary duty to his wife. The court ofappeals noted, “To the extent that [thehusband] was advising [the wife] of the legalaspects of a transaction by which he wouldbenefit, [he] assumed the ‘high duty of anattorney to his client.’” Id. at *34-35. InLopez v. Munoz, Hockema & Reed, L.L.P.,980 S.W.2d 738, 743 (Tex. App.—SanAntonio 1998), rev’d on other grounds, 22S.W.3d 857 (Tex. 2000), the court held that anattorney’s attempt to grossly overcharge theclient, or to imply to the client that theattorney is entitled to overpayment, canconstitute breach of fiduciary duty.

The following case illustrates, andcontrasts, a different standard for determiningconflict. In In re Clarke T. Blizzard andRudolph Abel, Investment Advisers Act of1940 Release No. 2032 (April 24, 2002), theSEC instituted proceedings against sevenindividuals for various alleged securitiesviolations. While the other respondents settledwith the SEC or defaulted, the Division ofEnforcement (the “Division”) proceeded








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against Abel. Prior to the hearing, the Divisionfiled an emergency motion to disqualifyAbel’s attorney from representing both Abeland five witnesses that the Division had placedon its witness list. The Division argued that anactual or potential conflict of interest existedin the multiple representation, even thoughAbel and each of the five witnesses hadwaived any potential conflict. The ALJ deniedthe Division’s motion.

On an interlocutory appeal, the SEC foundthat the facts of the case warranteddisqualification. It explained that it had an“obligation to ensure that administrativeproceedings are conducted fairly infurtherance of the search for the truth and ajust determination of the outcome.”Moreover, “the attorney’s representation ofAbel with respect to subject matters that aresubstantially related to his representation ofthe witness clients could result in dividedloyalties that will prevent him from fulfillinghis duty to act in good faith.” Finally, the SECconcluded that “the appearance of lack ofintegrity ‘cannot be addressed by the consentof the attorney’s clients to his representationof them.”

The SEC’s “appearance” standard is muchnarrower than the Texas standard. In Texas, anattorney may represent multiple clients if he“reasonably believes the representation ofeach client will not be materially affected,”and “each affected or potentially affectedclient consents to such representation after fulldisclosure of the existence, nature,implications, and possible adverseconsequences of the common representationand the advantages involved, if any.” TEX.DISCIPLINARY R. PROF’L CONDUCT 1.06; seealso Mandell & Wright v. Thomas, 441S.W.2d 841, 846 (Tex. 1969) (holding thatbefore interest of different clients can be saidto conflict precluding representation by singlelaw firm or attorney, their respective interestsmust be adverse and hostile).

3. Multiple Party RepresentationAn attorney may represent multiple clients

if he “reasonably believes the representationof each client will not be materially affected,”and “each affected or potentially affected

client consents to such representation after fulldisclosure of the existence, nature,implications, and possible adverseconsequences of the common representationand the advantage involved, if any.” Rule 1.06(c)(2). If any affected client refuses toconsent, then the attorney may not proceedwith the multiple representation. Also, thelawyer has the primary responsibility foradvising the prospective client of possibleconflicts of interests in their positions. SeeBurnap v. Linnartz, 914 S.W.2d 142, 150(Tex. App.—San Antonio 1995, writ denied).Determining whether “full disclosure” hasoccurred is case specific. The sophistication ofthe client, whether the lawyer is dealing within-house counsel, the length of the relationshipbetween client and attorney, the legal issuesinvolved and the experience of the lawyer areconsidered. ABA Comm. On Ethics and Prof’lResponsibility, Formal Op. 93-372 (1993).

4. Example of Attorney Breach of FiduciaryDuty

In Burrow v. Arce, 997 S.W.2d 229 (Tex.1999), the Texas Supreme Court discussed theliability of an attorney for breaches offiduciary duty occurring in connection withthe settlement of his clients’ cases. Twenty-three individuals were killed and hundredswere injured in a series of explosions at achemical plant. Five attorneys represented 126plaintiffs. The case was settled for $190million, of which the attorneys received acontingent fee of more than $60 million. Later,forty-nine of the plaintiffs sued the attorneysfor, among others, breach of fiduciary duty,alleging that the attorneys solicited businessthrough a lay intermediary, failed to fullyinvestigate and assess individual claims, failedto communicate offers received and demandsmade, entered into an aggregate settlement ofall plaintiffs’ claims without their authority orapproval, agreed to limit their law practice bynot representing others involved in the sameincident, and intimidated and coerced theirclients into accepting the settlement. The trial court granted summaryjudgment for the defendants on the ground thatthe plaintiffs failed to show that they sufferedany actual damages. The court of appeals






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affirmed on all but the fiduciary duty claim, onthe basis that forfeiture is an appropriateremedy for an attorney’s breach of a fiduciaryduty owed to a client and that actual damagesare not a prerequisite for fee forfeiture. SeeArce v. Burrow, 958 S.W.2d 239 (Tex. App.—Houston [14th Dist.] 1997, writ granted). Thesupreme court held:

• An attorney can be held liable indamages for alleged breach of fiduciary dutyin connection with a settlement entered into byhis client even if the client: (1) accepted andapproved of the settlement; (2) did not showthat the settlement was unfair or inadequate inany way; and (3) did not establish what awardhe or she would have received absent thebreach of duty. Id. at 937-943.

• A client could measure her damagesin terms of the fee paid to the breachingattorney and recover all or some portion ofthat fee as damages, with the amount offorfeiture determined by the severity of thebreach involved. Id.

• Finally, the court concluded thatwhile the issue of whether an attorneybreached his or her fiduciary duty to a clientgenerally would involve issues of fact to beresolved by a jury, the issue of amount of feesto be forfeited in the event of a breach wouldbe one of law for the court. Id. at 943-44.

5. Client May Recover Mental Anguish andExemplary Damages

A legal malpractice plaintiff may recovermental anguish damages. The courts whichhave considered the issue of mental anguishdamages, however, have held that suchdamages are not recoverable in a claim basedon negligence. See Delp v. Douglas, 948S.W.2d 483, 495 (Tex. App.—Fort Worth1997), rev’d on other grounds, 987 S.W.2d879 (1999); Rhodes v. Batilla , 848 S.W.2d833, 844-45 (Tex. App.—Houston [14th Dist.]1993, writ denied). Punitive damages are alsoallowed in a legal malpractice case. They areappropriate when an attorney intentionally andknowingly breaches his fiduciary duties andobligations to his client. Id.; see also Avila v.Havana Painting Co., 761 S.W.2d 398, 400(Tex. App.—Houston [14th Dist.] 1988, writdenied) (holding that punitive damages were

appropriate where attorney wrongfullywithheld client’s funds).

6. Breach of Fiduciary Claims Require ExpertTestimony

In Ersek v. Davis & Davis, P.C., 69S.W.3d 268 (Tex. App.—Austin, pet. denied),Ersek sued the law firm, alleging negligenceand violations of the DTPA. Five months afterthe suit was filed, and in response to discoveryrequests, the client indicated that he had notretained an expert witness. He supplementedhis answers in September, but still did notidentify an expert. In November 2000, the firmfiled a motion for summary judgment. Theclient filed a response which included asupporting affidavit from an attorney, amotion for continuance, and a supplementalresponse to disclosure identifying the attorneywho provided the affidavit as an expertwitness. The trial court granted the firm’smotion to strike the affidavit and for summaryjudgment.

The court of appeals affirmed. The courtfirst noted that the client was required todesignate his expert witness by October 19,2000. Id. at 270. Having failed to do so, hewas not entitled to designate an expert later ina supplementary discovery response. Id. at271. Moreover, because he waited over a yearto do so, he was not entitled to designate anexpert witness late on the ground of goodfaith. Id. at 271-72. The court then concludedthat without an expert witness, the client hadno evidence to support his cause of action.

In Hoover v. Larkin, No. 14-00-00427-CV (Tex. App.—Houston [14th Dist.] Sep. 13,2001, pet. filed.) (not designated forpublication), 2001 WL 1046266, the trial courtgranted the defendant attorney’s motion forsummary judgment. In concluding that theattorney’s affidavit did not conclusivelyestablish that he did not breach a duty owed tothe client, the court noted that “at no pointdoes he describe what that standard of care is;or what duty he owes to his client wheninvolved in settlement negotiations.” Id. at *3.












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The dissent noted that the attorney “does morethan say, “Take my word for it, I know ….” Id.at *12 (emphasis and ellipses in original).

D. Breach of Contract as Cause of ActionAgainst Attorney

The client-lawyer relationship derivesfrom mutual consent, and in that respect, it isshaped by agreement. The lawyer’s duty tothe client, more often than not, arises as animplied term of the client-lawyer agreement.Of course the contract may be explicit and inwriting. Such contracts may specify theservices the lawyer is being retained toprovide. They may be very specific, includingsuch terms as, for example, which lawyers in afirm will work on the client’s behalf, the ratesthat will be charged, billing arrangements, andfee collection.

Despite the contractual nature of theattorney-client relationship, courts are hesitantto allow a plaintiff to divide or fracture legalmalpractice claims into breach of contractclaims (or other claims, for that matter). SeeGoffney v. Rabson, 56 S.W.3d 186, 190-94(Tex. App.—Houston [14th Dist.] 2001, pet.granted) (holding that because legalmalpractice claim was dropped before trial,plaintiff was not entitled to recover on herbreach of contract, DTPA, and breach offiduciary duty claims). Indeed, the First Courtof Appeals has concluded that breach ofcontract actions against attorneys are limitedto claims for excessive fees. Greathouse v.McConnel, 982 S.W.2d 165, 172 n.2 (Tex.App.—Houston [1st Dist.] 1998, no pet.). Thefollowing subsections discuss some of theproblems associated with attorney fees.

1. Attorney’s Fees are a Common Source ofDisputes between Clients and Attorneys.

“When a Lawyer Has Contracted For aContingent Fee, The Lawyer is Entitled ToReceive The Specified Fee Only When AndTo The Extent The Client ReceivesPayment”

A recent and important Texas SupremeCourt case addressed contingency feeagreements. Thus, though the case does not

concern legal malpractice, the impact of itsholding can lead to unnecessary litigation. InLevine v. Bayne, Snell & Krause, 40 S.W.3d92 (Tex. 2001), it was the attorneys who suedthe clients, to recover additional attorney feesunder a contingency fee contract, which statedthat the clients would pay the lawyers one-third of “any amount received by settlement orrecovery” from their lawsuit against Donaldand Pat Smith. Originally, the Levines hiredBayne, Snell, & Krause to sue the Smiths fortheir failure to disclose foundation defects inthe home they sold to the Levines. Because ofthe alleged defects, the Levines stoppedmaking mortgage payments to the Smiths. TheSmiths counterclaimed for breach of themortgage agreement.

After a jury verdict, the trial judgeawarded the Levines $243,644 in damages forthe foundation defects, along with interest andattorney’s fees. However, the court also foundthat the Smiths were entitled to the balancedue on the mortgage, accrued interest andattorney’s fees, all of which totaled$161,851.38. In the end, the trial court offsetthe awards, and awarded the Levines$81,792.38 and clear title to their home.

After the award was affirmed on appeal,the Levines ended up with $104,110.31 andthe clear title. Bayne Snell then sent theLevines a statement claiming $155,866.13 infees: one-third of the Levines’ award beforethe offset, prejudgment interest, and costs;plus court-awarded attorney’s fees, and post-judgment interest and expenses. The Levinesdisagreed with the calculation, claiming thatamount did not reflect the offset. The Levinesnonetheless gave Bayne Snell $104,110.31.Bayne Snell sued to collect the remainder.

The court’s analysis focused on the factthat the phrase “any amount received” in thecontingency fee agreement was not defined. Itthen noted that Section 35 of the Restatement(Third) of the Law Governing Lawyers and itscomment provides the answer to the issue inthe case. Id. at 94. “That section states that‘when a lawyer has contracted for a contingentfee, the lawyer is entitled to receive thespecified fee only when and to the extent theclient receives payment.’” Id. (quotingRESTATEMENT (THIRD) OF LAW GOVERNING






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LAWYERS § 35 (2000)). The remainder of thecourt’s analysis stressed that lawyers areinvariably more sophisticated then their clientsat least as far as fee agreements are concerned.Id. at 95. From this it follows that lawyers’should bear the burden of clarifying attorney-client contracts. Id.

There were two other opinions issued inthis case. Justice Owen concurred, noting that“the Court’s opinion is overly broad.” Id. at96. She observed that, for example, “if aclient takes action after a fee agreement isconsummated that would not be anticipated bycounsel, and that action gives rise to acounterclaim, the attorney’s contingent feeshould not be diminished.” Id.

Justice Hecht dissented. Justice Hechtsaw two serious flaws in the court’s holding.First, “the Court does not say that the contractis this case is ambiguous or contrary to anypublic policy. Yet the court refuses to giveeffect to its plain language ….” Id. at 100–101. Second, the “Levines received afinancial benefit from the cancellation of theirmortgage debt to the Smiths.” Id. at 101.

2. Sending a Client a Bill and Ending aRelationship With Them At The Same Time isSimply Not Extreme and Outrageous Behavior

In Gaspard v. Beadle, 36 S.W.3d 229(Tex. App.—Houston [1st Dist.] 2001, pet.denied), an attorney sued the client for past-due legal fees. The client counterclaimed forfraud, misrepresentation, and intentionalinfliction of emotional distress.

A couple hired Gaspard to represent themin a real estate matter. Several months later,the wife filed for divorce. Sometime after thedivorce and the real estate matter were bothpending, the wife and Gaspard began dating.But for a short period, they dated for aboutthree years. During that time, Gaspard draftedpleadings and did some research for the wifeon a usury counterclaim in the divorce case.Gaspard, however, eventually told her to getanother attorney because he could “no longerwork for free.” Several months after theystopped dating, the attorney sent her a bill forhis work on the usury counterclaim almost twoyears earlier. At trial, the judge dismissed

Gaspard’s claims and sanctioned him for filinga frivolous claim against the woman’s attorneyfor filing a counterclaim against him. The juryruled in favor of the woman, awarding heractual and exemplary damages.

On appeal, the First Court of Appealsreversed all but the sanctions ruling. Inessence, the court’s ruling can be pared downto the statement that “rude behavior does notequate to outrageousness [or fraud].” Id. at238.

E. Statutory Causes of ActionThe Texas Deceptive Trade Practices Act

(DTPA), see TEX. BUS. & COM. CODE ANN.§§17.41 et seq. (Vernon 2002), specificallyintended to regulate deceptive businesspractices, applies to lawyers. Latham v.Castillo , 972 S.W.2d 66 (Tex. 1998). Sincethe 1995 changes, the DTPA no longer appliesto any claim for damages “based on therendering of a professional service, theessence of which is the providing of advice,judgment, opinion, or similar professionalskill.” DTPA §17.49. This change haseffectively eliminated the DTPA as a basis formost legal malpractice claims. However, theDTPA may still apply to certain conduct.Misrepresentation of material facts, a failure todisclose information, and certainunconscionable acts or breach of an expresswarranty may still provide the basis of aDTPA claim for legal malpractice. Id.“Attorneys can be found to have engaged inunconscionable conduct by the way theyrepresent their clients.” Latham, 972 S.W.2dat 68. To succeed in a claim formisrepresentations, general statements will notsuffice. For example, in Francisco v. Foret etal., No. 01-00783 (Tex. App.—Dallas April11, 2002, no pet. h.), 2002 Tex. App. LEXIS2610, the court held that statements byattorney claiming “he had ‘a lot’ of experiencein the area of medical malpractice and [theclient] had a ‘90% chance of winning,’” werenot specific enough to support liability underthe DTPA; see also Mazuca v. Schumann, No.00-00228 (Tex. App.—San Antonio May 17,2002, no pet. h.), 2002 Tex. App. LEXIS 2668(on rehearing) (en banc) (after discussing






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DTPA, court noted that attorney “made nomisrepresentations, only bad judgments).

Other state and federal statutes may alsoserve as the basis of legal malpractice claims.Such statutes include civil conspiracy andvarious securities actions.

V. A Legal Malpractice Plaintiff MayNot Split His/Her Claims

Although there are several theories underwhich a claimant might seek recovery, theultimate issue is whether the attorney hasbreached his duty of care, resulting indamages. As discussed below, claimants oftenhave an incentive to couch their claims interms other than legal malpractice. In Sledgev. Alsup, the court of appeals stated:

Nothing is to be gained by fracturing acause of action arising out of bad legaladvice or improper representation intoclaims for negligence, breach of contract,fraud or some other name. If a lawyer’serror or mistake is actionable, it shouldgive rise to a cause of action for legalmalpractice …. Nothing is to be gained infracturing that cause of action into three orfour different claims and sets of specialissues. … The real issue remains one ofwhether the attorney exercised that degreeof care, skill and diligence as lawyers ofordinary skill and knowledge commonlypossess and exercise.

759 S.W.2d 1, 2 (Tex. App.—El Paso 1988,no writ).

In Goffney v. Rabson, 56 S.W.3d 186(Tex. App.—Houston [14th Dist.] 2001, pet.granted), Rabson hired a lawyer to handle anestate suit. That lawyer brought in anotherlawyer, Goffney, to work on the suit. Severaldays before trial was to begin, the first lawyertold Rabson he could not continue due to aheart condition. Goffney, now given theresponsibility of going to trial, got anotherlawyer to help with getting a continuance.The trial judge refused to grant a continuance.Rabson claimed that that when the courtrecessed for lunch, Goffney left thecourtroom. Rabson eventually managed to

hire another attorney to handle the case. Thetrial ended in a $750,000 judgment against theRabson, and the she ultimately settled with theother parties to that suit.

Rabson sued Goffney for legalmalpractice, breach of contract, deceptivetrade practices, and breach of fiduciary duty.Before trial, however, Rabson dropped hermalpractice claim. The jury found for her onthe other causes of action.

In reversing, the court of appeals heldthat the client could not recover on her breachof contract, DTPA, and breach of fiduciaryduty claims because they are all in the natureof a tort action for legal malpractice, and theclient abandoned her malpractice claim priorto trial. Id. at 192.

The court noted that the breach ofcontract claim was based on the allegation thatGoffney abandoned Rabson on the day of trial,which the court characterized as a breach ofGoffney’s duty to represent the client, amalpractice claim. Id. The court also notedthat Rabson’s claim that she was seeking asdamages the fees she paid Goffney, asopposed to malpractice damages, did notrecast her claim. As to her DTPA claim, thecourt noted that Rabson’s allegations do notinvolve the type of deceptive conduct, asopposed to negligent conduct, required tosupport a cause of action under the DTPAagainst an attorney. Id. at 192-93. Finally, thecourt held that in support of her breach offiduciary duty claim, Rabson raised the sameallegations as in her breach of contract andDTPA claims (that Goffney abandoned her attrial, did not properly prepare the case for trial,and misled Rabson into believing the case hadbeen properly prepared for trial). Id. at 192.

The holding of this case is sure tosurprise some. Even assuming that the court’sanalysis of Rabson’s breach of contract andDTPA claims is correct, it is difficult to justifythe court’s conclusion that the lawyer’sabandonment of the client at trial does not riseto the level of a breach of fiduciary duty.




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VI. Defenses to Legal MalpracticeClaimsA. Defenses—Generally

This section considers defenses to anegligence or breach of fiduciary duty action,assuming the client establishes a duty andresulting damages. Not every defenseavailable will be discussed. As a general rule,the attorney may assert any defenses in themalpractice suit that the defendant in theoriginal suit could have asserted. Mathew v.McCoy, 847 S.W.2d 397, 401 (Tex. App.—Houston [14th Dist.] 1993, no writ). InMathews, the court stated that defendingagainst legal malpractice claim by arguingdoctors in the underlying suit did not commitmedical malpractice after pursuing medicalmalpractice claim is permissible. Thefollowing is an incomplete list of defensesavailable in a legal malpractice action: (a)estoppel; (b) contributory negligence; (c)collateral estoppel; (d) settlement; and (e)-(f)limitations and privity, both of which get theirown sections in the article.

One recent case illustrates the point thatmany defenses are available in a legalmalpractice action. A lawyer drafted loandocuments that allegedly contained a usuriousrate of interest. The lender was sued on thenote. He then sued the lawyer for malpractice.The jury found that the plaintiff was not aclient of the lawyer with respect to the loantransaction, and the trial court rendered a take-nothing judgment for the lawyer’s estate. Inaffirming the trial court, the court of appealsheld that the plaintiff’s testimony left unclearthe exact parameters of the relationshipbetween himself and the lawyer. Sutton v.Estate of McCormick , 47 S.W.3d 179 (Tex.App.—Corpus Christi 2001, no pet.).

B. Third Party Liability and the PrivityDefense

Texas law holds that an attorney owes noduty to third party non-clients and is notordinarily liable to third parties for damagesresulting form the performance of professionalservices. Barcelo v. Elliott, 923 S.W.2d 575,578-79 (Tex. 1996). One court hassummarized the rule as follows:

Under Texas law, an attorney owes aduty only to those parties in privity ofcontact with him. Because an attorney hasno duty of care to non-clients, a non-clientcan have no claim for negligence againstan attorney. Third parties in Texas have nostanding to sue attorneys on causes ofaction arising out of their representation ofothers.

Bossin v. Towber, 894 S.W.2d 25, 33 (Tex.App.—Houston [14th Dist.] writ denied).While other jurisdictions have relaxed theprivity rule, Texas courts have refused todeviate from the strict privity rule forattorneys. See First Mun. Leasing Corp. v.Blankenship, Potts, Aikman, Hagin & Stewart,648 S.W.2d 410, 413 (Tex. App.—Dallas1983, writ ref’d n.r.e.).

The privity rule applies equally to a thirdparty beneficiary of the attorney’s services. InBarcelo , an attorney prepared a will and aninter vivos trust agreement for his client. Uponher death, the trust was to terminate, andcertain assets would be distributed to hechildren, with the remainder to hergrandchildren. After her death, two of thechildren contested the validity of the trust, andthe probate court found it invalid andunenforceable. The grandchildren then suedthe lawyer because, they alleged, hisnegligence resulted in a much smaller sharefor them. Barcelo, 23 S.W.2d at 576. Thesupreme court noted that most other stateshave relaxed the privity barrier in the contextof estate planning, but went to hold, afternoting the benefits of a bright-line rule, that“an attorney retained by a testator or settlor todraft a will or trust owes no professional dutyof care to persons named as beneficiariesunder the will or trust.” Id. at 578-79.

The privity rule, however, does not protectattorneys from liability to third parties forfraudulent conduct. “[A]n attorney is liable ifhe knowingly commits a fraudulent act thatinjures a third person, or if he knowinglyenters into a conspiracy to defraud a thirdperson.” Likover v. Sunflower Terrace II,Ltd., 696 S.W.2d 468, 472 (Tex. App.—Houston [1st Dist.] 1985, no writ). Cases








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involving securities transactions are a frequentsource of allegations against attorneys. SeeManning Gilbert Warren III, The PrimaryLiability of Securities Lawyers, 50 S.M.U. L.REV. 383, 390-91 (1996). Attorneys also maybe liable to non-clients for assisting otherattorneys in unethical transactions. TEX.DISCIPLINARY R. PROF’L CONDUCT 4.01 cmt.2.

C. Statue of LimitationsThe general rule is that a two-year statute

of limitations governs legal malpracticeclaims. Apex, 41 S.W.3d at 120. Thislimitations period applies regardless ofwhether the claim is based in tort, contract, orany other theory. Id. Section 16.003 of theCivil Practice and Remedies Code, while notexplicitly stating that it applies to legalmalpractice claims, sets out the two-yearlimitations period. TEX. CIV. PRAC. & REM .CODE ANN. § 16.003 (Vernon Supp. 2002).4

Application of this general rule is tempered bythree related issues: (1) when is a claimagainst an attorney deriving from servicesrendered not a legal malpractice claim; (2) forthe purpose of determining the time oflimitations, when does the “action accrue”;and (3) the effect of the Hughes tolling rule.

1. When is a Claim Not A Legal MalpracticeClaim, Such That A Four-year Statute ofLimitations Applies?

In McGuire v. Kelley, 41 S.W.3d 679(Tex. App.—Texarkana 2001, no. pet.), theclient brought claims against an attorney forbreach of fiduciary duty, breach of contract,and fraud, alleging the attorney failed toaccount to client for her rightful share of thesettlement in client’s underlying personalinjury action. The jury found for the client onher breach of contract, breach of fiduciaryduty, and fraud claims. Id. at 681. The 4 Section 16.003(a) states: “Except as provided bySections 16.010 and 16.0045, a person must bringsuit for trespass for injury to the estate or to theproperty of another, conversion of personalproperty, taking or detaining the personal propertyof another, personal injury, forcible entry anddetainer, and forcible detainer not later than twoyears after the day the cause of action accrues.”

attorney appealed, and argued that the trialcourt erred in not ruling as a matter of law thatthe client’s breach of fiduciary duty claim wasbarred by limitations. Id. Specifically, he“contended that the limitations period onbreach of fiduciary duty is two years.” Id.

In upholding the application of the four-year statute of limitations to the breach offiduciary duty claim, the court first observedthat other courts have held similarly. Id. at682 (citing Rowe v. Rowe, 887 S.W.2d 191(Tex. App.—Fort Worth 1994, writ denied)).More important, however, was the court’sreference to the amended version of section16.004 of the Texas Practices and RemediesCode. In 1999, the legislature added breach offiduciary duty to the list of claims having afour-year limitations period. Id. at 682 n.2(citations omitted); see also TEX. CIV. PRAC.& REM . CODE ANN. § 16.004 (Vernon Supp.2002).5

On appellant’s motion for rehearing, thecourt addressed his contention that prior caseshave held that the breach of fiduciary duty issubject to a two-year statute of limitations.McGuire, 41 S.W.3d at 684. The court notedthat “legal malpractice claims based onintentional fraud are governed by a four-yearstatute.” Id. (citing Estate of Degley v. Vega,797 S.W.2d 299, 303 (Tex. App.—CorpusChristi 1990, no writ)). In Degley, the CorpusCourt of Appeals applied a two-yearlimitations period to a fraud claim. Id. at 302–03. In doing so, however, the court observed“an important distinction between an actionfor negligent legal malpractice, which isclearly governed by the two-year limitationsperiod applicable to personal injuries, and forintentional fraud committed by an attorney.”Id. (citations omitted). Finally, the McGuirecourt noted that the cases relied upon byappellant—Willis v. Maverick , 760 S.W.2d642, 644 (Tex. 1988), and Jampole v.

5 In amending section 16.004, the legislature stated,“The intent of this Act is to clarify existing law byresolving a conflict in case law concerning theapplicable statute of limitations for actions forfraud and breach of fiduciary duty.” Act of May26, 1999, 76th Leg., R.S., ch. 950, § 2, 1999 Tex.Gen. Laws 3687.








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Matthews, 857 S.W.2d 57, 64 (Tex. App.—Houston [1st Dist.] 1993, writ denied)—didnot involve a breach of fiduciary duty claimbased on fraudulent misrepresentation.McGuire 41 S.W.3d at 684.

Despite the holding in McGuire, the issueregarding how a plaintiff labels a particularcause of action and the applicable statute oflimitations remains unsettled. Recently, theSan Antonio Court of Appeals held that“Legal malpractice claims are governed by thetwo-year statute of limitations.” Burnap v.Linnartz, 38 S.W.3d 612, 623 (Tex. App.—San Antonio 2000, no pet.); see also Apex, 41S.W.3d at 120; Davenport v. Verner &Brumley, 2001 WL 969249 (Tex. App.—Dallas Aug. 28, 2001, no pet.) (“The statute oflimitations on appellant’s claims fornegligence, breach of fiduciary duty, breach ofimplied warranty, fraud, and DTPA violationsis two years. The fraud claim is two years,rather than four, since it is the basis of a legalmalpractice claim.”).

2. When Does the Action Accrue For thePurpose of the Statute of Limitations?

The accrual of a cause of action is aquestion of law. Willis v. Maverick , 760S.W.2d 642, 644 (Tex. 1988). A legalmalpractice cause of action accrues when theclient sustains a “legal injury.” Legal injury intort occurs when the tort is committed anddamage suffered, even if the fact of the injuryis not discovered until later or some of thedamages have not occurred. S.V. v. R.V., 933S.W.2d 1, 4 (Tex. 1993). Two exceptionslimit application of the two-year statute oflimitations. The discovery rule and thefraudulent concealment rule.

a. The Discovery Rule Is an Exceptionto the Statute of Limitations 6

6 In a recent opinion, the supreme court addressedthe discovery rule in a non-legal malpractice case.The court noted that “we determine whether aninjury is inherently undiscoverable on a categoricalbasis because such an approach ‘bringspredictability and consistency to thejurisprudence.” Wagner & Brown v. Horwood, 58S.W.3d 732, 735 (Tex. 2001) (quoting Apex

The discovery rule can apply in legalmalpractice claims. Willis 760 S.W.2d at 645.In a malpractice case, the statute of limitationsdoes not begin to run until the claimantdiscovers or should have discovered throughthe exercise of reasonable care and diligencethe facts establishing the elements of his causeof action. Id. at 645–46. In Willis, thesupreme court concluded that the relationshipbetween an attorney and the client justifies theimposition of the discovery rule. In soholding, the court stated:

A fiduciary relationship exists betweenattorney and client. As a fiduciary, anattorney is obligated to render a full andfair disclosure of facts material to theclient’s representation. The client mustfeel free to rely on his attorney’s advice.Facts which might ordinarily requireinvestigation likely may not excitesuspicion where a fiduciary relationship isinvolved. Further, breach of the duty todisclose is tantamount to concealment

Id. at 645 (citations omitted). Not unlike prioryears, the plaintiffs in this year’s casespleaded the discovery rule to get around theaffirmative defense of limitations.

b. The Distinction Between TheDiscovery Rule and FraudulentConcealment Often May Be Blurredin Legal Malpractice Actions WhereFailure to Disclose is Tantamount toConcealment

Fraudulent concealment “tolls the statuteof limitations until the fraud is discovered orcould have been discovered with reasonablediligence. Velsicol Chem. Corp. v. Winograd,956 S.W.2d 529, 531 (Tex. 1997). Thedoctrine of fraudulent concealment concernswhether, and for how long, the statute oflimitations is tolled. In contrast, the discovery

Towing, 41 S.W.3d at 122). In other words, thequestion is whether “the type of injury that [is atissue] generally is discoverable by the exercise ofreasonable diligence.” Id. (internal quotationsomitted).
















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rule determines when a cause of actionaccrues. Arabian Shield Dev. Co. v. Hunt, 808S.W.2d 577, 585 (Tex. App.—Dallas 1991,writ denied). Also, unlike the discovery rule,the party asserting fraudulent concealment hasthe burden of raising it in response to thesummary judgment motion and must comeforward with evidence raising a fact issue oneach element of fraudulent concealment. InGibson v. Ellis, 58 S.W.3d 818 (Tex. App.—Dallas 2001, no pet.), the client’s pleadingstated, “Due to Defendant’s fraudulentconcealment, the Plaintiff could not havediscovered his claim until September of1995.” Id. at 824. The court interpreted thatstatement as an “implicit pleading of thediscovery rule.” Id. at 824-25.

c. Discovery of Injury Occurs WhenPlaintiff is Exposed to the Risk ofHarm

In Brents v. Haynes & Boone, 53 S.W.3d911 (Tex. App.—Dallas 2001, pet. denied),Haynes & Boone filed a lawsuit on behalf ofthe Brentses and others against Edward Pineand other defendants, seeking to prevent themfrom selling residential property to the TarrantCounty Mental Health Mental RetardationAssociation (MHMR). The plaintiffs appliedfor a temporary restraining order. On July 8,1991, the TRO was dismissed, and thefollowing day Pine was nonsuited from thecase. On September 14, 191, the Brentsesreceived a notice of a discriminationcomplaint from the United States Departmentof Housing and Urban Development (HUD).On October 18, 1991, the Brentses toldHaynes & Boone that they no longer wantedto be involved in the MHMR lawsuit. OnNovember 9, 1992, the remaining allegationsin the MHMR lawsuit were voluntarilydismissed. On October 19 1994, HUDcharged the Brentses with discrimination. In1996, a United State district court concludedthat Thomas Brents had acted in adiscriminatory manner. On October 18, 1996,the Brentses filed their legal malpracticeaction against Haynes & Boone. Eventually,the case was dismissed based on theaffirmative defense of limitations. On appeal,the Brentses argued that their cause of action

did not accrue until October 19, 1994, whenHUD issued a charge of discrimination againstthe Brentses and they discovered that theMHMR lawsuit was groundless. Id. 913–14.

In rejecting the Brentses’ argument, thecourt noted that the test for discovery of injury“is not when they knew the suit wasgroundless but when they knew they were atrisk of harm.” Id. at 915. “As a matter of law,the Brentses discovered they were at risk ofeconomic harm when they received the HUDletter [on September 14, 1991].” Id.

Another case illustrating this point isManning v. Jenkins & Gilchrist, No. 08-00-00153-CV (Tex. App.—El Paso Aug. 16,2001, no pet.) (not designated for publication),2001 WL 925738. In that case, Manning, theplaintiff, was originally a co-defendant in asexual discrimination case. The sexualdiscrimination case was settled with thedefendants in 1994. The employer co-defendant, however, failed to make paymenton the settlement. The plaintiff in thediscrimination case then attempted to collectfrom Manning in 1997. Manning’s attorneys,Jenkins & Gilchrist (J&G), refused to providehim with a defense. Following the granting ofpartial summary judgment against him on theissue of liability, Manning entered into anagreed judgment. Afterward, Manning filed amalpractice suit against J&G. J&G filed amotion for summary judgment on severalgrounds, including statute of limitations. Id. at*1–*2.

On appeal, Manning argued that he didnot discover J&G’s failure to disclose factsrelevant to the settlement agreement until afterhe hired new counsel in 1997. The courtnoted that because Manning allegedlyobtained erroneous advice from J&G andentered into the settlement agreement on orabout December 1993, his malpractice causeof action accrued on that date. Id. at *4.

d. Discovery of Injury Applies to theKnowledge of Facts As Opposed toA Knowledge of the Law

In Johnson v. Walker, No. 07-00-0314-CV (Tex. App.—Amarillo Sept. 5, 2001, nopet. h.) (not designated for publication), 2001WL 1011463, Johnson hired Walker, in May







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1993, to represent him after an arrest for theoffense of possession of a firearm. WhileJohnson was out on bond, Walker sought andobtained a preliminary hearing on the charge.During the hearing, the judge hinted that shewould find there was no probable cause anddismiss the charge. Walker suggested thatJohnson be continued on bond until the casewas heard by the grand jury. The judgeagreed and Johnson remained on bond until hewas indicted for that offense on June 24, 1993.Sometime later, Johnson was arrested for aparole violation. Walker represented Johnsonduring two parole hearings. After thosehearings Johnson relieved Walker from thecase and obtained another attorney.Eventually, Johnson pleaded guilty and wassentenced to six years confinement. OnNovember 16, 1999, Johnson filed suit againstWalker, alleging malpractice, breach ofcontract, breach of fiduciary duty, breach ofwarranty, and DTPA violations. Id. at *1.

Walker’s answer contained a generaldenial and asserted the affirmative defense oflimitations. Id. In December 1999, Johnsonmoved for summary judgment on his claimsand also asserted the discovery rule andfraudulent concealment. Id. Walker alsomoved for summary judgment, which wasgranted. In affirming the grant of summaryjudgment, the appeals court noted that“Johnson argues that he ‘discovered the wrongand unjust legal injury in the month of June1999 while doing legal research.’” Id. at *3.The court responded by noting that “thediscovery rule applies to the knowledge of thefacts on the part of the appellant as opposed toa knowledge of the law.” Id. (citing Willis v.Maverick , 760 S.W.2d 642 (Tex. 1988))(internal quotations omitted).

3. The Hughes/Murphy Rule is Again Just theHughes Rule

Ordinarily, the limitations period for alegal malpractice claim runs from the time thatthe legal injury is discovered. However, inHughes v. Mahaney & Higgins, 821 S.W.2d154 (Tex. 1991), the supreme court held that“when an attorney commits malpractice in theprosecution or defense of a claim that results

in litigation, the statute of limitations on themalpractice claim against the attorney is tolleduntil all appeals on the underlying claim areexhausted.” Id. at 157. In essence, theHughes rule seeks to avoid the harsh resultsthat the legal injury and discovery rules cancreate. These rules may force a client to bringsuit against the attorney when the clientdiscovers the injury regardless of whether theattorney is still prosecuting or defending theclient’s claim. Id. at 156–57. Were a clientplaced in the circumstance of having toprosecute a case against her own attorney, thepractical result would be that the client wouldbe forced into asserting “inherentlyinconsistent litigation postures,” arguing thepropriety of counsel’s actions in theunderlying suit and impropriety in themalpractice suit. Id. Thus, the Hughes courtconcluded that the limitations period should betolled for the second cause of action “becausethe viability of the second cause of actiondepends on the outcome of the first.” Id. at157.

In a subsequent case, the supreme courtseemingly modified the Hughes rule. InMurphy v. Campbell, 964 S.W.2d 265 (Tex.1997), the court held the mere fact that a clientmust take inconsistent litigation positions isnot dispositive of when the tolling ruleapplies. The decisive element is whether theclient is forced to obtain new counsel.Following Murphy, the application of theHughes/Murphy rule resulted in confusing andinconsistent application of the rule. For adiscussion of the struggle faced byintermediate courts in applying the rule, seeEiland v. Turpin, Smith, Dyer, Saxe &McDonald, 64 S.W.3d 155 (Tex. App.—ElPaso 2001, no pet.), and the cases citedtherein.

The ensuing confusion eventually forcedthe supreme court to grant petition in a caseand resolve the confusion. See Apex TowingCo. v. Tolin , 41 S.W.3d 118 (Tex. 2001).

In Apex, the plaintiffs sued their attorneysfor mishandling the defense of a maritimepersonal injury lawsuit. Specifically, Apexalleged, in part, that the attorneys failed to filea timely maritime limitations-of-liabilitypleading, leaving Apex exposed to a judgment








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in excess of the value of the vessel and itsfreight. On August 31, 1994, the trial court inthe underlying suit rendered judgment on ajury verdict for an amount in excess of anylimit that could have been imposed hadApex’s attorneys filed a timely maritime-limitations pleading. Apex hired additionalcounsel to file post-judgment motions and anappeal. The case was ultimately settled, andthe court of appeal dismissed the appeal onMay 19, 1995.

In the legal malpractice law suit, filed onFebruary 19, 1997, the attorneys moved forsummary judgment on the grounds that thetwo-year statute of limitations began to run nolater than January 27, 1995, when the partiespurportedly agreed to settle the underlying lawsuit. The trial court granted summaryjudgment for the attorneys. The BeaumontCourt of Appeals affirmed. Apex Towing Co.v. Tolin, 997 S.W.2d 903 (Tex. App.—Beaumont 1999, pet. granted), rev’d, 41S.W.3d. 113 (Tex. 2001).

The supreme court emphatically stated:

We conclude that Murphy did not modifythe rule we announced in Hughes, andtoday we reaffirm that rule: When anattorney commits malpractice in theprosecution or defense of a claim thatresults in litigation, the statute oflimitations on a malpractice claim againstthat attorney is tolled until all appeals onthe underlying claim are exhausted or thelitigation is otherwise finally concluded.

Apex, 41 S.W.3d at 119. In the case,therefore, the underlying case was not finallyconcluded until May 19, 1995, when the courtof appeals issued its order dismissing Apex’sappeal.

4. The Hughes Tolling Rule Does Not Applyto DTPA Claims

In Underkofler v. Vanasek , the supremecourt held that the Hughes rule does not tollthe statute of limitations incorporated into theDTPA. Underkofler v. Vanasek , 53 S.W.3d343, 345 (Tex. 2001). There, Vanasek hiredUnderkofler and his law firm to pursuerecovery on a note against the maker, a limited

partnership, and against the its partner asguarantors. A non-jury trial began on June 6,1991. During trial, the judge ordered theparties to mediation, which was ultimatelyunsuccessful. In the meantime, two of thedefendants filed for bankruptcy in late 1991.In April 1992, Vanasek wrote a letter to one ofUnderkofler’s partners expressing concernsabout Underkofler’s work. In May 1992, thetrial court granted Underkofler’s motion towithdraw. Afterward, Vanasek hired anotherattorney. Trial resumed on April 29, 1994.Trial was again recessed and reset severaltimes. Eventually, Vanasek settled with oneof the defendants and obtained defaultjudgments against others, on September 24,1994.

Before the settlement agreement,Vanasek sued Underkofler for malpractice,alleging negligence, gross negligence, breachof contract, breach of implied and expresswarranties, and DTPA violations. Id. at 345.Underkofler filed a motion for summaryjudgment, which was granted. Id. The court ofappeals reversed in part, and affirmed in part.Id. Specifically, the court of appeals held thatlimitations on DTPA claims should be tolledbecause the policy reasons behind Hugheslikewise applied to those claims. Id.

In disagreeing with the court of appealson that issue, the court stated, “TheLegislature has adopted a specific statute oflimitations for DTPA claims, and has includedonly two exceptions to the general rule thatlimitations begins to run on the date thewrongful act occurred, a discovery rule and afraudulent concealment rule[.]” Id. at 346.

In 1995, the Legislature amended theDTPA to exclude from it scope claims fordamages based on “the rendering of aprofessional service, the essence of which isthe providing of advice, judgment, opinion, orsimilar professional skill.” TEX. BUS. & COM.CODE ANN. § 17.49(c) (Vernon Supp. 2001).The practical effect of this amendment hasbeen to eliminate the DTPA as a basis formost legal malpractice claims because thoseclaims are usually predicated on the attorney’sallegedly erroneous advice, judgment, opinion,or professional skill. Therefore, to the extent amalpractice claim is based in negligence, the






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DTPA does not provide a cause of action,restricting the holding in Underkofler to itsfacts.

VII. Practical Tips for AvoidingMalpractice ClaimsA. Saying “No” to A Prospective Client

There are a myriad of reasons for nottaking on new clients. Here are a few of them:for whatever reason, it’s the type of cases youmay neglect; the subject matter of the suit isnot one with which you are familiar; or yousimply do not have the time.

B. Establish Who Your Clients AreUse of an engagement letter clears any

misunderstanding about who the client is andwhat is expected of you. Client-lawyeragreements are contracts, subject to the rulesof contract law, as well as other rules whichgovern the fiduciary relationship betweenthem. Thus, a lawyer must define clearly thematters for which they are agreeing torepresent their clients. Subjects that should beaddressed in such an agreement include: whothe client is, especially in a corporation orother legal entity; the lawyer or lawyers withinthe firm who will handle the client’s case; andfee agreements. The use of engagement letterson a regular basis furthers the important goalof never agreeing to undertake a matter in aninformal setting.

C. Check for Conflicts Before AcceptingRepresentation

The key here is to do the conflicts checkbefore obtaining any confidential informationfrom the prospective client. Often it isnecessary for a prospective client to reveal andfor the lawyer to learn confidentialinformation prior to the formation of a client-lawyer relationship. In such instances, thelawyer must treat that information asconfidential in the interest of the prospectiveclient, even if no attorney client relationship isever formed. See, e.g., B.F. Goodrich Co. v.Formosa Plastics Corp., 638 F. Supp. 1050(S.D. Tex. 1986).

A. Client Communication

This is the easiest, but most overlooked,step attorneys could take to avoid problemslater. Return calls; forward documents; reportyour activities to the client; explain discoveryprocedures; solicit your clients’ opinions;clarify dates and facts during the initialmeeting with the client; keep precise time logsof work completed for each client; keep allclient files. In sum, lawyers’ failure tocommunicate regularly with their clients isoften a source of alleged errors. The ABAStudy shows that errors categorized under“Client Relations” accounts for 12% of theerrors alleged.

D. Calendar SystemThe best protection against malpractice is

to calendar all important dates in the case.Loss of substantive rights due to missing adate is likely to be negligence per se. TheABA Study indicates that failure to calendarproperly or to know deadlines accounts for22% of the alleged errors committed bylawyers.

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_distctopinions&volume=638&edition=F.Supp.&page=1050&id=26880_01

attorney liability/attorney malpractice · b. “beauty pageant” in b.f. goodrich co. v. formosa...

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