presented by: randy johnston robert tobey johnston ♦ … · briefing attorney for justice jack...

LEGAL MALPRACTICE: AN UPDATE ON THE LAW AND HOW TO AVOID LIABILITY

Presented by: RANDY JOHNSTON

ROBERT TOBEY Johnston ♦ Tobey

Dallas

STEVE MCCONNICO

Written by: STEVE MCCONNICO

SAM JOHNSON ROBYN HARGROVE

Scott, Douglass & McConnico, L.L.P. 600 Congress Ave., Suite 1500

Austin, Texas 78701 512/495-6300

[email protected] [email protected] [email protected]

State Bar of Texas 28th ANNUAL

ADVANCED PERSONAL INJURY COURSE 2012 Dallas – July 11-13

San Antonio – August 8-10 Houston – September 5-7 Houston – October 24-26

CHAPTER 5

466783

STEVE McCONNICO

Scott, Douglass & McConnico, L.L.P.

600 Congress, 15th Floor

Austin, Texas 78701

Phone: (512) 495-6300

Fax: (512) 474-0731

E-mail: [email protected]

BIOGRAPHICAL INFORMATION

EDUCATION

Baylor University (J.D. with honors 1976);

Editor in Chief, Baylor Law Review, 1975-1976

PROFESSIONAL ACTIVITIES

Partner, Scott, Douglass & McConnico, L.L.P., Austin, Texas

Briefing Attorney for Justice Jack Pope,

Texas Supreme Court, 1976-1977

Board Certified in Civil Trial and Personal Injury

Sustaining Life Fellow Texas and American Bar Foundations

Outstanding Young Lawyer of Austin, 1984

Austin Bar Association Distinguished Lawyer Award, 2010

Chairman, Litigation Section, State Bar of Texas, 1992-1993

President, Texas Supreme Court Historical Society, 2004-2005

President, Baylor Law School Alumni Association, 2003-2004

Baylor Lawyer of the Year, 2011

Member: State Bar of Texas;

Fellow, International Academy of Trial Lawyers;

Fellow, International Society of Barristers;

Fellow, American College of Trial Lawyers;

American Board of Trial Advocates (Advocate);

President Austin ABOTA Chapter (1993-1995);

President, Tex-ABOTA (1997);

Texas Supreme Court Advisory Committee (1984-1993).

Listed in Best Lawyers in America for Legal Malpractice Law, Personal Injury Litigation,

and Commercial Litigation.

Listed in National Law Journal Who's Who of the Legal Malpractice Bar.

Listed in Texas Monthly 100 Texas Super Lawyers for 2003-2011.

TEACHING

Kleck lecturer, University of Texas School of Law on legal malpractice (1995-1996).

Adjunct Professor, Baylor Law School Practice Court (2005).

COURTS ADMITTED TO PRACTICE

U.S. Eastern District of Texas

U.S. Northern District of Texas

U.S. Southern District of Texas

U.S. Western District of Texas

466783

U.S. Supreme Court

U.S. Court of Appeals for the Fifth Circuit

Admitted to practice for specific cases in California, Florida, North Carolina, Louisiana and

Nevada.

STEPHEN E. McCONNICO - Born Jacksonville, Texas, April 8, 1950; admitted to bar, 1977, Texas.

Preparatory education, University of Texas (B.A., with honors, 1972); Legal education, Baylor

University (J.D., with honors, 1976), Board Certified in Personal Injury and Civil Trial Law, Texas

Board of Legal Specialization, 1983. Editor-in-Chief, Baylor Law Review, 1975-76. Briefing Attorney

for Justice Jack Pope, Texas Supreme Court, 1976-77. Member: State Bar of Texas; Texas Supreme

Court Advisory Committee, 1982-93; Chairman, Litigation Section, 1992-93; American Bar Association;

American Board of Trial Advocates (President, Austin Chapter, 1993-1994; President, Tex-ABOTA

1996-97). Texas Bar Foundation; American Bar Foundation; International Society of Barristers;

International Academy of Trial Lawyers; American College of Trial Lawyers.

Robert L. Tobey Johnston Tobey, P.C.

3308 Oak Grove Avenue

Dallas, Texas 75204

Born: Dallas, Texas

August 26, 1956

Education: University of Pennsylvania

Wharton School of Business

(B.S. in Economics, 1977)

University of Texas School of Law

(J.D., 1980)

Admitted to

practice: State Bar of Texas, 1980. Also admitted to practice before the U.S. Supreme

Court; U.S. Court of Appeals, Fifth and Tenth Circuits; U.S. District Courts,

Northern, Eastern and Western Districts of Texas

Certifications: Board Certified in Consumer and Commercial Law 1995 (Re-certified in

2000, 2005 and 2010), Texas Board of Legal Specialization

Numerous speeches and publications on issues involving attorney malpractice and ethics,

securities litigation, arbitration, mediation and media relations.

Texas Super Lawyer, Texas Monthly Magazine, 2003-2011

Assigned Martindale Hubbell’s highest “AV” rating

Member: State Bar of Texas

Dallas Bar Association Board of Directors-2012-

Dallas Bar Association -Tort and Insurance Practice Section Board of Directors –

2005-2012 (Chair - 2011)

Dallas Bar Association– Business Litigation Section Council – 2008-2012 (Section

Chair – 2010)

Dallas Bar Association-Bench Bar Committee (Co-Chair-2012)

Dallas Trial Lawyers Association (Board of Directors, Five Years).

Dallas Bar Foundation

Texas Bar Foundation

Family: Wife, JoAnn

Daughter, Morgan – Age 18

Son, Brandon – Age 13

Chief Tall Eagle in Morgan’s Indian Princess Tribe

Chief Legal Eagle in Brandon’s Adventure Guides Tribe

COYT RANDAL JOHNSTON

JOHNSTON ♦ TOBEY, P.C. 3308 OAK GROVE AVENUE

DALLAS, TEXAS 75204 (214) 741-6260 Phone (214) 741-6248 Fax Email address: [email protected]

Website: www.johnstontobey.com

Randy Johnston is the author of the book Robbed at Pen Point and an attorney with the firm of Johnston Tobey PC in Dallas, Texas. He attended The University of Texas School of Law where he graduated with Honors in 1974. Mr. Johnston’s practice concentrates on legal malpractice and professional liability. He is a member of the International Academy of Trial Lawyers, the American Board of Trial Advocates, the Texas and Dallas Trial Lawyers Associations, and is a former President of the Dallas Chapter of the American Board of Trial Advocates and a former President of the Dallas Trial Lawyer’s Association. In 2010, he was one of eight recipients of “A Standing Ovation Award” recognizing him as an outstanding volunteer to the Texas Bar CLE program. EDUCATION The University of Texas School of Law, Juris Doctor with Honors Honors: Chairman, Legal Research Board Clerk, Lt. Governor’s Conference on Ethics in Government Brigham Young University, Bachelor of Arts Degree Major: English Honors: Track Scholarship (intermediate hurdles) Associate Editor, Wye Magazine (campus literary publication) President, English Circle (Club of English Majors) Pampa High School, Pampa, Texas LICENSES/CERTIFICATIONS Licensed by the State Bar of Texas and Federal Courts in Texas Board Certified: ”Civil Trial Law,” Tex. Bd. of Legal Specialization, 1981 – present Texas Board of Legal Specialization, Member 1983-1985 Personal Injury Advisory Commission, Member 1993-2000 ACKNOWLEDGMENTS/HONORS 2010 “A Standing Ovation Award” from staff of the State Bar: outstanding volunteer to the State Bar CLE Program. Dallas Bar Association - Presidential Citation for Law Jam 2; program for fundraising for legal aid for the poor. Texas Lawyer – “The GoTo Guide” 2007, for Legal Malpractice in Texas D Magazine - Best Lawyers in Dallas Texas Monthly - Texas’ Super Lawyers Who’s Who in American Law

Legal Malpractice: An Update on the Law and How to Avoid Liability Chapter 5

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TABLE OF CONTENTS

I. Introduction .....................................................................................................................................................1

II. The Privity Rule Bars Claims by Non-Clients ................................................................................................1

A. Recent Texas Supreme Court Cases on Privity.......................................................................................1

1. Belt v. Oppenheimer, Blend, Harrison & Tate .....................................................................................1

2. Smith v. O’Donnell .............................................................................................................................2

B. When is Privity Established Under Texas Law? .....................................................................................2

III. Establishing Malpractice Liability ..................................................................................................................3

A. Proving Breach of the Standard of Care .................................................................................................3

B. Proving Causation....................................................................................................................................4

1. Causation is a Question of Law When it Depends Solely on Legal Determinations. ......................5

2. The Role of Expert Testimony in Proving Causation. .....................................................................5

3. Instructing the Jury on Causation ...................................................................................................6

4. Proving Causation and Damages Based on Settlement Value .........................................................7

C. Availability of Attorney’s Fees as Actual Damages.................................................................................9

IV. Common Legal Defenses to Claims Brought Against Attorneys..................................................................10

A. The Fracturing Rule...............................................................................................................................10

B. The “Litigation Privilege” Prohibits Attorney Liability for Conduct in Litigation .............................12

C. Potential Attorney Defamation Liability and Applicability of the Absolute Litigation Privilege........13

V. Other Typical Claims Raised Against Attorneys..........................................................................................14

A. Breach of Fiduciary Duty.......................................................................................................................14

1. Traditional fiduciary duty claims seeking actual damages ...........................................................14

2. Fee Forfeiture Claims .....................................................................................................................15

B. Fraud and Conspiracy ...........................................................................................................................16

C. Negligent Misrepresentation ..................................................................................................................17

VI. Recent Developments Regarding Attorneys’ Ethical Obligations................................................................19

A. Attorneys’ Obligations to Preserve Confidentiality of Client and Former Client Information...........19

B. Case Law Regarding Unconscionable Attorney’s Fees .........................................................................20

C. Proper Construction of Attorney-Client Fee Agreements ....................................................................21

D. Recent Ethics Opinions ..........................................................................................................................21

1. Opinion 570: Attorney Notes and Other Work Product Belong to the Client .............................21

2. Opinion 593: Lawyer may settle potential malpractice claims with former client if properdisclosures are made. ......................................................................................................................22

3. Opinion 597: Attorneys from multi-jurisdictional firms are not engaging in the unauthorizedpractice of law. ................................................................................................................................22

VII. Conclusion and Pointers for Avoiding Liability ...........................................................................................22


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Avoiding Malpractice Liability:

Recent Developments in Texas Legal Malpractice and Ethics Law

I. Introduction

This article provides an update on recentdevelopments in Texas legal malpractice and ethicslaw, focusing on privity, causation and fracturingissues commonly raised in lawsuits against lawyers. Italso describes several recent Texas supreme courtopinions affecting attorney liability, and providespointers on avoiding malpractice liability anddisciplinary claims.

II. The Privity Rule Bars Claims by Non-Clients

Texas law generally prohibits non-clients fromsuing lawyers. Under the privity rule, persons outsidethe attorney-client relationship have no cause of actionfor injuries sustained due to an attorney’s malpracticeor breach of fiduciary duty. See, e.g., Gillespie v.Scherr, 987 S.W.2d 129, 132 (Tex. App.—Houston[14th Dist.] 1998, pet. denied) (holding the privity ruleprevents claims against attorney for a class by non-client potential class action members); Gamboa v.Shaw, 956 S.W.2d 662, 665 (Tex. App.—San Antonio1997, no pet.) (shareholders of a corporation may notsue the corporate attorney because “[s]uch a deviation[from the privity rule] would result in attorneys owinga duty to each shareholder of any corporation theyrepresent”.)” The primary policy underlying theprivity rule is that potential liability to non-clientswould hamper an attorney’s ability to zealouslyrepresent his actual clients within the bounds of thelaw. See Valls v. Johanson & Fairless, L.L.P., 314S.W.3d 624, 636 (Tex. App.—Houston [14th Dist.]2010, no pet.); Am. Centennial Ins. v. Canal Ins., 843S.W.2d 480, 484 (Tex. 1992) (“Texas courts have beenunderstandably reluctant to permit a malpractice actionby a nonclient because of the potential interferencewith the duties an attorney owes to the client”). Inother words, “[w]ithout the privity barrier, fear ofliability would inject undesirable self-protectivereservations into the attorney’s counseling role.”Vinson & Elkins v. Moran, 946 S.W.2d 381, 401 (Tex.App.—Houston [14th Dist.] 1997, pet. dism’d by agr.).

A. Recent Texas Supreme Court Cases on Privity

A common application of the privity rule in recentyears has been in the context of wills and trusts, wherebeneficiaries have tried to sue the testator’s attorney.See, e.g., Barcelo v. Elliot, 923 S.W.2d 575, 578-79(Tex. 1996); Huie v. DeShazo, 922 S.W.2d 920 (Tex.1996); Dickey v. Jansen, 731 S.W.2d 581, 583 (Tex.App.—Houston [1st Dist.] 1987, writ ref’d n.r.e.). In

Barcelo v. Elliot, the seminal Texas privity case, theTexas Supreme Court refused to recognize anexception to the privity rule in the estate planning andtrust context, concluding that an attorney who drafts awill or trust does not owe a duty of care to namedbeneficiaries under the will or trust. Barcelo v. Elliot,923 S.W.2d 575, 578-79 (Tex. 1996). In so holding,the Barcelo court reasoned that “the greater good isserved by preserving a bright-line privity rule whichdenies a cause of action to all beneficiaries whom theattorney did not represent.” Id. at 578. However, tworecent supreme court opinions hold that the Barceloprivity rule does not always preclude a legalmalpractice claim brought by a representative of theestate, as opposed to the estate’s beneficiaries. SeeSmith v. O’Donnell, 288 S.W.3d 417 (Tex. 2009); andBelt v. Oppenheimer, Blend, Harrison & Tate, 192S.W.3d 780 (Tex. 2006).

1. Belt v. Oppenheimer, Blend, Harrison & Tate

In Belt, several attorneys represented David Terkin preparing his will and advising him on planning hisestate. After Terk passed away, his children becamethe joint independent executors of the estate and, inthat capacity, sued the attorneys alleging that theattorneys’ estate planning advice caused the estate toincur $1.5 million in excess tax liability. The attorneysargued that the privity rule established in Barceloprevented such a claim. The children responded thatthey were not suing as beneficiaries of the estate, butrather directly on behalf of the estate, and thus werenot barred under Barcelo.

The supreme court agreed with the children, andconcluded that the Barcelo rule, while still in effect toprevent claims by estate beneficiaries, did not barclaims brought by the personal representatives of anestate. Belt v. Oppenheimer, Blend, Harrison & Tate,192 S.W.3d 780, 784 (Tex. 2006). The courtacknowledged that Texas is in the minority in requiringstrict privity in estate-planning malpractice suits. Id. Italso reasoned that the policy concerns articulated byBarcelo—possible conflicts between testator andbeneficiaries during the estate planning process, theneed for extrinsic evidence to prove the decedent’sintent, and the importance of allowing estate plannersto zealously represent their clients—are not implicatedwhen the legal malpractice claim is brought on behalfof the estate itself rather than the beneficiaries. Id. at783-84. The court concluded that allowing suits bypersonal representatives on the estate’s behalf would


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not cause estate attorneys to have divided loyaltiesbetween the estate and the beneficiaries. Similarly, asuit asserting damage to the estate would not requireproof of the decedent’s intent regarding distribution ofthe estate assets. Id. at 787.

Finally, the court acknowledged that becauseestate beneficiaries often serve as personalrepresentatives, some beneficiaries may try to leverageits holding by recasting a claim for a lost inheritance asa claim brought on behalf of the estate. But the courtnoted that “[t]he temptation to bring such claims willlikely be tempered, however, by the fact that a personalrepresentative who mismanages the performance of hisor her duties may be removed from the position.” Id.at 787-88.

2. Smith v. O’Donnell

On June 26, 2009 the supreme court decidedSmith v. O’Donnell, a privity case that expands the Beltholding to claims for legal services performed outsidethe estate planning context. See Smith v. O’Donnell,288 S.W.3d 417 (Tex. 2009). Smith involves a claimbrought by the representative of an estate against thelawyers who had represented the decedent not in theestate planning context, but in connection with hisadministration of his wife’s estate many years earlier.The now-deceased client, Denny, hired the lawyers toadvise him in the independent administration of hissecond wife’s estate. During the administration, aquestion was raised as to whether certain stock wascommunity or separate property. The lawyerssuggested that Denny obtain a declaratory judgmentruling as to the proper allocation, but Denny elected totreat the stock as his separate property. The stock thuswas not included in his wife’s testamentary trust. OnDenny’s death 29 years later the children sued theestate for $25 million they allegedly suffered as a resultof the trust being underfunded due to the impropercharacterization of the stock. The estate settled withthe beneficiaries and then immediately sought torecover the amount of the settlement from Denny’slawyers.

The lawyers asserted privity as a defense, andargued that Belt did not apply because the lawsuit didnot result from estate planning advice. The supremecourt, however, concluded that there is privitywhenever a personal representative of an estate suesthe decedent’s attorney, regardless of whether or notthe legal representation took place in the estateplanning context. Id. at 422. The lawyers also arguedthat where the interests of the decedent, estate, and itsbeneficiaries are in conflict, the Barcelo privity rule

should preclude a lawsuit by the estate’s personalrepresentative against a decedent’s attorney for policyreasons. The supreme court rejected this argument andheld:

We do not believe Barcelo will bear such anexpansive reading. To the contrary, when negligentlegal advice depletes the decedent’s estate in a mannerthat does not implicate how the decedent intended toapportion his estate, Barcelo’s concerns aboutquarreling beneficiaries and conflicting evidence donot arise. . . . Under Barcelo, beneficiaries cannot sue adecedent’s attorney for estate-planning malpractice.But this case does not involve a claim of estate-planning malpractice and it does not involve a suit by adecedent’s beneficiaries against the decedent’sattorneys. . . We see no reason to bar a completelyseparate lawsuit—that of the executor against [thedecedent’s] attorneys—simply because [the wife’s]beneficiaries sued the estate for [decedent’s]mishandling of their mother’s trust.

Id. at 422-23.

In his dissent, Justice Willett, joined by JusticeWainwright, argued that the factual circumstances atissue in the Smith case should have compelledapplication of the Barcelo privity rule, noting that thecase was “rife with Barcelo-like concerns of dividedloyalties and conflicts of interest.” Id. at 962 (Willett,J., dissenting). He further cautioned that the majorityopinion opened the door to collusive lawsuits thatcircumvent the Barcelo rule via a “legal makeover” tosuperficially meet the Belt test:

If Barcelo can be circumvented in three simplesteps—(1) beneficiaries sue the estate to resolve anobjection to how the trust was funded or created; (2)executor settles with the beneficiaries; (3) executorthen recoups the settlement by suing the attorneys wholong-ago advised one or both spouses—Barcelo’sprivity bar will prove porous indeed.

Id. at 428.

Thus under Smith and Belt, the privity ruledoes not bar claims by a decedent’s estate against thedecedent’s attorney for legal malpractice, regardless ofwhether the legal services were performed in the estateplanning context or a different context.

B. When is Privity Established Under Texas Law?

For there to be privity, there must be an attorney-client relationship. The attorney-client relationship is acontractual relationship in which an attorney agrees to


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render professional services on behalf of the client.See Banc One Capital Partners Corp. v. Kneipper, 67F.3d 1187, 1198 (5th Cir. 1995); Sutton v. McCormick,47 S.W.3d 179, 182 (Tex. App.—Corpus Christi 2001,no pet.).

An attorney-client relationship is ordinarilycreated by an express agreement between the parties.See, e.g., Sutton, 47 S.W.3d at 182. However, theattorney-client relationship can also be implied basedon the parties’ conduct. See Kneipper, 67 F.3d at1198; Parker v. Carnahan, 772 S.W.2d 151, 156 (Tex.App.—Texarkana 1989, writ denied) (“The contract ofemployment may be implied by the conduct of the twoparties . . . [if] the parties explicitly or by their conductmanifest an intention to create the attorney-clientrelationship.”).

Courts apply an objective standard, examiningwhat the parties said and did, in order to determine ifthere was a meeting of the minds with respect to thecreation of an attorney-client relationship. Sutton, 47S.W.3d at 182. The client’s subjective belief that anattorney-client relationship existed is not, in and ofitself, sufficient to establish an attorney-clientrelationship. See Vinson & Elkins v. Moran, 946S.W.2d 381 (Tex. App.—Houston [14th Dist.] 1997,writ dism’d by agrt.) (“To determine if there was anagreement or meeting of the minds, one must useobjective standards of what the parties said and did andnot look to their subjective states of mind.”). “There . .. must be some manifestation that both parties intendedto create an attorney-client relationship; therefore, oneparty’s mistaken belief is not sufficient, by itself.”Valls v. Johanson & Fairless, L.L.P., 314 S.W.3d 624,634 (Tex. App.—Houston [14th Dist.] 2010, no pet.).See also Tanox, Inc. v. Akin, Gump, Strauss, Hauer &Feld, L.L.P., 105 S.W.3d 244, 254-55 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (holding thatthe plaintiff’s testimony that she subjectively believedthere was an attorney-client relationship was notrelevant to determining whether to imply such arelationship based on objective evidence of mutualintent).

An attorney can be liable when the circumstanceswould lead the non-client to believe the attorney hasundertaken the representation and the attorney fails towarn the non-client that this is not the case. See Cantuv. Butron, 921 S.W.2d 344, 351 (Tex. App.—CorpusChristi 1996, writ denied) (recognizing that gainingtrust and confidence can establish a relationship); Byrdv. Woodruff, 891 S.W.2d 689, 700 (Tex. App.—Dallas1994, writ denied); Perez v. Kirk & Carrigan, 822S.W.2d 261, 265-66 (Tex. App.—Corpus Christi 1991,

writ denied). Such liability would be imposed if “theattorney was aware or should have been aware that hisconduct would have led a reasonable person to believethat the attorney was representing that person.”Burnap v. Linnartz, 914 S.W.2d 142, 148-49 (Tex.App.—San Antonio 1995, no writ). However, in theabsence of evidence that the attorney knew that theparties assumed he or she was representing them in amatter, the attorney has no affirmative duty to informthe parties otherwise. See Wadhwa v. Goldsberry, No.01-10-00944-CV, 2012 WL 682223, at *7, n.6 (Tex.App.—Houston [1st Dist.] March 1, 2012, n.p.h.).

This risk of potential liability to non-clients is asignificant one. In fact, a Travis County jury recentlyreturned a $1.29 Million verdict against a law firm forfailing to advise an Australian businessman that thefirm did not represent him in a loan transaction. See 27TEX. LAWYER No. 49, Who Represents Whom? TravisCounty Jury Returns $1.29 Million Verdict AgainstDLA Piper (March 5, 2012). The law firm hadprepared the documents for a loan the businessmanmade to a company with which he was affiliated. Thelaw firm did not advise the businessman that itintended only to represent the company. When thecompany filed for bankruptcy and failed to pay on theloan, the businessman sued for legal malpractice. Thiscase has not yet been appealed, but the verdictunderscores the potential risks faced by lawyers whoserepresentation affects multiple parties.

Lawyers can try to avoid these problems byalways documenting in writing who their client is in atransaction or a lawsuit. Further, lawyers decliningrepresentation in a litigation matter should: (1) state inwriting to a person whom the attorney has declined torepresent that the attorney is not taking the person’scase; and (2) urging that person in writing to obtainother counsel immediately because of the possibility ofproblems with the statute of limitations.

III. Establishing Malpractice Liability

A. Proving Breach of the Standard of Care

A legal malpractice action in Texas is traditionallybased on professional negligence. The elements of alegal malpractice claim are as follows: (1) there is aduty owed by the attorney to the client; (2) that dutywas breached; (3) the breach proximately caused theclient’s injury; and (4) damages resulted. Cosgrove v.Grimes, 774 S.W.2d 662, 665 (Tex. 1989).

In proving that the lawyer breached thestandard of care, the plaintiff must show that thelawyer failed to do that which an attorney of ordinary


4

prudence would have done under the same or similarcircumstances. As the supreme court explained inCosgrove, the standard applied is an objective one:

If an attorney makes a decision whicha reasonably prudent attorney couldmake in the same or similarcircumstance, it is not an act ofnegligence even if the result isundesirable. Attorneys cannot be heldstrictly liable for all of their clients’unfulfilled expectations. An attorneywho makes a reasonable decision inthe handling of a case may not be heldliable if the decision later proves to beimperfect. The standard is anobjective exercise of professionaljudgment, not the subjective belief thathis acts are in good faith.

Cosgrove, 774 S.W.2d at 665.

Proof of breach is generally done throughexpert testimony. The jury may not rely solely uponthe fact that the lawyer violated the Texas DisciplinaryRules of Professional Conduct. The Rules will notsupport a claim of negligence per se, nor do they giverise to a private cause of action. Cuyler v. Minns, 60S.W.3d 209, 214 (Tex. App.—Houston [14th Dist.]2001, pet. denied). Some courts may consider them tobe admissible, however, as evidence to demonstratewhat the standard of care should be. For example, inone recent opinion, a court of appeals stated that“[b]arring the use of the code and denying that thecode is relevant to the duties a lawyer has to his clientis not logical and would require the re-creation of astandard of care without reference to verifiable or pre-existing rules of conduct.” See Two Thirty Nine JointVenture v. Joe, 60 S.W.3d 896, 905 (Tex. App.—Dallas 2001), rev’d on other grounds, 145 S.W.3d 150(Tex. 2004); see also RESTATEMENT (THIRD) OF THE

LAW GOVERNING LAWYERS § 52(2) & cmt. (f) (2000)(stating that the rules of professional conduct may beconsidered by the trier of fact as evidence of thestandard of care).

Although typically the question of whether anattorney breached the standard of care is an issue offact for the jury, a recent Austin Court of Appealsdecision provides an example of a situation in whichbreach may be decided as a matter of law. In ZenithStar Ins. Co. v. Wilkerson, the plaintiff sued its formerattorney for malpractice in an underlying lawsuit basedon his failure to raise a particular defense. Zenith StarIns. Co. v. Wilkerson, 150 S.W.3d 525 (Tex. App.—

Austin 2004, no pet.). The attorney moved forsummary judgment, arguing that because the defensewas not available under Texas law, he could not havebreached his duty as a matter of law. The court ofappeals agreed, and concluded that the question ofwhether a defense was legally valid is a question oflaw that can be decided on summary judgment—regardless of whether the law is settled or unsettled onthe question. Id. at 531. The court concluded as amatter of law that the plaintiff could not have validlyraised the defense in the underlying lawsuit, and ittherefore upheld summary judgment for the attorney.Id. at 533. It also cautioned:

In rejecting Zenith’s arguments, we note ourreluctance to condone a rule that subjects competentattorneys to liability for failing to assert everyconceivable defense tactic under the sun. . . Thepractice of law is adversarial enough without attorneyshaving to eschew expense- and time-saving measuressuch as agreed motions to transfer venue.”

Id. at 534 n.7. Thus, when the question of breachdepends partly on a legal determination, it may beresolved on summary judgment as a matter of law.

B. Proving Causation

Causation is often a critical issue in legalmalpractice and breach of fiduciary duty cases arisingout of litigation. “When the claim is that lawyersimproperly represented the plaintiff in another case, theplaintiff must prove and obtain findings as to theamount of damages that would have been recoverableand collected if the case had been properlyprosecuted.” Akin, Gump, Strauss, Hauer & Feld,L.L.P. v. Nat’l Dev. and Research Corp., 299 S.W.3d106, 112 (Tex. 2009). In other words, a successfullegal malpractice action requires that the plaintiff toprove the merits of the underlying case in order toestablish causation and damages. Mackie v. McKenzie,900 S.W.2d 445, 449 (Tex. App.—Texarkana 1995, writdenied). See also Cooper v. Harris, 329 S.W.3d 898,902 (Tex. App.—Houston [14th Dist.] 2010, pet.denied) (holding that to prove causation, the plaintiffmust establish that he would have obtained a morefavorable judgment absent the malpractice). The sameis true for breach of fiduciary duty claims arising out oflitigation. Burnwood, Inc. v. Craig, Terrill Hale &Grantham, L.L.P., No. 07-10-00327-CV, 2012 WL512648, at *4 (Tex. App.—Amarillo Feb. 16, 2012,n.p.h.). This requirement, typically referred to as the“case-within-the-case” requirement, means that theplaintiff must conduct a trial within a trial in which


5

both the malpractice claim and the underlying claimsare tried to the same jury.

1. Causation is a Question of Law When itDepends Solely on Legal Determinations.

One threshold question is whether causation in thelegal malpractice case is a question of fact for the juryor a question of law for the judge. The key question iswhether causation turns on the outcome of the juryverdict in the underlying case. If so, then causation inthe legal malpractice case is a proper subject for thejury to determine. But if causation turns on theoutcome of a legal decision by the judge in theunderlying case, or if the fact finder in the underlyingcase was a judge and not a jury, then causation may bea question of law for the trial judge in the legalmalpractice case.

The Texas Supreme Court held in Millhouse v.Wiesenthal, 775 S.W.2d 626 (Tex. 1989), thatcausation in a malpractice case arising out of an appealis a question of law. The court based its decision onthe following reasoning:

The question of whether an appealwould have been successful dependson an analysis of the law and theprocedural rules. . . . A judge isclearly in a better position [than a jury]to make this determination. Resolvinglegal issues on appeal is an areaexclusively within the province ofjudges; a court is qualified in a way ajury is not to determine the merits andprobable outcome of an appeal.

Millhouse, 775 S.W.2d at 628.

Following the logic of Millhouse, causation mayalso be a question of law if the causation issue turns onthe outcome of a legal decision made by the trial judgein the underlying case. The same holds true if theunderlying matter was an administrative proceedingdetermined by an administrative decision maker, whooften has specialized knowledge applicable to makingthe specific administrative decision involved.

It remains unclear whether causation is a questionof law when the malpractice case arises out of a benchtrial in which the trial judge made both legal andfactual determinations. The Texas Supreme Courtindirectly addressed this unresolved issue in Alexanderv. Turtur & Associates, Inc., 146 S.W.3d 113 (Tex.2004). In Alexander, the legal malpractice claim aroseout of an adverse outcome in a bench trial. Thus, the

causation question in the legal malpractice caserequired the jury to find whether a bankruptcy judgewould have entered a “more favorable” judgment butfor the attorney’s negligence.

The supreme court was not asked to addresswhether causation in that context was a question of lawor fact. The court instead simply held that, at aminimum, expert testimony was required in order toproperly guide the jury on the complicated causationissues presented by the case. Id. at 119-120. However,in his concurring opinion, Justice Hecht points out themany questions raised by this holding. For example,who is qualified to testify as to how a hypothetical orthe actual bankruptcy judge would have decided thecase on a different record? May the trial judge in theunderlying case testify as to how that judge would havedecided the case but for the attorney’s negligence ortestify that the attorney’s alleged negligence played norole in the judge’s decision in the underlying case?Justice Hecht expressed reluctance to decide thesequestions without full briefing of authorities on theissues, but made clear that, in his view, the court wasnot deciding that the issue of causation was “properlyone for the jury.” Id. at 123 (Hecht, J., concurring).

2. The Role of Expert Testimony in ProvingCausation.

As a result of the Alexander opinion, in mostcases the legal malpractice plaintiff will now berequired to proffer expert testimony in order to provecase-within-the-case causation. The Texas SupremeCourt’s decision in Alexander holds that experttestimony is required when a determination of how thealleged malpractice affected the outcome in anunderlying lawsuit is beyond the knowledge andexpertise of a typical jury. In the Alexander case,given the complexity of the underlying bench trial, thecourt concluded that expert testimony was required,because without such guidance, the jury was left tospeculate as to causation. Id. at 120.

Subsequent opinions have applied the holding inAlexander to a broad range of circumstances, includingto legal malpractice cases that arise out of underlyingjury trials. See, e.g., Cooper v. Harris, 329 S.W.3d898, 902 (Tex. App.—Houston [14th Dist.] 2010, pet.denied) (requiring expert testimony on causation in amalpractice case arising out of a jury trial, andexplaining: “In a litigation-malpractice case, it isgenerally beyond the trier of fact’s commonunderstanding to determine whether the result of theunderlying litigation would have been different but forthe attorney’s alleged negligence.”); Hoover v. Larkin,


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196 S.W.3d 227 (Tex. App.—Houston [1st Dist.]2006, pet. denied) (upholding summary judgment inthe absence of expert testimony on the settlement valueof the underlying case); Lewis v. Nolan, No. 01-04-00865-CV, 2006 WL 2864647, at *5 (Tex. App.—Houston [1st Dist.] 2006, no pet.) (mem. opinion)(expert testimony needed on question of whetherfailure to file a response to a summary judgmentmotion caused plaintiff to lose the case); Kothmann v.Cook, No. 07-05-0335-CV, 2007 WL 1075171, at *4(Tex. App.—Amarillo Apr. 11, 2007, no pet.) (mem.opinion) (holding that expert testimony was needed toprove causation on a breach of fiduciary duty claimthat arose out of protracted litigation in multiplecounties and in particular a hearing about propertyrights).

In the Cooper case, the plaintiff argued that experttestimony should not be required when the attorney’salleged negligence was readily understandable – suchas missing a deadline. Cooper, 329 S.W.3d at 903, n.3.But the Houston court of appeals disagreed, noting that“this argument addresses whether expert testimony wasneeded to prove that Cooper breached his negligenceduty . . . [versus whether] it was within the jury’scommon understanding to determine whether Harriswould have recovered judgment against BASF if hehad been represented by a reasonably prudentattorney.” Id. Under the logic of Cooper, then, experttestimony is now always required in order to establishthat the plaintiff would have prevailed in an underlyinglawsuit, regardless of whether it was a jury or a benchtrial.

In sum, the prudent course of action for bothplaintiff and defendant is to retain expert witnesses onbreach of the standard of care, causation, and damages.

3. Instructing the Jury on Causation

The Texas Pattern Jury Charge (PJC) for legalmalpractice cases provides the following question andinstruction when the case arises out of an underlyingjury trial in which the client was the plaintiff andsuffered an adverse outcome due to the allegednegligence of the attorney in prosecuting the suit.

What sum of money, if paid now incash, would fairly and reasonablycompensate [plaintiff/client] for hisloss, if any, resulting from theoccurrence in question?

You shall award the sum, if any, that[plaintiff/client] would have recoveredand collected if [plaintiff’s] original

suit against [the underlying defendant]had been properly prosecuted.

3 Comm. on Pattern Jury Charges, State Bar ofTex., Texas Pattern Jury Charges PJC 61.4, 61.1, 60.1cmt. B (emphasis added).

Although the PJC alludes to and describes thecase-within-the-case requirement, it does notspecifically address whether, or how, underlyingclaims should be presented to the jury. See id. at 61.5,cmt. (“[A] client suing an attorney on the ground thatthe latter caused the former to lose a cause of actionhas the burden of proving that the original actionwould have been successful and the amount that wouldhave been collected if a favorable judgment had beenrendered.”).

Two Texas cases indicate that the proper practiceis to submit questions to the jury on both theunderlying claims and the subsequent legal malpracticeclaims. See Cosgrove v. Grimes, 774 S.W.2d 662,663-64 (Tex. 1989) (“The jury found that Stephens, thedriver of the car that hit Cosgrove [and the defendantin the underlying suit], had been negligent and thatsuch negligence was a proximate cause of the accident.The jury also found that Cosgrove would probablyhave collected $2,000 from Stephens as damagesresulting from the collision.”); Ballesteros v. Jones,985 S.W.2d 485, 489 (Tex. App.—San Antonio 1998,pet. denied) (“the trial court correctly applied the ‘suitwithin a suit’ concept when the first jury questionasked if a common law marriage existed betweenBallesteros and Monetou.””). This is consistent withthe holdings in a number of out-of-state cases fromstates that impose a case-within-the-case causationrequirement similar to Texas.1

1 See, e.g., Ortiz v. Barrett, 278 S.E.2d 833, 836-37 (Va.1981) (holding that in order to establish legal malpracticeliability, the plaintiff must present evidence and obtain juryfindings on the elements of the underlying case);Lewandowski v. Continental Cas. Co., 276 N.W.2d 284, 289(Wis. 1979) (“[W]hether [the clients] had been damaged by[the attorney’s] failure to timely file suit against Bratleycould only be determined after a trial involving the questionof whether the negligence of Bratley was greater than that of[the clients].”); Miller v. Byrne, 916 P.2d 566, 580 (Colo. Ct.App. 1995) (holding that in a breach of fiduciary duty casearising out of an underlying trial, two sets of jury questionsmust be given as in a traditional legal malpractice case);Nika v. Danz, 556 N.E.2d 873, 883-84 (Ill. Ct. App. 1990)(concluding it was proper to instruct the jury on all elementsof the underlying lawsuit and the malpractice case, with thequestions on the attorney’s negligence to precede thequestions on the underlying lawsuit/causation); Kovach v.


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No Texas cases address the proper way to meldthe two sets of jury questions – e.g., in what order topresent the questions, whether bifurcation is everappropriate, and how to handle proportionateresponsibility when it is raised as a defense to both theunderlying lawsuit and the legal malpractice lawsuit.The Texas Supreme Court recently considered case-within-the-case jury instructions in its 2009 opinion inAkin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’lDev. and Research Corp., 299 S.W.3d 106, 112 (Tex.2009), but it did not substantively address how toproperly instruct the jury. The court noted its priorholding in Cosgrove, in which it stated that the jurysubmission must inquire “as to the amount of damagesrecoverable and collectible [in the prior case] if the suithad been properly prosecuted.” Id. at 112. The juryinstructions in the Akin, Gump case followed the PJCinstructions, and neither party questioned whether thejury instruction was correct. Because there was noobjection, the court assumed, without deciding, that theinstruction was proper.2

Until this issue is further addressed, it is likely togenerate legal challenges from both sides. In mostcases, plaintiffs will want to simplify their charge bycontending they can submit the case within the case inone global question that limits recovery to the damagesthat the plaintiff “would have recovered and collectedif [plaintiff’s] original suit against [the underlyingdefendant] had been properly prosecuted.” Defendants

Pearce, 427 So.2d 1128, 1130 (Fla. Ct. App. 1983)(requiring a full trial and full jury questions on the legalmalpractice and underlying lawsuits, including two sets ofjury determinations on comparative fault).

2 The court’s opinion appears to question whether the juryshould have been instructed to determine “the amount ofdamages the plaintiff would have collected to a reasonableprobability.” Akin, Gump, 299 S.W.3d at 112 (citing toCosgrove, 774 S.W.2d at 665 n.3) (emphasis added). Thismay indicate the court considers causation to be an objectiveanalysis (based on what a reasonable judge or jury shouldhave awarded in the underlying case) as opposed to asubjective analysis (based on what the particular judge orjury in that underlying case would have done absent themalpractice). But see Alexander, 146 S.W.3d at 119-120(implicitly appearing to use a subjective standard inevaluating causation, in describing the question as what theactual bankruptcy judge would have decided if differentevidence had been presented and/or a more experienced trialattorney had tried the case). To date, no reported Texas casehas directly confronted the difference between an objectivestandard (what should have occurred or what a reasonablejudge or jury would have done) and a subjective standard(what the particular judge or jury in the underlying casewould have done).

will counter that this approach builds in error in manycases, when specific factual issues must be determinedin order to establish whether the plaintiff would havereally prevailed in the underlying lawsuit withoutmalpractice.

4. Proving Causation and Damages Based onSettlement Value

A recent trend among legal malpractice plaintiffshas been to seek damages based on a lost settlementvalue in an underlying lawsuit, instead of a lostjudgment. Several Texas appellate cases indicated awillingness to consider malpractice damages based on“settlement value” when the plaintiff can prove that thesettlement amount was altered to the plaintiff’sdetriment as a result of the attorney’s negligence.3

Until recently, it has been unclear whether the plaintiffmust still prove the case within the case (i.e., that ajudgment would have been obtained and collected)when the plaintiff’s damages model was based on animpaired settlement. However, the Texas SupremeCourt’s recent opinions in Akin, Gump, Strauss, Hauer& Feld, L.L.P. v. Nat’l Development and ResearchCorp. and Minton v. Gunn have effectively foreclosed

3 In Heath v. Herron, for example, theFourteenth Court of Appeals upheld a theory ofrecovery that was based on the altered “settlementvalue” of the plaintiff’s case, rather than theamount of the likely judgment. Heath v. Herron,732 S.W.2d 748, 753 (Tex. App.—Houston [14thDist.] 1987, writ denied). Several other casesfollowed suit. See Ballesteros v. Jones, 985S.W.2d 485, 499 (Tex. App.—San Antonio 1999,pet. denied) (stating that a jury instruction onmalpractice damages based on a difference insettlement value still must account forcollectibility); Stonewall Surplus Lines Ins. Co. v.Drabek, 835 S.W.2d 708, 712 (Tex. App.—Corpus Christi 1992, writ denied) (concluding thata fact issue existed regarding whether thesettlement value of the case was affected by theattorney’s negligence and resulting sanction).However, the precedential value of the Heathopinion is now questionable, given the FourteenthDistrict Court of Appeal’s recent opinion inCooper v. Harris. As set forth above, Cooperholds that “evidence of a reasonable settlementvalue is not sufficient” to establish causation in alegal malpractice case. Cooper, 329 S.W.3d at903-904.


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this debate.4 It is now clear that legal malpracticeplaintiffs must still prove the amount of judgment theywould have recovered and collected at trial absent themalpractice, and cannot bypass this legal requirementby trying to allege impaired settlement value.

First, the Akin Gump case involved the level ofproof needed to establish that an underlying judgmentwould have been collectible. In determining this issue,the supreme court unequivocally held:

When the claim is that lawyers improperlyrepresented the plaintiff in another case, the plaintiffmust prove and obtain findings as to the amount ofdamages that would have been recoverable andcollectible if the other case had been properlyprosecuted.

Akin Gump, 299 S.W.3d at 112 (emphasis added).In other words, allegations of impaired settlementvalue are no longer viable –in order to establish eithercausation or damages – under this opinion.

Second, Minton v. Gunn addresses whetherfederal courts have exclusive jurisdiction over legalmalpractice cases arising out of underlying patentlitigation. 355 S.W.3d 634 (Tex. 2011).5 The plaintiff,Minton, sued his attorneys for allegedly failing to raisea legal defense (the “experimental use exception”) to

4 An earlier supreme court had already suggested that asettlement value theory did not suffice to bypass proving thecase within the case. In Keck, Mahin & Cate v. NationalUnion Fire Insurance Co., 20 S.W.3d 692 (Tex. 2000), theTexas Supreme Court addressed the proper measure ofdamages in a malpractice case based on allegations of anexcessive settlement (i.e., a settlement amount that increaseddue to a defense attorney’s negligence). The court held thatdamages in that context are calculated based on thedifference between the value of the case after the negligenceinflated its worth and the case’s true value, less any amountsaved by settlement. Id. at 703. The court explained that“true value” means the recovery that the plaintiff would haveobtained following trial in which the underlying defendanthad a reasonably competent, malpractice-free defense. Id. at703 n.5. If National could prove that the malpracticeinflated the value of the case, the court explained, it couldrecover as damages “the difference between the true andinflated value less any amount saved by the settlement.” Id.at 703.

5 Note that Minton has filed a petition for writ of certiorariwith the United States Supreme Court, seeking its review ofthe Texas court’s jurisdictional ruling. However, regardlessof whether the Supreme Court ultimately addresses thepatent jurisdiction issues, the Texas supreme court’sconclusions on the elements of a Texas legal malpracticeclaim should be unaffected.

the on-sale bar asserted by the defendants in his patentcase. The trial court awarded summary judgment forthe defendants, and Minton appealed. In the interim,the United States Court of Appeals for the FederalCircuit issued its opinion in Air MeasurementTechnologies, Inc. v. Akin, Gump, Strauss, Hauer &Feld, L.L.P., 504 F.3d 1262 (Fed. Cir. 2007),concluding that federal courts have exclusivejurisdiction over those legal malpractice cases in whichestablishing patent infringement is a necessaryelement. As a result of the Air Measurement case,Minton asked the court of appeals to dismiss his casedue to a lack of subject matter jurisdiction. The courtof appeals declined to do so and upheld summaryjudgment, but the supreme court concluded that“Minton’s claim has triggered exclusive federal patentjurisdiction.” Id. at 647.

The impact of the Minton opinion is two-fold.First, Minton means that most legal malpracticelawsuits arising out of patent litigation are exclusivelywithin the jurisdiction of federal courts. Second, in soholding, the supreme court necessarily concluded that alegal malpractice plaintiff must prove all substantiveelements of the case-within-the-case in order toprevail, even when the plaintiff alleges damages basedon settlement value. In Minton, the plaintiff allegedthat his lawyer’s failure to plead the experimental useexception “cost him the opportunity of winning hispatent infringement litigation” or, alternatively, “apotential settlement . . . of his claim for more than$100,000,000.00 in damages.” Id. at 638. Thesupreme court concluded that these allegationssufficiently implicated questions of federal patent lawto trigger exclusive federal jurisdiction. Specifically,the court explained that a legal malpractice plaintiffmust prove the case within the case, and that “adetermination of whether Minton would have won hisunderlying federal patent infringement actionnecessarily requires a consideration of the legal andfactual viability of the experimental use defense.” Id.at 639, 642.

Finally, a recent Houston court of appealsdecision has directly addressed this issue, andconcluded that the plaintiff must establish that hewould have been successful in the underlying lawsuitabsent the malpractice, regardless of whether theplaintiff claims his damages are based on settlementvalue. See Cooper v. Harris, 329 S.W.3d 898, 902(Tex. App.—Houston [14th Dist.] 2010, pet. denied).In Cooper, the plaintiff sued his attorney for missingcertain deadlines in his underlying employmentdiscrimination lawsuit. At the legal malpractice trial,the plaintiff presented expert testimony that the lawyer


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was negligent, and that his underlying employmentcase was generally a “good solid six-figure case.” Id.at 902-903. The jury found for the plaintiff, but thelawyer appealed, arguing that there was legallyinsufficient evidence in support of the jury’s causationfinding. The Houston court of appeal agreed with thelawyer, explaining:

For there to be legally sufficient evidence ofcausation, the record must contain expert testimonythat would enable reasonable and fair-minded people tofind that Harris would have recovered a moneyjudgment against BASF if he had been represented bya reasonably prudent attorney. Under the standardarticulated by the Supreme Court of Texas, evidence ofa reasonable settlement value is not sufficient. . . [Theexpert’s] nonspecific and conclusory statements do notaddress the complicated factual and legal issues as towhether [plaintiff] would have been able to obtain amoney judgment against BASF if he had beenrepresented by a reasonably prudent attorney.

Id. at 903-904 (citing to Akin Gump, 299 S.W.3dat 112; and Keck, Mahin & Cate v. Nat’l Union FireIns. Co. of Pittsburgh, 20 S.W.3d 692, 703 & n.5 (Tex.2000)).

In sum, plaintiffs must always prove the casewithin the case, and should not be able to seekdamages solely based on an impaired settlement value.This is consistent both with out-of-state authority6 and

6 The “case-within-the-case” approach tocausation and damages is the general rule in thevast majority of other states, primarily because ofthe inherent difficulties with accuratelydetermining causation using any other method.See, e.g., Garretson v. Miller, 99 Cal. App. 4th563, 568-69 (Cal. Ct. App. 2002) (“Californiafollows the majority rule that a malpracticeplaintiff must prove not only negligence on thepart of his or her attorney, but that carefulmanagement of the case within a case would haveresulted in a favorable judgment “‘and collectionof same . . . .’”) (quoting Campbell v. Magana,184 Cal. App. 2d 751, 754 (Cal. Ct. App. 1960)));Mattco Forge, Inc. v. Arthur Young & Co., 52 Cal.App. 4th 820, 834, 843-44 (Cal. Ct. App. 1997)(citing to the trial within a trial method as thegeneral rule and concluding that allowing aplaintiff to value the case without reference to theoutcome of the underlying trial would result inspeculative damages); Fuschetti v. Bierman, 319

with Texas law on medical malpractice damages.Texas medical malpractice cases prohibit recovery forlost chance of survival or cure (i.e., for decreasing apatient’s chance of avoiding death where the adverseresult likely would have occurred anyway). ParkPlace Hosp. v. Estate of Milo, 909 S.W.2d 508, 511(Tex. 1995); Kramer v. Lewisville Memorial Hospital,858 S.W.2d 397, 398 (Tex. 1993).

C. Availability of Attorney’s Fees as ActualDamages

In the Akin Gump case, the supreme court alsoheld that attorney’s fees incurred in the underlyinglawsuit are recoverable as actual damages to the extentthat they were proximately caused by the defendant’snegligence. See Akin, Gump, Strauss, Hauer & Feld,L.L.P. v. Nat’l Dev. and Research Corp., 299 S.W.3d106, 109 (Tex. 2009). In that case, the client sought torecover the appellate fees it incurred to appeal its lossat trial, which it claimed it would not have paid hadmalpractice not been committed at the trial. TheDallas court of appeals acknowledged that therecoverability of attorney’s fees in such a situation isdisputed among Texas courts, but held to a bright-linerule against allowing attorney’s fees to be recovered asdamages in a legal malpractice claim.

The supreme court reversed, holding that theAmerican Rule, which generally prohibits the recoveryof attorneys’ fees incurred in prosecuting or defendinga suit, does not apply to claims for attorneys’ fees paidto a negligent attorney in the underlying lawsuit. Id. at

A.2d 781, 784 (N.J. Super. Ct. Law Div. 1974)(excluding expert testimony on reasonablesettlement value “[b]ecause no expert can supposewith any degree of reasonable certainty the privateblends of hopes and fears that might have cometogether to produce a settlement before or duringtrial”). But see Duncan v. Lord, 409 F. Supp. 687,692-93 (E.D. Penn. 1976) (“We start with thelegal proposition that the measure of damages inthis legal malpractice action is that amount whichplaintiff would have received from a jury orthrough settlement of her state court action”). Asexplained by a California Court of Appeals, “thetrial-within-a-trial burden . . . is the most effectivesafeguard yet devised against speculative andconjectural claims in this era of ever expandinglitigation.” Mattco Forge, Inc. v. Arthur Young &Co., 52 Cal. App. 4th 820, 834 (Cal. Ct. App.1997).


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120-21. The court differentiated between the recoveryof fees from the legal malpractice case itself (which isimproper) and the recovery of fees incurred in theunderlying lawsuit as a result of the attorney’snegligence:

We see little difference between damagesmeasured by the amount the malpractice plaintiffwould have, but did not, recover and collect in anunderlying suit and damages measured by attorney’sfees it paid for representation in the underlying suit, ifit was the defendant attorney’s negligence thatproximately caused the fees. In both instances, theattorney’s negligence caused identifiable economicharm to the malpractice plaintiff. The better rule, andthe rule we adopt, is that a malpractice plaintiff mayrecover damages for attorney’s fees paid in theunderlying case to the extent the fees were proximatelycaused by the defendant attorney’s negligence.

Id. at 122.

Applying this principle, the court examinedwhether the client had proof that the attorneys’ feessought were proximately caused by the attorney’snegligence. As to the appellate fees, the court held thatbecause there was no proof that the client would nothave had to pay appellate fees defending a successfuljudgment, the client could not show that the appellatefees incurred appealing an adverse judgment werecaused by the negligence. In other words, if the clientwould have had to pay the fees regardless, they couldnot be recovered as damages. On the other hand, thecourt did allow the recovery of fees paid to separate,additional counsel who were retained post-trial to try toconvince the trial judge to award a judgment despitethe absence of a jury finding on a particular issue.These fees, which would not have been incurred hadthe jury been properly instructed, were recoverable tothe extent there was proof of the amount actually paidby the client. Id. at 123-24. See also Parsons v.Greenberg, No. 02-10-00131-CV, 2012 WL 310505, at*5 (Tex. App.—Fort Worth Feb. 2, 2012) (holdingappellate attorney’s fees could only be recovered asdamages if there was proof that, absent themalpractice, there would have been no appeal).

In sum, under the Akin Gump decision,malpractice plaintiffs can now recover attorney’s feesthey paid to their lawyer as actual damages, but only tothe extent they can prove that: (1) they would not havehad to pay those fees if the attorney had not beennegligent, and (2) the fees were actually incurred (i.e.,paid by the client).

IV. Common Legal Defenses to Claims BroughtAgainst Attorneys

A. The Fracturing Rule

As a general rule, Texas law does not allow the“fracturing” of a legal malpractice claim into multiplecauses of action. “[C]ourts do not allow a case arisingout of an attorney’s alleged bad legal advice orimproper representation to be split out into separateclaims for negligence, breach of contract, or fraud,because the ‘real issue remains one of whether theprofessional exercised that degree of care, skill, anddiligence that professionals of ordinary skill andknowledge commonly possess and exercise.” Isaacs v.Schleier, 356 S.W.3d 548, 556 (Tex. App.—Texarkana2011, no pet.). The fracturing defense is a legalquestion for courts, and courts often dismissallegations of breach of fiduciary duty, fraud, breach ofwarranty, DTPA violations, and breach of contractwhen they are really recast malpractice claims. See,e.g., Latham v. Castillo, 972 S.W.2d 66 (Tex. 1998)(holding that attorneys may be subject to DTPAliability, despite the fracturing rule, only if the claimsare based on affirmative misrepresentations of materialfact and not on mere allegations of inadequate legalrepresentation or negligence); Greathouse v.McConnell, 982 S.W.2d 165, 172 (Tex. App.—Houston [1st Dist.] 1998, pet. denied) (holding thatclaims of breach of contract, breach of fiduciary duty,fraud, DTPA violations, and breach of express andimplied warranties were “all essentially ‘means to anend’ to achieve one complaint of legal malpractice”);Jampole v. Matthews, 857 S.W.2d 57 (Tex. App.—Houston [1st Dist.] 1993, writ denied) (holding that adistinct cause of action for breach of contract isavailable only when a client sues his attorney forcollecting excessive legal fees, but not for subpar legalservices); Sledge v. Alsup, 759 S.W.2d 1, 2 (Tex.App.—El Paso 1988, no writ) (holding that all claimsagainst attorneys regarding their representation shouldbe treated as one cause for legal malpractice).

One of the more difficult fracturing issues in thepast was the question of where to draw the linebetween traditional legal malpractice (professionalnegligence) claims and breach of fiduciary dutyclaims.7 Courts have now drawn a bright line

7 Attorneys owe a fiduciary duty of loyalty to their clients asa matter of law on the basis that “the attorney-clientrelationship is one of ‘most abundant good faith,’ requiringabsolute perfect candor, openness and honesty, and theabsence of any concealment or deception.” Goffney v.Rabson, 56 S.W.3d 186, 193 (Tex. App.—Houston [14thDist.] 2001, no pet.). “The basic fiduciary obligations are


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distinction between malpractice and breach offiduciary duty claims, and allow independent breach offiduciary duty claims against attorneys only if theallegations are that the lawyer obtained an improperbenefit at the client’s expense. See, e.g., KimlecoPetroleum, Inc. v. Morrison & Shelton, 91 S.W.3d 921,923 (Tex. App.—Fort Worth 2002, pet. denied) (“Abreach of fiduciary duty occurs when an attorneybenefits improperly from the attorney-clientrelationship by, among other things, subordinating hisclient’s interests to his own, retaining the client’sfunds, using the client’s confidences improperly,taking advantage of the client’s trust, engaging in self-dealing, or making misrepresentations.”). Claims thatgo to the quality of legal representation provided areproperly brought only as legal malpractice claimsbased on negligence. Id. at 923.

Recent opinions on fracturing have dismissedfiduciary duty and fraud claims that, although couchedin terms of “conflicts of interest”, “failure to disclose,”and even “self-dealing,” in essence amount tocomplaints about the quality of the legal servicesprovided. See Won Pak v. Harris, 313 S.W.3d 454,457 (Tex. App.—Dallas 2010, pet. denied) (“Merelycharacterizing conduct as a ‘misrepresentation’ or‘conflict of interest’ does not necessarily transformwhat is really a professional negligence claim into afraud or breach of fiduciary duty claim.”); Beck v.Terry, 284 S.W.3d 416, 432 (Tex. App.—Austin 2009,no pet.) (“A complaint that a lawyer ‘failed to disclose’[a substance abuse problem] . . . would go to thelawyer’s competence or ability and, ultimately, to thequality of legal services the lawyer provided’ andtherefore is a professional negligence claim.”); Murphyv. Gruber, 241 S.W.3d 689, 699 (Tex. App.—Dallas2007, pet. denied) (holding that where allegations ofconflict essentially go to the quality of legal

two-fold: undivided loyalty and confidentiality.” 2 RONALD

E. MALLEN & JEFFREY M. SMITH, LEGAL MALPRACTICE §14.1, at 530 (5th ed. 2000). A violation of this duty ofloyalty gives rise to a cause of action for breach of fiduciaryduty and, if the breach is sufficiently clear and serious, to acause of action for forfeiture of the attorney’s fee. SeeBurrow v. Arce, 997 S.W.2d 229, 241 (Tex. 1999)(recognizing a new claim of fee forfeiture for certainbreaches of fiduciary duty). By contrast, a traditional legalmalpractice (professional negligence) claim is based on abreach of the attorney’s duty to exercise ordinary care, i.e.,to act as would a reasonably prudent attorney in the same orsimilar circumstances in representing a client. KimlecoPetroleum, Inc. v. Morrison & Shelton, 91 S.W.3d 921, 923(Tex. App.—Fort Worth 2002, pet. denied) (holding thatmalpractice claims, as distinguished from fiduciary dutyclaims, are based on “an attorney’s alleged failure toexercise ordinary care”).

representation, they support a professional negligenceclaim and not a claim for breach of fiduciary duty); andDuerr v. Brown, 262 S.W.3d 63, 71-75 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (dismissingfiduciary duty claims based on alleged conflictsbecause “[plaintiff] contends his interests werecompromised by the failure to deliver a promised levelof recovery . . . That is a malpractice claim as a matterof law.”).

In its 2010 Won Pak opinion, the Dallas Court ofAppeals explained that, even if the plaintiff allegesfiduciary duty violations, the claim still sounds innegligence unless the attorney obtained an improperbenefit:

Even if a complaint implicates a lawyer’sfiduciary duties, it does not necessarily follow thatsuch a complaint is actionable apart from a negligenceclaim. In fact, the standard of care in attorneynegligence cases often refers to and is defined by thecharacteristics inherent in the fiduciary duty betweenthe lawyer and the client. Appellants do not allegeHarris obtained an improper benefit from hisrepresentation or his failure to disclose any conflict ofinterest. . . [W]hether Harris received attorney’s fees oran improper personal benefit . . . is clearly not thegravamen of appellants’ complaints. Instead,appellants’ focus is that Harris’s actions caused orcontributed to the other investors being able to defraudthem. Accordingly, we conclude the trial court did noterr in determining appellants’ allegations constituteclaims of professional negligence.

Won Pak, 313 S.W.3d at 458. See also Isaacs,356 S.W.3d at 559-560 (“The [plaintiffs’] complaintsregarding breach of fiduciary duty and constructivefraud concern the conflict of interest, failure to disclosethe dual nature of the representation and possibleconsequences, and failing to obtain informed consentand waiver . . . . These claims do not, ‘without more,allege the type of dishonesty or intentional deceptionthat will support a breach of fiduciary duty claim . ..’”).

Finally, allegations that a lawyer attempted toimproperly benefit by continuing to collect a fee for hiswork are insufficient as a matter of law to establish abreach of fiduciary duty claim. See Beck, 284 S.W.3dat 438-39 (“Although appellants urge that [defendants]. . . stood to obtain attorneys’ fees that a separatecounsel otherwise would have received . . . both theMurphy and Floyd courts characterized such acomplaint, standing alone, as a negligence claim.”)(citing to Floyd v. Hefner, 556 F.Supp.2d 617, 662


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(S.D. Tex. 2008); and Murphy, 241 S.W.3d at 698).See also Won Pak, 313 S.W.3d at 458 (holding that alawyer’s pecuniary interest in obtaining a legal fee,without more, is insufficient to convert a malpracticeclaim into a breach of fiduciary duty claim).

In sum, the trend in recent cases has been to lookbeyond the pleadings and focus on the true nature ofthe allegations in order to determine whether a claim isfor professional negligence or breach of fiduciary duty.Unless the plaintiff alleges that the lawyer obtained animproper benefit as a result of the misconduct, theclaim will likely be treated as solely a professionalnegligence cause of action.

B. The “Litigation Privilege” Prohibits AttorneyLiability for Conduct in Litigation

Texas courts have protected litigation attorneysagainst claims by the opposing party under a litigationprivilege, sometimes referred to as “attorneyimmunity,” which prevents most claims by opposingparties or attorneys. In Bradt v. West, the First Courtof Appeals developed this rule in the context of claimsmade by one attorney to a lawsuit against the adversaryattorney. Bradt v. West, 892 S.W.2d 56, 72 (Tex.App.—Houston [1st Dist.] 1994, writ denied). Thecourt discussed the potential problems that could arisefrom allowing an attorney to be potentially liable to theother side in a lawsuit:

An attorney should not go into court knowing thathe may be sued by the other side’s attorney forsomething he does in the course of representing hisclient; such a policy would favor tentativerepresentation, not the zealous representation that ourprofession rightly regards as an ideal and that thepublic has a right to expect. That policy would dilutethe vigor with which Texas attorneys represent theirclients, which would not be in the best interests ofjustice.

Id. It therefore held that the opposing attorneyhad no right of action, “under any cause of action,”against his adversary in the lawsuit based on hisdischarge of his duties in representing a party to thelitigation. Id. The rule announced in Bradt has sincebeen expanded to prevent claims made by the opposingparty against the adversary attorney in the underlyingcase. See Taco Bell Corp. v. Cracken, 939 F. Supp.528, 532-33 (N.D. Tex. 1996) (following Bradt in thecontext of a suit by the opposing party and dismissingall claims raised, including claims for fraud andconspiracy); Renfroe v. Jones & Assocs., 947 S.W.2d285, 288 (Tex. App.—Fort Worth 1997, writ denied).

The litigation privilege rule focuses on the type ofconduct in which the attorney engages rather than onwhether the conduct was meritorious in the context ofthe underlying lawsuit. For example, the Bradt courtexplained that an attorney would not be immune fromphysical assault “because such conduct would not bepart of the discharge of the [attorney’s] duties inrepresenting a party in the lawsuit.” Bradt, 892S.W.2d at 72. See also Miller v. Stonehenge/FASA-Texas, JDC, L.P., 993 F. Supp. 461, 464 (N.D. Tex.1998) (refusing to apply the privilege to an attorneyrepresenting a client in its collection efforts who“demanded access to the premises and, under threat offorce, inspected, inventoried, and videotaped plaintiff’s‘personal and intimate’ property and effects.”).Accordingly, the privilege turns on whether theattorney’s conduct was part of discharging his duties inrepresenting his client. If the conduct is within thiscontext, it is not actionable even if it is meritless.

Some courts have held that the litigation privilegewill not necessarily overcome an opposing party’sallegation of fraud or conspiracy to defraud against anattorney. See Toles v. Toles, 113 S.W.3d 899, 910(Tex. App.—Dallas 2003, no pet.); Mendoza v.Fleming, 41 S.W.3d 781, 787-88 (Tex. App.—CorpusChristi 2001, no pet.); Querner v. Rindfuss, 966S.W.2d 661, 666 (Tex. App.—San Antonio 1998, pet.denied) (refusing a global privilege). The reasoning ofthese opinions is that lawyers may only be immune for“actions which are ‘within the bounds of the law.’”Mendoza, 41 S.W.3d at 787.

However, other, more recent opinions find that theprivilege applies equally to allegations of fraud andconspiracy to defraud, so long as the conduct was partof representing an opposing party in a lawsuit. SeeFinServ Casualty Corp. v. Settlement Funding, LLC,724 F.Supp.2d 662, 671 (S.D. Tex. 2010) (holding thatimmunity rule still operates to bar claims for fraud solong as the wrongful conduct took place within thecontext of the attorney’s representation of their client);Jurek v. Kivall, No. 01-10-00040-CV, 2011 WL1587375 (Tex. App.—Houston [1st Dist.] 2011)(holding that the immunity defense bars fraud claimsonly if they relate to fraudulent acts outside the scopeof legal representation of the client); and Alpert v.Craig, Caton & James, P.C., 178 S.W.3d 398, 408(Tex. App.—Houston [1st Dist.] 2005, pet. denied)(concluding that conduct undertaken in representing aclient in litigation was not foreign to the duties of anattorney and upholding dismissal of a conspiracy todefraud claim). See also Lewis v. Am. Exploration Co.,4 F. Supp. 2d 673, 679 (S.D. Tex. 1998)(“Characterizing the attorney’s actions in defending his


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client as fraudulent or as part of a conspiracy todefraud does not change the rule or provide a basis forrecovery.”); Chapman Children’s Trust v. Porter &Hedges, L.L.P., 32 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (distinguishingalleged fraudulent conduct in a transactional settingfrom conduct in adversarial litigation and upholdingsummary judgment on fraud and conspiracy claimsunder the litigation privilege); Dallas Ind. School Dist.v. Finlan, 27 S.W.3d 220, 234-35 (Tex. App.—Dallas2000, pet. denied), cert. denied, 534 U.S. 949 (2001)(rejecting argument that an attorney can be liable as aco-conspirator when the conduct involved judicialproceedings).

An unclear issue is who bears the burden ofproving that the privilege applies. Some opinions holdthat, when allegations are raised based on conduct ofan opposing attorney in litigation, no cause of actionexists against the attorney. See, e.g., White v. Bayless,32 S.W.3d 271, 276 (Tex. App.—San Antonio 2000,pet. denied); Querner, 966 S.W.2d at 669; Bradt, 892S.W.2d at 73. Under this line of authority, the burdenis on the plaintiff to plead and prove the existence andviolation of a duty and, therefore, that the conduct didnot take place in the litigation context. Cf. IBP, Inc. v.Klumpe, 101 S.W.3d 461, 471 (Tex. App.—Amarillo2001, pets. denied). Others treat the privilege as anaffirmative defense on which the defendant-attorneybears the burden of proof. Mendoza, 41 S.W.3d at787; Klumpe, 101 S.W.3d at 471. Until this issue isresolved, attorneys should take care to plead thisprivilege as an affirmative defense.

C. Potential Attorney Defamation Liability andApplicability of the Absolute LitigationPrivilege

An “absolute privilege” protects lawyers againstdefamation claims that arise out of statements theymake in the course of representing their clients injudicial or quasi-judicial proceedings. See James v.Brown, 637 S.W.2d 914, 917 (Tex. 1982); Helfland v.Coane, 12 S.W.3d 152, 157 (Tex. App.—Houston [1st

Dist.] 2000, pet. denied). It has been long-establishedin Texas that this privilege protects statements made inthe course of a judicial proceeding, such as statementsmade in open court, pretrial hearings, depositions,affidavits, and any of the pleadings. Coane, 12 S.W.3dat 152. A more recent development, however, hasbeen the application of this privilege to out-of-courtstatements by attorneys that are made in connectionwith a lawsuit. Id.

In Russell v. Clark, the Dallas Court of Appealsconsidered for the first time whether out-of-courtstatements could be protected by the privilege. Russellv. Clark, 620 S.W.2d 865 (Tex. Civ. App.—Dallas1981, writ ref’d n.r.e.). The alleged defamatorystatements were made by a lawyer in a letter to theplaintiffs’ investors seeking information relevant to alawsuit between the lawyer’s client and the plaintiff.The investors were not parties to the lawsuit. Thecourt of appeals held, based on section 586 of theRestatement (Second) of Torts and policy concerns,that the statements should nevertheless be protected bythe privilege:

[W]e think the doctrine should be so extended.Public policy demands that attorneys be granted theutmost freedom in their efforts to represent theirclients. To grant immunity short of absolute privilegeto communications relating to pending or proposedlitigation, and thus subject an attorney to liability fordefamation, might tend to lessen an attorney’s effortson behalf of his client. The conduct of litigationrequires more than in-court procedures. An attorneymust seek discovery of evidence, interrogate potentialwitnesses, and often resort to ingenius methods toobtain evidence; thus he must not be hobbled by thefear of reprisal by actions for defamation. Yet thisabsolute privilege must not be extended to an attorneycarte blanche. The act to which the privilege appliesmust bear some relationship to a judicial proceeding inwhich the attorney is employed, and be in furtheranceof that representation.

Id. at 868. The court ultimately articulated thestandard as follows:

[W]e hold that the question of the relationship ofthe defamatory matter to a proposed or existing judicialproceeding is a question of law, to be determined bythe court. In doing so, the court must consider theentire communication in its context, and must extendthe privilege to any statement that bears some relationto an existing or proposed judicial proceeding. Alldoubt should be resolved in favor of its relevancy.

Id. at 870. See also Riley v. Ferguson, No. 01-98-00350-CV, 1999 WL 191654, at *4 (Tex. App.—Houston April 8, 1999, pet. denied) (“The standard isnot relevance but only some relation, and all doubtshould be resolved in favor of the communication’srelation to the proceeding.”) (emphasis in original).

Since Russell, Texas courts have applied theprivilege to the following types of out-of-courtstatements: (1) pleadings delivered to the media, Hill v.Herald-Post, 877 S.W.2d 774, 783-84 (Tex. App.—El


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Paso 1994), aff’d in part/rev’d in part on othergrounds, 891 S.W.2d 638 (Tex. 1994); (2) statementsor remarks made during settlement negotiations,Bennett v. Computer Assoc. Int’l, 932 S.W.2d 197, 201(Tex. App.—Amarillo 1996, writ denied); and (3)correspondence sent in advance of, and regarding,potential litigation, Watson v. Kaminski, 51 S.W.3d825, 827 (Tex. App.—Houston [1st Dist.] 2001, nowrit).

It is uncertain when an attorney’scommunications to the press regarding a lawsuit areprotected by the absolute privilege. In LevingstonShipbuilding Co. v. Inland West Corp., the BeaumontCourt of Appeals held that, by filing a lawsuit and thensending copies of the suit to the press in order to try tosabotage a contract to build a competing shipyard, thedefendant was liable for defamation and that theprivilege was not applicable. Levingston, 688 S.W.2d192, 196-97 (Tex. App.—Beaumont 1985, writ ref’dn.r.e.). However, a subsequent opinion criticizesLevingstone, noting that its “facts seem to justify theaffirmance [but] the holding has no support in the caselaw and is a deviation from the general rule of absoluteprivilege.” Hill, 877 S.W.2d at 783. The Hill courtexplained that the “harm resulting to the defamed partyby delivering a copy of the suit or motion . . . [is] nogreater than . . . if the news media reporters got a tipfrom someone or found the pleadings on their own.”Id.

Interestingly, Hill states in dicta that the absoluteprivilege does not extend to a press conference. Id. at782-83 (citing to RESTATEMENT (SECOND) OF TORTS,Appendix § 586 (1981)). However, it extends theprivilege to both the pleadings an attorney sent to thepress and the attorney’s accompanying statements to areporter regarding those pleadings. Id. But see Mattav. May, 118 F.3d 410, 417 (5th Cir. 1997) (holding thatstatements to a reporter that mischaracterized thepleadings in an ongoing proceeding were not protectedby the absolute privilege). It is unclear why statementsmade in a press conference are not privileged butcomments made in a telephone interview are protected.

More recent cases have upheld the applicability ofthe privilege to a lawyer’s statements to the pressregarding an ongoing lawsuit. See DaystarResidential, Inc. v. Collmer, 176 S.W.3d 24, 28-29(Tex. App.—Houston [1st Dist.] 2004, pet. denied)(holding that statements made by a lawyer in multipleinterviews were protected because they related to aproposed lawsuit); and Dallas Ind. School Dist. v.Finlan, 27 S.W.3d 220, 238-39 (Tex. App.—Dallas2000, pet. denied), cert. denied, 534 U.S. 949 (2001)

(applying the privilege to statements made in a pressrelease). It does appear, therefore, that the trend is toprotect even communications with the press so long asthey relate to an ongoing lawsuit. However, lawyersshould exercise caution when communicating with thepress because the exact parameters of the privilege inthat context are still unclear.

V. Other Typical Claims Raised AgainstAttorneys

A. Breach of Fiduciary Duty

1. Traditional fiduciary duty claims seekingactual damages

When a traditional breach of fiduciary duty ispled, and damages are requested as a result, theplaintiff must establish: (1) a duty; (2) a breach of thatduty; (3) the breach proximately caused injury; and (4)damages resulted. Two Thirty Nine Joint Ventures v.Joe, 60 S.W.3d 896, 904-906 (Tex. App.—Dallas2001), rev’d on other grounds, 145 S.W.3d 150 (Tex.2004); see also In re Segerstrom, 247 F.3d 218, 225n.5 (5th Cir. 2001) (differentiating among claims fordamages and claims for fee forfeiture and explainingthat, in the former, the plaintiff must still provecausation and damages). The plaintiff must still provethe existence of an attorney-client relationship, whichof course means that the attorney owes a fiduciary dutyto the client. Longaker v. Evans, 32 S.W.3d 725, 733(Tex. App.—San Antonio 2000, no pet.). Similarly,the plaintiff must prove causation and damages in thesame way as for a legal malpractice claim based onnegligence. In re Segerstrom, 247 F.3d at 225 n.5; seealso Burnwood, Inc. v. Craig, Terrill Hale &Grantham, L.L.P., No. 07-10-00327-CV, 2012 WL512648, at *4 (Tex. App.—Amarillo Feb. 16, 2012,n.p.h.) (requiring proof of the case within the case for afiduciary duty claim arising out of litigation).

The requirements for proving a breach offiduciary duty claim do differ from a legal malpracticeclaim in some ways. For example, in situations inwhich the attorney and the client participated in abusiness deal or the attorney was self dealing in atransaction, the defendant actually bears the burden ofproof on the second element—whether the attorneybreached a fiduciary duty. See, e.g., Stephens CountyMuseum, Inc. v. Swenson, 517 S.W.2d 257, 260 (Tex.1974) (where a fiduciary business advisor was anofficer/director of a museum but was also advising hissisters to donate their estate to the museum, there was apresumption of unfairness that the fiduciary needed torebut); International Bankers Life Ins. Co. v. Holloway,368 S.W.2d 567, 576 (Tex. 1963) (holding the burden


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on the fiduciaries to prove fairness where thefiduciaries were engaging in transactions for theirpersonal profit). In these situations, “a ‘presumption ofunfairness’ automatically arises and the burden isplaced on the fiduciary to prove (a) that the questionedtransaction was made in good faith, (b) for a fairconsideration, and (c) after full and completedisclosure of all material information to the principal.”Jackson Law Office, P.C. v. Chappell, 37 S.W.3d 15,22 (Tex. App.—Tyler 2000, pet. denied). However,the fact that the defendant bears the burden of rebuttingthe presumption of unfairness does not relieve theplaintiff of the burden to prove causation and damages.MacFarlane v. Nelson, No. 03-04-00488-CV, 2005WL 2240949, at *9 (Tex. App.—Austin Sept. 15,2005, pet. denied) (mem. opinion) (upholding adirected verdict on a breach of fiduciary duty claimwhere the plaintiff did not carry his burden ondamages, and rejecting plaintiff’s argument that thedefendant had to disprove damages when thetransaction involved self dealing).

2. Fee Forfeiture Claims

In 1999, the Texas Supreme Court decidedBurrow v. Arce, in which it recognized for the firsttime the equitable remedy of fee forfeiture for anattorney’s breach of fiduciary duty. Burrow v. Arce,997 S.W.2d 229 (Tex. 1999). This remedy issignificant because it does not require a showing ofcausation or damages in order for a client to recover allor part of the attorney’s fee. Rather, fee forfeiture isavailable when the trial court determines that thebreach was sufficiently “clear and serious” to justifyforfeiture in furtherance of the public interest inpreserving the integrity of the attorney-clientrelationship.

In Arce, the Texas Supreme Court cited to anumber of factors from section 49 of the proposedRestatement (Third) of the Law Governing Lawyersthat should be applied in determining whether a breachwas sufficiently clear and serious to warrant feeforfeiture. These factors include “the gravity andtiming of the violation, its willfulness, its effect on thevalue of the lawyer’s work for the client, any otherthreatened or actual harm to the client, and theadequacy of other remedies.” In addition, the courtadded another factor that was to be given great weight:“the public interest in protecting the integrity of theattorney-client relationship.” Id. at 245.

Recent fee forfeiture cases indicate that courts arereluctant to award this extraordinary remedy absent ashowing that the lawyer acted in bad faith, or that the

lawyer’s misconduct actually caused the client harm.See, e.g., Wythe II Corp. v. Stone, 342 S.W.3d 96, 105(Tex. App.—Beaumont 2011, pet. denied), cert.denied, 132 S.Ct. 1150 (2012) (upholding denial of feeforfeiture when the trial court could reasonablyconclude that the attorney’s actions did not affect thevalue of the work performed or otherwise harm theclient); Miller v. Kennedy & Minshew, P.C., 142S.W.3d 325 (Tex. App.—Fort Worth 2003, pet.denied) (upholding refusal to order fee forfeiture whenthe attorney’s misconduct had not been willful,unconscionable, knowing, or intentional, and had notcaused any damages to the plaintiff); Haase v.Herberger, 44 S.W.3d 267, 268 (Tex. App.—Houston[14th Dist.] 2001, no pet.) (upholding summaryjudgment on a forfeiture claim, when the attorneys hadbeen following a court order in the underlying case).In addition, as set forth above, courts are becomingmuch more reluctant to recognize breach of fiduciaryduty claims at all under the fracturing rule.

However, because the fee forfeiture remedy doesnot require a showing of causation and damages, it isstill likely that plaintiffs will continue to allege breachof fiduciary duty and seek fee forfeiture in most cases.Proving the amount of a lawyer’s fee is much easierthan proving the merits of the case within the case.Lawyers trying to avoid fee forfeiture liability shouldbe particularly cautious when dealing with their feesbecause this has been an area that has given rise toliability. See, e.g., Jackson Law Office, P.C. v.Chappell, 37 S.W.3d 15 (Tex. App.—Tyler 2000, pet.denied) (upholding a partial fee forfeiture when thelawyers failed to keep billing records, record servicesrendered, or provide billing statements to their clientand instead charged the plaintiff an inflated fee); andSpera v. Fleming, Hovenkamp & Grayson, P.C., 25S.W.3d 863 (Tex. App.—Houston [14th Dist.] 2000,no pet.) (holding that a question of fact existed on feeforfeiture when the plaintiffs alleged the attorneys didnot notify them of a hearing on the reasonableness ofthe fee in time for the clients to obtain other counsel onthe fee issue).

In sum, the question of what type of breach issufficiently clear and serious to give rise to forfeiture isfact specific and hard to nail down. But some guidancecan be obtained from recent case law. Many of thesecases have involved allegations regarding the proprietyof an attorney’s fee, particularly in the context of masstorts or class actions. This is therefore an area inwhich attorneys should take particular care. Inaddition, while harm to the client is not a requiredelement of recovery, it is an important consideration inevaluating whether forfeiture is appropriate. And


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finally, the attorney’s intent and good faith appear tobe important considerations.

B. Fraud and Conspiracy

It is well-established under Texas law that privityis not a defense to fraud and conspiracy claims broughtby third parties against attorneys. In Likover v.Sunflower Terrace II, Ltd., a non-client sued anattorney for fraud and conspiracy to defraud. 696S.W.2d 468 (Tex. App.—Houston [1st Dist.] 1985, nowrit). The court rejected the attorney’s non-dutyargument, stating: “An attorney has no general duty tothe opposing party, but he is liable . . . to third partieswhen his conduct is fraudulent or malicious. He is notliable for breach of a duty to the third party, but he isliable for fraud.” Id. at 472. Because privity is not adefense to fraud and conspiracy claims, they are nowfrequently raised against lawyers in Texas.

Fraud is the misrepresentation of a material fact,with the intent that the person or entity to whom themisrepresentation is made will rely upon it. Trenholmv. Ratliff, 646 S.W.2d 927, 930 (Tex. 1983). In thecontext of attorney liability to non-clients, it must bebased on an affirmative misrepresentation rather than amere failure to disclose. Bernstein v. Portland Sav. &Loan Ass’n, 850 S.W.2d 694, 701-02 (Tex. App.—Corpus Christi 1993, writ denied).

Bernstein v. Portland Savings & Loan Ass’n firstdistinguished fraud claims that are based on materialmisrepresentations from those that are based on afailure to disclose. Bernstein, 850 S.W.2d at 701-02.The court explained that silence can only be fraudulentwhen the person is under some duty to disclose theinformation. Id. at 701-02. See also Lesikar v.Rappeport, 33 S.W.3d 282, 319-320 (Tex. App.—Texarkana 2000, pet. denied) (stating that “an attorneyhas no duty to reveal information about a client to athird party when that client is perpetrating anonviolent, purely financial fraud through silence”).The duty to disclose is primarily based on some sort offiduciary or confidential relationship between parties,and although this does exist between attorney andclient, it generally does not extend beyond thatrelationship.8 The court also relied on Rule 1.05 of theTexas Disciplinary Rules of Professional Conduct,

8 The duty to disclose arises: “(1) when one is in afiduciary relationship; (2) when one voluntarily disclosessome information, but not all of the pertinent information;(3) when new information makes an earlier representationmisleading or untrue; and (4) when one makes a partialdisclosure and conveys a false impression.” Lesikar, 33S.W.3d at 319.

which prohibits attorneys from revealing clientconfidences except when necessary to avert an act that“is likely to result in death or substantial bodily harmto a person.” Id. at 701. The court stated that“[b]ecause the Texas Supreme Court has chosen not toforce attorneys to disclose client confidences to avertnon-violent fraud by clients, we decline to do so aswell.” Id. at 701-02.

In a footnote, the court recognized the double bindthat attorneys could be in if they could be liable to non-clients for fraud through non-disclosure: “If we founda duty in lawyers to disclose confidential informationin this situation, we would place lawyers in thedifficult position of choosing either to remain silentand risk fraud liability or to betray client confidencesand risk jeopardizing that and other attorney-clientrelationships.” Id. at 702 n.7.9 Thus, attorneys mayfollow Rule 1.05 and theoretically also avoid liabilityfor fraud. However, in practice, claims based on fraudby omission are still common.

To recover against an attorney for conspiracy, theplaintiff must show that: (1) the attorney knew theobject and purpose of the conspiracy; (2) there was anunderstanding or agreement to inflict a wrong orinjury; (3) there was a meeting of minds on the objector cause of action; and (4) there was an unlawful, overtaction, coupled with an intent to commit the act thatresulted in the injury. Likover, 696 S.W.2d at 472.Privity is not required to bring a conspiracy to defraudcause of action. Id.

Recent cases have held that claims of conspiracymust be based on another, substantive tort with aspecific intent. See Walsh v. America’s Tele-NetworkCorp., 195 F.Supp.2d 840, 850-51 (E.D. Tex. 2002);Grizzle v. Texas Commerce Bank, 38 S.W.3d 265, 285(Tex. App.—Dallas 2001), rev’d and rendered in parton other grounds, 96 S.W.3d 240 (Tex. 2002). Thus,under this rule, claims of conspiracy to breach acontract or violate a statute will fail because they arenot based on another substantive tort. Similarly,claims of conspiring to be negligent or grosslynegligent fail because they do not involve a specificfraudulent intent. Firestone Steel Products Co. v.Barajas, 927 S.W.2d 608, 614 (Tex. 1996).

In order to support a finding of civil conspiracy,there is no need that the defendant actually be foundliable for a separate tort. See Banc One Capital

9 In fact, as discussed below, attorneys could risk liability totheir clients if they disclose client confidences. See SectionV.A., discussing Sealed Party v. Sealed Party, No.Civ.A. H-04-2229, 2006 WL 1207732 (S.D. Tex. 2006).


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Partners Corp. v. Kneipper, 67 F.3d 1187, 1195 (5thCir. 1995). Rather, “[a] finding of civil conspiracydoes require . . . that the plaintiff be able to plead andprove ‘one or more wrongful, overt acts’ in furtheranceof the conspiracy that would have been actionableagainst the conspirators individually.” Id. (quotingMassey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex.1983)). Both with respect to criminal and civilconspiracy, the evidence used to prove conspiracy maybe circumstantial “because conspirators’ work is oftenclandestine in nature.” Cantrell v. State, 54 S.W.3d 41,46 (Tex. App.—Texarkana 2001, pet. granted).However, “[m]ere knowledge and silence are notenough to prove conspiracy . . . because of theattorney’s duty to preserve client confidences, theremust be indications that the attorney agreed to thefraud.” Bernstein v. Portland Savings & Loan Assoc.,850 S.W.2d 694, 706 (Tex. App.—Corpus Christi1993, writ denied).

As set forth above, fraud and conspiracy claimsrelating to opposing counsel’s conduct in litigation arebarred by the litigation privilege. It is also now wellsettled that a party “may not justifiably rely on anopposing attorney’s statements made in an adversarialsetting, such as litigation.” Valls v. Johanson &Fairless, L.L.P., 314 S.W.3d 624, 635 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (also concludingthat this principle applies to settlement negotiations).

In addition, a recent supreme court opinion holdsthat a lawyer cannot be liable for allegedly conspiringwith one divorcing party to defraud the communityestate. Chu v. Hong, 249 S.W.3d 441, 445 (Tex.2008). The court explained that, as between thespouses, there is no independent claim for takingcommunity property, and all such issues must beaddressed by the divorce court in determining a justand right division of the estate. Id. at 444. If thespouse’s liability is so limited, the court explained,then the co-conspirator’s liability should be as well.Id. The court also noted:

We are especially reticent to open the door to suchclaims here against an opposing party’s attorney. Asan attorney, Chu had a fiduciary duty to further the bestinterests of his clients, the buyers; imposing a secondduty to the sellers would inevitably conflict with thefirst.

Id. at 446.

In sum, fraud and conspiracy claims againstlawyers are common, especially when there is noattorney-client relationship. However, such claims arerarely available following litigation, and generally

require an affirmative misrepresentation as opposed toan omission by the lawyer.

C. Negligent Misrepresentation

In McCamish, Martin, Brown & Loeffler v. F.E.Appling Interests, the Texas Supreme Courtspecifically adopted section 552 of the Restatement,which allows recovery against one who negligentlysupplies false information upon which another reliesfor guidance. McCamish, Martin, Brown & Loeffler v.F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex.1999). The Restatement provides as follows:

One who, in the course of his business, professionor employment, or in any other transaction in which hehas a pecuniary interest, supplies false information forthe guidance of others in their business transactions, issubject to liability for pecuniary loss caused to them bytheir justifiable reliance upon the information, if hefails to exercise reasonable care or competence inobtaining or communicating the information.

Restatement (Second) of Torts § 552 (1997).

The Texas Supreme Court specifically rejected thelaw firm’s argument that section 552 of theRestatement should not apply to attorneys. Id. at 791.The court stated that allowing a non-client to bring anegligent misrepresentation cause of action against anattorney does not undermine the general rule thatpersons who are not in privity with an attorney cannotsue the attorney for legal malpractice. Id.Furthermore, the court stated that applying section 552does not implicate the policy concerns behind thecourt’s strict adherence to the privity rule in legalmalpractice cases. Id. It noted that other jurisdictionshave held attorneys liable under section 552 based onissuing opinion letters and preparing different types ofevaluations, including warranty deeds, title certificates,offering statements, offering memoranda, deeds oftrust, and annual reports.

Responding to the law firm’s claim that adoptingsection 552 would threaten lawyers with almostunlimited liability, the McCamish court pointed outthat section 552 limits liability to situations in whichthe attorney providing the information is aware of thenon-client and intends that the non-client rely on theinformation. Id. at 794. Therefore, a claim is availableunder section 552 only upon the transfer of information“to a known party for a known purpose.” Id.Furthermore,

[a] lawyer may also avoid or minimize the risk ofliability to a non-client by setting forth (1) limitations


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as to whom the representation is directed and whoshould rely on it, or (2) disclaimers as to the scope andaccuracy of the factual investigation or assumptionsforming the basis of the representation or therepresentation itself.

Id. Section 552 also limits liability to themisrepresentation of material facts. For example, thesupreme court noted that the communication of aclient’s negotiating position is not a statement ofmaterial fact. Id.

Further, justifiable reliance is an element of acause of action under section 552. Third party reliancemay not be justified if the representation is within anadversarial context because of the attorneys’ obligationto pursue the clients’ interest with undivided loyalty.McCamish also states that “a nonclient cannot rely onan attorney’s statement, such as an opinion letter,unless the attorney invites that reliance.” Id. at 795.

Opinions following McCamish have confirmedthat reliance is not justifiable when the allegedrepresentations were made in the context of litigation.See, e.g., Ortiz v. Collins, 203 S.W.3d 414 (Tex.App.—Houston [14th Dist.] 2006, no pet.) (“Generally,reliance on representations made in a business orcommercial transaction is not justified when therepresentation takes place in an adversarial context,such as litigation.”); Lesikar, 33 S.W.3d at 319(concluding that justifiable reliance must bedetermined based on the nature of the relationshipbetween attorney, client, and nonclient, and that suchreliance would not be present in a litigation context);Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex.App.—Dallas 2000, pet. denied), cert. denied, 531 U.S.1152 (2001) (holding that attorney conduct whilerepresenting a client in a lawsuit “could not create anactionable duty [to the adverse party] under section552”). This distinction is also consistent with anumber of recent decisions in fraud cases, which alsodistinguish between statements made in an adversarialcontext from those made in a more congenial,transactional setting.10

10A recent article points out, however, an inconsistency

between the now established line of cases stating that nonegligent misrepresentation claim can be available in theadversarial context and the context of the McCamish opinionitself. See David J. Beck & Geoff A. Gannaway, TheVitality of Barcelo After Ten Years: When Can an AttorneyBe Sued for Negligence by Someone Other Than His Client?,58 BAYLOR L. REV. 371, 403 (Spring 2006). The articlenotes that McCamish took place in the context of anegotiated settlement of a lawsuit—in other words, in an

Finally, a recent opinion by the Dallas Court ofAppeals demonstrates the importance of the justifiablereliance element to a negligent misrepresentation claimbrought by a non-client in the transactional context. InKastner v. Jenkins & Gilchrist, P.C., the plaintiffsdecided to invest in a business venture by purchasinglimited partnership shares. Kastner, 231 S.W.3d 571(Tex. App.—Dallas 2007, no pet.). The partnership’sattorney prepared the partnership agreement inaccordance with the information provided to him, andsent plaintiffs a copy of the agreement along with aletter describing each partner’s percentages and capitalcontributions. The business operated at a loss andeventually filed for bankruptcy. The plaintiffs thensued the partnership’s attorney for negligentmisrepresentation, alleging that the partnershipagreement and cover letter incorrectly described thenature of the contributions made by the variouspartners and the total amount of capital raised by thepartnership. The attorney won summary judgment andthe Dallas court of appeals upheld dismissal, ruling thatthe plaintiffs could not show justifiable reliance as amatter of law. The court cautioned that “[a] non-clientcannot rely on an attorney’s representations unless theattorney invites that reliance.” Id. at 578. The courtexplained that the lawyer did not prepare an opinionletter or other type of evaluation on which he knew thelimited partners would rely; rather, he simply providedthem the partnership agreement and described hisunderstanding of the mechanics of closing. It thenheld:

Regardless of origin, the mere transmission of apartnership agreement from an attorney to a non-clientcannot reasonably be construed as a legal opinion onthe validity of the agreement or the propriety ofinvestment in the partnership. We similarly reject[plaintiffs’] attempt to characterize the contents of thepartnership agreement as representations made byDunlap. To do so would effectively require attorneysto adopt as their own the terms of—and representationsmade in—legal documents they prepare for theirclients. Such an expansive interpretation far exceedsthe scope of McCamish liability.

Id. This opinion indicates that negligentmisrepresentation liability for representations made to

adversarial setting. This would seem to conflict with theopinions holding that negligent misrepresentation claimsmay not be based on litigation conduct. But, as the articlealso points out, the supreme court did not discuss thequestion of justifiable reliance in McCamish. Rather, itsimply concluded that privity was not an absolute bar to theclaim and then remanded the case for a determination of theremaining issues.


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non-clients should be limited to rare situations whereattorneys provide opinion letters or other similarevaluations to the non-client and intend that the non-client will rely on those opinions.

VI. Recent Developments Regarding Attorneys’Ethical Obligations

While violations of the Texas Disciplinary Rulesof Professional Conduct do not necessarily give rise toa legal malpractice claim, they are often admissible assome evidence of the standard of care. See Two ThirtyNine Joint Ventures v. Joe, 60 S.W.3d 896, 905 (Tex.App.—Dallas 2001), rev’d on other grounds, 145S.W.3d 150 (Tex. 2004). Similarly, they may beadmissible as some evidence of the duty of loyaltyapplicable to breach of fiduciary duty claims. Cf.Stephenson v. LeBoeuf, 16 S.W.3d 829, 838 (Tex.App.—Houston [14th Dist.] 2000, pet. denied). It istherefore important that litigators keep informed ofchanges to the disciplinary rules, as well as recentethics opinions issued that interpret those rules.

With that in mind, following is a discussion ofrecent case law and ethics opinions that potentiallyimpact a litigation practice.

A. Attorneys’ Obligations to PreserveConfidentiality of Client and Former ClientInformation

A 2006 opinion by the federal district court for theSouthern District of Texas warrants discussion becauseof its broad interpretation of an attorney’s duty topreserve the confidentiality of client information.Sealed Party v. Sealed Party, No.Civ.A. H-04-2229,2006 WL 1207732 (S.D. Tex. 2006). In this case, aclient sued its former attorney for breach of fiduciaryduty based on his disclosure in a press release that theclient had settled a lawsuit. The attorney hadrepresented the client during part of the underlyingsuit, but had ceased representing the client as of thedate of settlement. The attorney was, nevertheless,aware before he issued the press release that the clienthad entered into a confidentiality agreement with theother side by which it was obligated not to publiclyreveal the terms of the settlement. The client sued theattorney for breach of fiduciary duty and fee forfeitureon the basis of the attorney’s disclosure of confidentialinformation without the client’s permission and inviolation of the confidentiality agreement.

The court evaluated the attorney’s liability to theformer client by analyzing the scope of TexasDisciplinary Rule of Professional Conduct 1.05. Itnoted that under Rule 1.05, an attorney’s obligation to

preserve confidential information continues after theattorney-client relationship has terminated, andtherefore concluded that the attorney was under acontinuing fiduciary duty not to disclose theinformation. Id. at *9.

More significantly, the court considered whetheran attorney must continue to protect information thatwas once confidential client information (which isbroadly defined by Rule 1.05 to include all informationacquired by the lawyer in the course of representation)but that was revealed in pleadings filed of publicrecord. The court concluded that, even if theinformation is otherwise available in the public record,the attorney nevertheless still owes the client a duty notto disclose its contents without client permission. Id. at*13-14. The court further noted: “To the extent theAttorney contends he did not act knowingly because hedid not know the details of the [confidentialityagreement], the argument misses the mark. The issueis whether the Attorney breached his fiduciary duty notto reveal to others a former client’s confidentialinformation; the issue is not whether he personallybreached the Confidentiality Provision, knowingly orotherwise.” Id. at *16 n.52. In other words, disclosingthe existence of the settlement was a breach offiduciary duty regardless of the existence of theconfidentiality agreement.

In this case, the court ultimately concluded that,although a fiduciary duty was breached, the clientcould not recover because it could not prove actualdamages and the breach was not sufficiently clear andserious to warrant fee forfeiture. Id. at *19-20.However, the holding as to breach remains problematicbecause it has such far reaching and impracticalimplications. In essence, the opinion concludes that arevelation of any information received from a client inthe course of representation constitutes a breach offiduciary duty, even if the information is already publicrecord. This could be problematic in a number ofsituations, such as attorney or law firm websites thatpublish information regarding results achieved in priorlawsuits. Attorneys should take care to obtain clientpermission before posting this type of information ontheir websites.

A recent opinion by the Texas Court of CriminalAppeals is also noteworthy because it makes clear thatattorneys must protect as privileged communicationswith non-clients that are made during an initialconsultation, even if the lawyer is never retained ascounsel. See Mixon v. State, 224 S.W.3d 206, 212(Tex. Crim. App. 2007). In Mixon, the prospectiveclient consulted with an attorney about possibly hiring


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him as counsel but the attorney declined therepresentation. The Court of Criminal Appealsconcluded that, even though no attorney-clientrelationship was formed, the communications duringthat initial consultation should be protected by theattorney-client privilege. Id. at 212. The court’sholding was based on its interpretation of thedisciplinary and evidentiary rules, in addition toimportant policy considerations:

Such a policy [of recognizing the privilege onlyafter an attorney-client relationship was established]would have a chilling effect on defendants’ willingnessto be candid with the lawyers whose services they seekto obtain. . . Moreover, such a lack of candor on thepotential client’s part would not be in the lawyer’s bestinterest either, because the lawyer would then have todecide whether to represent a person before that personcould feel free to give him or her all the informationnecessary to make the decision.

Id. at 211-212.

Lawyers therefore should take care to preserve theconfidences of all individuals with whom they consultabout possible legal representation, regardless ofwhether they are ultimately retained as counsel.

B. Case Law Regarding UnconscionableAttorney’s Fees

Recent ethics opinions and case law haveprovided guidance regarding whether particularattorney’s fee arrangements are unconscionable. InHoover Slovacek v. Walton, the Texas Supreme Courtheld that it is unethical for a retention agreement toentitle an attorney to the present value of an unearnedcontingent fee in the event the attorney was terminatedbefore a judgment was obtained. 206 S.W.3d 557,562-63 (Tex. 2006). The court noted that there are“ethical considerations overlapping the attorney-clientrelationship” and explained that attorneys who areterminated before the representation is completed mayseek to recover in quantum meruit or may collect thefee from any damages the client ultimately recovers.Id. at 561. But to allow the collection of a fee before itis earned presents a number of problems, especiallythat it impairs the client’s ability to change legalrepresentation “for any reason or for no reason at all.”Id. at 562.

A recent Beaumont court of appeals case expandson Hoover by holding that a fee agreement with aunilateral termination provision – allowing the attorneyto unilaterally convert a billable representation into acontingent fee representation – was unconscionable

and unenforceable. Wythe II Corp. v. Stone, 342S.W.3d 96, 103 (Tex. App.—Beaumont 2011, pet.denied), cert. denied, 132 S.Ct. 1150 (2012). The courtexplained that “[s]hifting the risk of non-recovery tothe client through the unilateral option provision wouldundermine one significant justification for the highercompensation sometimes received under a contingent-fee contract.” Id. However, the court concluded thatthe provision was severable and did not preclude theattorney’s recovery of a fee that was properly earned.Id.

Finally, a recent Austin court of appeals decisionprovides important guidance regarding the use of non-refundable retainers. See Cluck v. Comm’n forLawyer Discipline, 214 S.W.3d 736, 739-40 (Tex.App.—Austin 2007, no pet.). In Cluck, an attorneycharged a client a total retainer of $20,000 for his workon a divorce. Although labeled non-refundable, theattorney’s hourly fees were to be billed against theretainer for his services on the case. The clientterminated the representation and demanded return ofthe unearned portion of the fee. The lawyer refused toreimburse the client. The trial court granted summaryjudgment for the State Bar, holding that as a matter oflaw this conduct had violated a number of disciplinaryrules, including Rules 1.04 and 1.14. The Austin Courtof Appeals affirmed, citing to a 1986 ethics opinionthat was directly on point. Id. at 740 (citing to EthicsOpinion 431). The court drew a line between advancepayments for legal services, which must be held intrust and reimbursed to the client upon termination ofthe representation if not earned, and true retainers,which are treated as earned upon receipt and thus notreimbursable to the client.

The court further explained that a true retainer “‘isnot a payment for services. It is an advance fee tosecure a lawyer’s services, and remunerate him for lossof the opportunity to accept other employment.’” Id. at739-40 (quoting Ethics Opinion 431). “‘[If] the lawyercan substantiate that other employment will probablybe lost by obligating himself to represent the client,then the retainer fee should be deemed earned at themoment it is received.’” Id. at 740. But “money thatconstitutes the prepayment of a fee belongs to theclient until the services are rendered and must be heldin a trust account.” Id. at 740. Attorneys who collectretainers that will be applied against future legalservices therefore should take care to treat the retainersas client funds until they are actually earned.


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C. Proper Construction of Attorney-Client FeeAgreements

The Texas Supreme Court’s recent decision inAnglo-Dutch Petroleum v. Greenberg Peden addressesthe proper construction of attorney-client fee contracts.Anglo-Dutch Petroleum Int’l, Inc. v. Greenberg Peden,P.C., 54 Tex. S. Ct. Journal 1669 (Aug. 26, 2011). Thecase involved a dispute between lawyer and client overthe potential recoverability of a contingent fee.Specifically, the question was whether a fee agreementon firm letterhead, but that referred to the lawyerproviding services only individually, constituted anagreement with the firm or with the individual lawyer.Both the trial court and the appeals court hadconcluded the agreement was ambiguous, and the juryhad made factual findings that the fee agreement wasonly with the individual attorney. The supreme courtconcluded that the agreement was unambiguous, andthat it was with the law firm. Id. at 1674. Thesupreme court’s reversal had the effect of eliminatingthe attorney’s contingent fee claim.

The Anglo-Dutch case is significant because thecourt’s opinion expressly agrees with section 18 of theRESTATEMENT (THIRD) OF THE LAW GOVERNING

LAWYERS, which states that “[a] tribunal shouldconstrue a contract between client and lawyer as areasonable person in the circumstances of the clientwould have construed it.” Id. The court explained:

Only reasonable clarity is required, notperfection; not every dispute over thecontract’s meaning must be resolvedagainst the lawyer. But the object isthat the client be informed, and thuswhether the lawyer has beenreasonably clear must be determinedfrom the client’s perspective.

Id.

Despite this, the court nevertheless concluded thatthe agreement in question was unambiguously betweenthe client and the firm, as opposed to the individuallawyer. In support of its reasoning, the court noted:

Construing client-lawyer agreementsfrom the perspective of a reasonableclient in the circumstances imposes aresponsibility of clarity on the lawyerthat should preclude a determinationthat an agreement is ambiguous inmost instances. Lawyers appreciatethe importance of words and ‘are more

able than most clients to detect andrepair omissions in client-lawyercontracts.’ A client’s best interests,which its lawyer is obligated to pursue,do not include having a jury construetheir agreements.

Id. at 1676 (citing to section 18 of the Restatement,comment h).

Interestingly, the Anglo-Dutch case divided thesupreme court justices on the question of whether theagreement was ambiguous. The majority opinion waswritten by Justice Hecht, joined by Chief JusticeJefferson, Justice Johnson, Justice Willett, and JusticeGuzman. Justice Lehrmann, joined by Justice Medinaand Justice Green, dissented on the ground that theybelieved the agreement to be ambiguous, although theyagreed that the Restatement standard should apply toconstruction of the agreement. Id. at 1677-83(Lehrmann, J., dissenting). Justice Wainwright alsoseparately concurred in part and dissented in part basedon his opinion that the agreement was ambiguous. (Id.at pp. 1676-77, Wainwright, J., concurring in part anddissenting in part). In any event, it is clear that theRestatement standard for construing fee agreementsdoes apply, and that the agreement must be reasonablyclear from the client’s perspective. Attorneys musttherefore be vigilant to draft fee agreements in a veryclear manner and to suggest that their prospectiveclients have the right to consult with independentcounsel on the terms of the agreement.

D. Recent Ethics Opinions

1. Opinion 570: Attorney Notes and Other WorkProduct Belong to the Client

Opinion 570 addresses whether attorney notes areconsidered client documents that must be turned overto the client upon request. It concludes that alldocuments in the file, including attorney work productsuch as notes, belong to the client and must be turnedover. The Opinion further specifically rejects theapplication of Section 46 of the Restatement (Third) ofthe Law Governing Lawyers, which allows lawyers tohold back documents reasonably intended only forinternal review.

The Opinion does, however, allow an exceptionfor specific circumstances, such as notes that containinformation subject to a protective order, notes thatcontain information such that their disclosure wouldviolate an obligation owed to a third party, and notesthat could reasonably be expected to cause “serious


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harm” to a mentally ill client. The Opinion cautionsthat these exceptions are not based on the lawyer’s selfinterest, but rather on the lawyer’s duties to others.

2. Opinion 593: Lawyer may settle potentialmalpractice claims with former client if properdisclosures are made.

Ethics Opinion 593 addresses when a lawyer maysettle a legal malpractice claim with a former clientwho is not represented by counsel. The Opinionconcludes that a lawyer cannot continue to representthe client when the consequences of the malpractice“cannot be significantly mitigated through continuedlegal representation.” Such representation wouldviolate Rule 1.06 because the lawyer’s representationof the client could be adversely limited by the lawyer’sown interests.

In such a situation, if the lawyer candidlydiscloses to the client that he/she committedmalpractice, and the subsequent termination ofrepresentation, the lawyer can attempt to settle themalpractice claim with the client. However, in doingso the lawyer must first advise the former client inwriting that the client should engage a new lawyer torepresent the client in the settlement. In sum, asettlement can be reached if the following steps aretaken: (1) full disclosure of the malpractice and thetermination of the attorney-client relationship; (2)advice to the client that independent legalrepresentation is advisable; and (3) the lawyer must notengage in conduct involving dishonesty, fraud, deceitor misrepresentation in connection with the settlement.

3. Opinion 597: Attorneys from multi-jurisdictional firms are not engaging in theunauthorized practice of law.

Opinion 597 addresses whether, under the TexasDisciplinary Rules of Professional Conduct, a Texaslawyer engages in the unauthorized practice of law ifhe practices in a partnership with offices outside ofTexas and assists attorneys not licensed in Texas whooccasionally work on legal matters in the state ofTexas. Under Rule 5.05(b) of the Texas DisciplinaryRules of Professional Conduct, a Texas lawyer isprohibited from assisting a person who is not a memberof the bar in the performance of any activity thatconstitutes the unauthorized practice of law in Texas.The Opinion notes that the question of what constitutesthe unauthorized practice of law is not addressed in theDisciplinary Rules, nor has there been substantial case-law development on the subject. The Opinion reachesthe conclusion that in the context of multi-jurisdictional practice, the activities of out-of-state

attorneys in Texas does not constitute unauthorizedpractice in Texas in violation of Rule 5.05(b) so longas those attorney’s acts are in compliance with anyapplicable local rules and do not themselves establish asystematic and continuous presence in Texas.

VII. Conclusion and Pointers for Avoiding Liability

In conclusion, the nature of claims availableagainst attorneys continues to evolve. To protectthemselves from potential liability, attorneys shouldmake a point to stay up-to-date on malpractice lawdevelopments and changes in the Disciplinary Rules.Following is a list of pointers to keep in mind in orderto avoid liability to clients and non-clients:

Be clear who you are representing. If in doubt,put it in the engagement letter.

Put all critical decisions and legal advice inwriting, to the extent possible. If you declinerepresentation, make sure you put that inwriting as well.

Be careful who you pass confidentialinformation to, and if in doubt obtain theconsent of current and former clients beforerevealing any confidential information.

Check the conflicts rules any time you have adoubt about representing multiple parties.

If you do represent multiple parties, get a clearwaiver from them when needed.

Communicate frequently with your client.Maintaining a good relationship is one of themost important ways to avoid future claims.

Be careful what you put in emails, blogs, textmessages, and social media communications.

Be aware that the likely consequence of suing aclient for unpaid legal fees is a counterclaim forlegal malpractice.

Be careful about who you represent. If yourclient engages in fraud and harms third parties,you can be susceptible to a lawsuit allegingfraud, negligent misrepresentation, orconspiracy.

Be clear about how your contingency fee willbe calculated, and be careful that the way youcalculate the fee is reasonable. Make sure you


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take the fee out of funds that belong to theclient, not third parties.

If your client asks for the file, you will probablyneed to turn it over, but you should make a copyfirst for your own records.

An excellent resource for information onattorneys’ ethical obligations is the website forthe Texas Center for Legal Ethics andProfessionalism. This is available athttp://www.txethics.org/. It has links to all therules of professional conduct and it also collectsall the published ethics opinions interpretingthose rules.

presented by: randy johnston robert tobey johnston ♦ … · briefing attorney for justice jack...

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