Legal knowledge | Common law » Alistair B. Dawson - Attorney Liability, Attorney Malpractice

Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE ALISTAIR B. DAWSON BECK, REDDEN & SECREST 1221 McKinney, Suite 4500 Houston, Texas 77010 Advanced Personal Injury Law Course July 10-12, Dallas, TX July 24-26, San Antonio, TX August 21-23, Houston, TX CHAPTER 28 Source: http://www.doksinet ALISTAIR B. DAWSON Mr. Dawson became a partner of the Firm on January 1, 1998 He graduated magna cum laude from Vanderbilt University in 1986 with a degree in International Economics and International Business. He graduated with honors from the University of Texas School of Law in 1989, where he served as an Editor of the Texas Law Review, and was also a member of the prestigious Chancellor’s Society. Mr Dawson joined Vinson & Elkins in May 1989, and joined Beck, Redden & Secrest in March 1993. He is admitted to practice before all state courts in Texas, the United States Supreme Court, United States Court of Appeals, Fifth Circuit, United States District Court

for the Southern District of Texas, Western District of Texas, the Northern District of Texas, and the Eastern District of Texas. Mr. Dawson’s practice includes virtually every aspect of commercial litigation He has defended a Fortune 100 company in a nationwide class action, a major oil company in a suit by the State of Texas for unpaid royalties, and a Fortune 100 company in a nationwide antitrust case. Mr Dawson is currently defending several nationwide class action cases. Mr Dawson has also defended numerous Fortune 500 companies in antitrust cases alleging monopolization, conspiracy and predatory pricing. Recently, Mr Dawson successfully tried a case in New York on behalf of a New York investor involved in an oil and gas prospect in East Texas. Mr Dawson led a team of ten lawyers and over twenty experts in suits on behalf of AT&T to gain entry into the local phone markets in Texas, Oklahoma and Kansas. Mr Dawson has handled multi-million dollar cases involving

misappropriation of trade secrets, usurpation of corporate opportunities and breaches of fiduciary duty. Mr Dawson successfully defended Marathon Oil in a multi-million dollar royalty dispute brought in Henderson, Texas (in which more than 200 of the plaintiffs were Henderson residents). Mr Dawson has served on the Defense Steering Committee in a national mass tort case. He has successfully defended two attorney malpractice cases He also has extensive experience in product liability cases, including on behalf of several Fortune 500 companies. Mr Dawson has also handled various oil and gas disputes, involving both breach of contract, take-orpay and royalty disputes. Mr Dawson has been involved in various aspects of environmental litigation, including Superfund clean-ups and issues related to the Environmental Protection Agency and additional experience in labor and insurance disputes. Mr. Dawson is also active in local and state bar associations He has served on numerous committees of

the Houston Bar Association and currently serves on the Litigation Council of the State Bar of Texas, chairs the CLE Committee of the Litigation Section State Bar of Texas and is a member of Garland Walkers Inns of Court. He is a Texas Bar Foundation Fellow, a Houston Bar Foundation Fellow, and University of Texas Keeton Fellow. Mr Dawson also serves on the Commercial and Business Litigation Committee of the American Bar Association. Mr Dawson is also active in local charitable associations, serving on the Board of Literacy Advance of Houston and the Parish School. Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE Chapter 28 Table of Contents I. Introduction1 II. The Law of Legal Malpractice 1 III. The Attorney-Client Relationship1 A. Creation of the Relationship 1 B. “Beauty Pageant” 1 C. Who is the ClientCorporate Entities 2 IV. Attorney’s Liability2 A. The Texas Disciplinary Rules of Professional ConductPrima Facie Evidence of the 2 B. Negligence 3 1.

Attorney’s Negligence and Resulting Damages is a Question of Fact 3 2. An Attorney is Required to Know the Clearly Defined Rules of Law 3 3. Acts or Omissions by the Attorney that Resulted in Damages to the Client 3 4. Damages 4 5. The Court Relies On Plaintiff’s Own Pleadings and Expert’s Testimony To Characterize 5 6. When Attorney Negates An Element of The Legal Malpractice Claim 5 C. Breach of Fiduciary Duty 5 1. Fee Forfeiture As Damages for Breach for Fiduciary Duty 5 2. Potential Conflicts 6 3. Multiple Party Representation 7 4. Example of Attorney Breach of Fiduciary Duty 7 5. Client May Recover Mental Anguish and Exemplary Damages 8 6. Breach of Fiduciary Claims Require Expert Testimony 8 D. Breach of Contract as Cause of Action Against Attorney 9 1. Attorney’s Fees are a Common Source of Disputes between Clients and Attorneys 9 2. Sending a Client a Bill and Ending a Relationship With Them At The Same Time is 10 E. Statutory Causes of Action 10 V. A Legal

Malpractice Plaintiff May Not Split His/Her Claims 11 VI. Defenses to Legal Malpractice Claims 12 A. DefensesGenerally 12 B. Third Party Liability and the Privity Defense 12 C. Statue of Limitations 13 1. When is a Claim Not A Legal Malpractice Claim, Such That A Four-year Statute of Limitations 13 2. When Does the Action Accrue For the Purpose of the Statute of Limitations? 14 3. The Hughes/Murphy Rule is Again Just the Hughes Rule 16 4. The Hughes Tolling Rule Does Not Apply to DTPA Claims 17 VII. Practical Tips for Avoiding Malpractice Claims 18 A. Saying “No” to A Prospective Client 18 B. Establish Who Your Clients Are 18 C. Check for Conflicts Before Accepting Representation 18 D. Calendar System 18 i Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE Chapter 28 instrument, or it can be implied from the conduct of the parties. From the creation of that relationshipi.e, the creation of an agency relationshipit follows that the attorney client

relationship imposes the duties of a fiduciary upon the attorney. Regardless of the theory alleged, the ultimate issue in a legal malpractice case is whether there has been a breach of duty. This issuealso known as “fracturing”is discussed in section IV. See also Burrow v. Arce, infra ATTORNEY LIABILITY/ATTORNEY MALPRACTICE I. Introduction Lawyers conduct their day to day activities in large part insulated from the critique and judgment of non-lawyers. That fact changes when, according to the (former) client, something serious has gone wrong, and the client, or a third party, files a legal malpractice claim. Recent studies and statistics support the general assumption among lawyers that legal malpractice claims are on the rise.1 To that end, the scope of this article is broad. First, this article will focus on the term legal malpractice. Legal malpractice is a catch-all phrase that encompasses a group of causes of action by which clients and third parties attempt to recover

damages from lawyers. Second, this article will discuss some of the recent changes that have taken place in Texas legal malpractice law. This article then will conclude with what this author believes are practical tips for avoiding malpractice claims. III. The Attorney-Client Relationship A. Creation of the Relationship In Texas, an attorney-client relationship is created when the parties manifest, whether explicitly or implicitly by their conduct, an intention to create the attorney-client relationship. See National Med Enters, Inc v Godbey, 924 S.W2d 123, 147 (Tex 1996) The formation of the relationship does not depend on the payment of a fee. Prigmore v Harware Mut. Ins Co, 225 SW2d 897, 899 (Tex. Civ AppAmarillo 1949, no writ) From these general principles it follows that a fiduciary relationship can be established even when an attorney merely enters into a discussion with a potential client. See Nolan v Freeman, 665 F.2d 738, 739 n3 (5th Cir 1982). The test of whether the

attorney-client relationship was formed is the reasonable expectation of the client in light of all the surrounding circumstances. See Perez v Kirk & Carrigan, 822 S.W2d 261, 265 (Tex App.Corpus Christi 1992, writ denied) II. The Law of Legal Malpractice Legal malpractice based on professional negligence compensates clients and other plaintiffs for injury caused by a lawyer’s action or inaction. Legal actions against lawyers are rooted in two common law causes of action. Like a tort action for negligence, the plaintiff in a legal malpractice claim must establish that the defendant owed a duty to the plaintiff and that there has been a breach of that duty. Generally, that translates into showing that the lawyer acted without reasonable care. Other elements of a negligence cause of action, such as proximate cause and damages, must also be proven. A legal malpractice action can also be based on an action for a breach of contract. That contract can be created in a written B.

“Beauty Pageant” In B.F Goodrich Co v Formosa Plastics Corp., 638 F Supp 1050 (SD Tex 1986), plaintiff Goodrich attempted to disqualify the opposing side’s law firm because their attorney was one of five attorneys interviewed and considered for representationhence the “beauty pageant.” The court concluded no relationship had been formed, mainly because “Goodrich basically designed and controlled the structure of each interview. Only Goodrich attorneys met with the candidates and those attorneys regulated what information was furnished to each candidate.” Id. at 1052 Most important, however, was the 1 See A.BA STANDING COMM ON LAWYER’S PROF’L LIAB., Profile of Legal Malpractice Claims 1996-1999 Study 5 (April 2001) (hereinafter, “ABA Study”). 1 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE court’s holding that the “fact that the attorneyclient relationship had not yet been established does not mean that the [defendant’s] firm owed

no duty whatever to Goodrich.” Id In such instances, then, the lawyer must treat the information obtained from even a potential client as confidential, even if no attorney client relationship is ever formed. Chapter 28 IV. Attorney’s Liability The two most common bases for a lawyer’s liability are negligence and actual or constructive breaches of one’s fiduciary duties to a client. Of course, every lawyer is always liable for such intentional torts as fraud, malicious prosecution, wrongful attachment or levy, and civil conspiracy. Statutes, both state and federal, also provide bases for legal malpractice claims. And, finally, there are the ethical rules and standards which have long governed the professional responsibilities of lawyers, and which will be discussed first because they establish many of standards that govern lawyers. C. Who is the ClientCorporate Entities In terms of delineating who the client is, representing legal entities poses distinct problems for lawyers.

When an attorney represents legal entities such as corporations or limited partnerships, the directors or limited partners of those entities cannot legitimately claim that they personally have an attorneyclient relationship with the attorney. TEX DISCIPLINARY R. P ROF’L CONDUCT 112, reprinted in TEX . GOV’T CODE ANN, tit 2, subtit. G app A (Vernon Supp 2002) (Tex State Bar R. art X, § 9) (“A lawyer employed or retained by an organization represents the entity.”) The following are general principles regarding the client in corporations and limited partnerships. A. The Texas Disciplinary Rules of Professional ConductPrima Facie Evidence of the Standard of Care The Texas Disciplinary Rules of Professional Conduct govern the professional responsibilities of attorneys. The Rules are extensive in scope and, thus, will not be discussed in detail here. Rather, a few general observations regarding their impact on malpractice claims will be noted. First, a “[v]iolation of a rule

does not give rise to a private cause of action nor does it create any presumption that a legal duty to a client has been breached.” TEX DISCIPLINARY R. PROF’L CONDUCT preamble § 15 Second, Texas courts have repeatedly held that a violation of the state bar rules does not create a private cause of action. See Dyer v Shafer, Gilliland, Davis, McCollum & Ashley, Inc., 779 S.W2d 474, 479 (Tex AppEl Paso 1989, writ denied). Finally, and despite the previous statement, Texas courts have continued to use those same ethical rules as standards of conduct for attorneys in legal malpractice cases. Avila v Havana Painting Co., 761 SW2d 398, 400 (Tex App Houston [14th Dist.] 1988, writ denied) (noting that the code of attorney conduct required attorney to deliver client funds promptly, and failure to do so gave rise to cause of action in tort). Practice in federal court is similar. Thus, though each federal court has its own rules of admission and practice, those rules often follow those

of the state in which the federal • Corporations : Rendering legal services to a corporation generally does not, by itself, create a duty for the attorney to the corporation’s investors, its officers and directors, and its shareholders. See Wingate v Hajdik , 795 S.W2d 717, 719 (Tex 1990); Hamlin v. Gutermuth , 909 SW2d 114, 116 (Tex. AppHouston [14th Dist] 1995, writ denied). • Limited Partnerships : Malpractice actions by limited partners against attorneys representing limited partnerships have been unsuccessful, usually because of the lack of any duty to the limited partners personally. Hopper v. Frank , 16 F3d 92 (5th Cir 1994) As discussed at the end of this article, to help avoid confusion and malpractice actions, the attorney should clearly set out in a written agreement which persons or entities are or are not the lawyer’s client. 2 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE courts sits. See Bruce A Green, Whose Rules of Professional

Conduct Should Govern Lawyers in Federal Court and How Should the Rules be Created?, 64 GEO . WASH L REV 460 (1996); see also In re Dresser Indus., 972 F.3d 540, 542-45 (5th Cir 1992) The ABA’s Model Rules of Professional Conduct, adopted in 1983 (the “Model Rules”), are also influential in setting standards of conduct. The Model Rules are based on the ABA’s Model Code of Professional Responsibility, adopted in 1969. Though the Model Rules will not be discussed here, it should be noted that most state and federal courts base their rules of professional conduct on the Model Rules. See id In addition to the above rules, bar associations, whether national or local, regularly issue ethics advisory opinions that are not binding on courts. However, good faith reliance on an opinion could be used in defense of a disciplinary or malpractice claim. See generally NATHAN M. CRYSTAL, Professional Responsibility 14 (2nd ed. 2000) Chapter 28 usually questions of fact. Millhouse v

Wiesenthal, 775 S.W2d 626, 627 (Tex 1989) However, after the jury makes its factual determinations, the court then determines the legal question of “whether such facts found by the jury constitute professional misconduct. If the trial court determines the facts constitute professional misconduct, it then enters judgment in favor of the plaintiff.” Rhodes, 848 S.W2d at 840 (internal quotations omitted). Moreover, “[a]lthough proximate cause in a legal malpractice action is usually a question of fact, it may be determined as a matter of law if the circumstances are such that reasonable minds could not arrive at a different conclusion.” Schlager v Clements, 939 S.W2d 183, 187 (Tex AppHouston [14th Dist.] 1996, writ denied) 2. An Attorney is Required to Know the Clearly Defined Rules of Law Not much discussion is required here. Suffice to say, ignorance of the law, even a good faith one, is no defense.2 The following two cases best illustrate the point: a. An attorney’s good

faith belief that his clients’ claims were barred by the statute of limitations would not be a defense to a legal malpractice claim. Haussecker v. Childs, 935 SW2d 930, 934 (Tex. AppEl Paso 1996), aff’d, 974 S.W2d 31 (Tex 1998) b. An attorney may be liable for damages to a client resulting from the attorney’s incorrect interpretation of a statute. For example, an attorney was held liable for preparing an agreement in violation of statute where the statute was unambiguous. Mosaga, S.A v Baker & Botts, 780 SW2d 3, 5 (Tex. AppEastland 1989, no writ) B. Negligence Negligence is the failure to do that which a reasonable attorney practicing in the same locality would do, or not do, under the same circumstances. Cosgrove v Grimes, 774 S.W2d 662, 665 (Tex 1989) Said differently, negligence is when a client claims that a lawyer mishandled a legal matter. Lawyers who practice in a specialized field, such as securities or tax, are held to the standard of care normally exercised by

specialists. Rhodes v. Batilla, 848 SW2d 833, 843 (Tex App.Houston [14th Dist] 1993, writ denied). As can be expected, the standard of care allows for some latitude in strategy. Thus, “[i]f an attorney makes a decision which a reasonably prudent attorney could make in the same or similar circumstances, it is not an act of negligence even if the result is undesirable.” Cosgrove, 774 SW2d at 665 3. Acts or Omissions by the Attorney that Resulted in Damages to the Client These act or omissions can include inaction or delay, such as allowing the client’s 1. Attorney’s Negligence and Resulting Damages is a Question of Fact The determination of an attorney’s negligence and the amount of damages proximately caused by that negligence are 2 The ABA Study lists “Failure to Know/Properly Apply Law” as the reason cited for the highest number of alleged attorney errors. See ABA Study at 12. 3 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE cause of action

to become barred by the statute of limitations, erroneous advice or opinion, the failure to advice the client of relevant information, the improper preparation of legal documents, or other omissions. The following cases are but a small sample of the many cases recognizing a cause of action for an attorney’s acts or omissions: Chapter 28 successfulthis is also referred to as the “suit within a suit.” Fireman’s Fund Am Ins Co v. Patterson & Lamberty, Inc, 528 SW2d 67, 69-70 (Tex. Civ AppTyler 1975, writ ref’d n.re) He must also show that the judgment would have been collectible. Cosgrove, 774 S.W2d at 665-66 In a case in which the client was a defendant and the client alleges he would have been successful but for the attorney’s malpractice, the client must prove he had a meritorious defense. Heath v Herron, 732 S.W2d 748, 753 (Tex App Houston [14th Dist.] 1987, writ denied) The Heath court, however, affirmed a judgment against an attorney for malpractice based on expert

“settlement value.” This suggests that Texas courts my allow recovery without the need to show success in the underlying suit. The “suit within a suit” scenario leads to a few peculiar situation: a. Attorney liable for failure to answer a lawsuit filed against client and his subsequent failure to overturn the resulting default judgment entered against client. Holland v Hayden, 901 S.W2d 763 (Tex AppHouston [14th Dist.] 1995, writ denied) b. Attorney liable for filing suit against passenger rather than driver, alleging wrong location of accident, and failed to correct error before expiration of statute of limitations. Cosgrove v Grimes, 774 S.W2d 662, 665 (Tex 1989). 3 c. Attorney liable for advising client to get a “paper divorce” to prevent IRS collection attempts. Rhodes, 848 S.W2d at 840 d. Attorneys owed a duty to clients to make full and fair disclosure of every facet of proposed settlement, especially in class action. Bloyed v General Motors Corp., 881 SW2d 422, 436

(Tex. AppTexarkana 1994), aff’d, 916 S.W2d 949 (Tex 1996). [I]n pursuing such an inquiry in a suit between an attorney and client the court is, in a sense, compelled to try a “moot case,”a suit without a plaintiff and without a defendant. It is impossible to say what defenses would have been urged by the defendants in the compromised cause. It also presents the anomaly of trying two suits in one, in which the liability of persons not parties to the suit on trial in question. Lynch v. Munson, 61 SW 140, 142 (Tex Civ App.1901, no writ) No less strange is the fact that the attorney must then take the position that the earlier suit would have been unsuccessful even if it had been handled properly, assuming it was not. See Mathew v McCoy, 847 S.W2d 397, 401 (Tex App Houston [14th Dist.] 1993, no writ) (noting that defending against legal malpractice claim by arguing doctors in the underlying suit did not commit medical malpractice after pursuing medical malpractice claim is

permissible). In Joachim v. Chambers, 815 SW2d 234, 24041 (Tex 1991), the attorney-defendants went so far as to have the judge who presided over the underlying suit testify in the malpractice suit. The trial judge refused to strike the judge’s testimony, and the court of appeals 4. Damages To obtain damages in a legal malpractice suit, the client must prove not only that the underlying suit would have been successful but for the malpractice of the attorney, but he must also establish the amount of damages he would have recovered had he been 3 In contrast, see Medrano v. Reyes, 902 SW2d 176, 178 (Tex. AppEastland 1995, no writ), holding that law firm was not liable to file a wrongful death action prior to running of limitations period when the firm set a letter to the clients, the clients retained new counsel, and the letter was received twenty-one months before end of limitations period. 4 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE declined to reverse

the trial judge. In granting the writ of mandamus, the supreme court noted, among others, that the judge’s “testimony for defendants confers his very considerable prestige as a judicial officer in support of defendants’ position.” Id at 239 Chapter 28 C. Breach of Fiduciary Duty The relationship of attorney and client is one of the highest trust and confidence. See Smith v. Dean, 240 SW2d 789, 791 (Tex Civ. AppWaco 1951, no writ) In furtherance of that relationship, the attorney has a duty to represent his client with undivided loyalty, to preserve the client’s confidences, and to disclose to the client any information that might prevent the fulfillment of these obligations. See NCNB Texas Nat’l Bank v. Coker, 765 SW2d 398, 399 (Tex 1989); Employers Cas. Co v Tilley, 496 S.W2d 552, 559 (Tex 1973) This duty applies equally to prospective clientsi.e, preliminary consultations between the potential client and the attorney. Nolan v Foreman, 665 F.2d 738, (5th Cir 1982)

Failure to disclose important information is the most common form of the attorney’s breach of fiduciary duty. There must be complete disclosure of all information which may impact the quality of the attorney’s representation, including an explanation of its legal significance. See Employers Cas Co v Tilley, 496 S.W2d 552, 558 (Tex 1973) (“If a conflict arises between the interests of the insurer and the insured, the attorney owes a duty to the insured to immediately advise him of the conflict.”); Bloyed v General Motors Corp., 881 SW2d 422, 436 (Tex App Texarkana 1994), aff’d, 916 S.W2d 949 (Tex 1996) (holding that attorneys owed a duty to clients to make full disclosure of every facet of proposed settlement, especially in class action). 5. The Court Relies On Plaintiff’s Own Pleadings and Expert’s Testimony To Characterize Claims as Malpractice Claims In Mecom v. Vinson & Elkins, No 01-9800280-CV (Tex AppHouston [1st Dist] May 10, 2001, pet. dism’d) (not

designated for publication), 2001 WL 493426, the plaintiffs alleged numerous causes of actions involving estate planning legal services. In affirming the trial court’s characterization of the client’s claims as legal malpractice, the court relied upon the testimony of the client’s own expert. The expert, an attorney, testified that the lawyers “failed to discharge [their] duty of care.” Id at *10. The court further noted that its “conclusion that this is a legal malpractice action is further supported by [the plaintiff’s] own description of her claims and her expert’s testimony that V & E breached their duties and the standard of care as attorneys .” Id at *11. 6. When Attorney Negates An Element of The Legal Malpractice Claim, Summary Judgment For The Attorney Is Proper On The Additional Causes Of Action When They Arise From The Same Set of Facts In McDermott v. Nelsen, No 01-9801323-CV (Tex AppHouston [1st Dist] April 26, 2001, no pet.) (not designated for

publication) 2001 WL 423287, the trial court instructed a verdict against Nelsen, the client, on his legal malpractice claims because of the lack of expert testimony at trial. But the court permitted the case to go to the jury on Nelsen’s negligence, gross negligence, and DTPA claims. In reversing and rendering judgment for McDermott, the court of appeals stated, “Texas courts do not permit the fracturing of the malpractice claim into other causes of actions.” Id at *3. 1. Fee Forfeiture As Damages for Breach for Fiduciary Duty A lawyer who is found to have acted in violation of his duty to a client may be required to forfeit some or all of the his compensation for the matter. Fee forfeiture is not required in every case where an attorney breaches a fiduciary duty. Burrow v Arce, 997 S.W2d 229, 241 (Tex 1999) The remedy of fee forfeiture is an equitable one and is highly dependent on the facts of the underlying breach of fiduciary duty. Id The ultimate decision on the amount of

any fee forfeiture must be made by the court. Id at 245 The 5 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE court must determine whether forfeiture is equitable and just. Id Also, unlike other causes of action, the supreme court has held that proof that the attorney’s breach of duty harmed the client is not a prerequisite to recovering fees paid. Id This is because it “is the agent’s disloyalty, not any resulting harm that violates the fiduciary relationship and thus impairs the basis for compensation.” Id Burrow v. Arce is discussed fully in section IV, C, 4. Chapter 28 The test for determining conflict is whether competent representation of one client will or is likely to affect adversely the exercise of the attorney’s competent representation of another client is For example, in J.W Hill & Sons, Inc. v Wilson, 399 SW2d 152, 154 (Tex. Civ AppSan Antonio 1966, writ ref’d n.re), the court of appeals held that it was reversible error for

trial judge to deny an attorney’s motion to withdraw from representing the owner’s of a truck when one of the passengers, who was also an employee of the truck’s owner, contended that he was in the course of his employment during events that led up to the collision and which led to the passenger/employee’s sustaining damages. Vickery v. Vickery, (Tex AppHouston [1st Dist.] 1997, pet denied) (opin’n on reh’g), 1997 WL 751995 (not designated for publication), presents a more obvious conflict situation. There, the husband, himself an attorney, hired an attorney, who also happened to be his friend, to represent his wife in their divorce. In a jury trial, the jury found that the attorney who handled the divorce breached her fiduciary duty to the wife. The jury also found that the husband had also breached his fiduciary duty to his wife. The court of appeals noted, “To the extent that [the husband] was advising [the wife] of the legal aspects of a transaction by which he would

benefit, [he] assumed the ‘high duty of an attorney to his client.’” Id at *34-35. In Lopez v. Munoz, Hockema & Reed, LLP, 980 S.W2d 738, 743 (Tex AppSan Antonio 1998), rev’d on other grounds, 22 S.W3d 857 (Tex 2000), the court held that an attorney’s attempt to grossly overcharge the client, or to imply to the client that the attorney is entitled to overpayment, can constitute breach of fiduciary duty. The following case illustrates, and contrasts, a different standard for determining conflict. In In re Clarke T Blizzard and Rudolph Abel, Investment Advisers Act of 1940 Release No. 2032 (April 24, 2002), the SEC instituted proceedings against seven individuals for various alleged securities violations. While the other respondents settled with the SEC or defaulted, the Division of Enforcement (the “Division”) proceeded 2. Potential Conflicts The prohibition against conflicts of interests seeks to insure clients that their lawyers will represent them with undivided

loyalty. A client is entitled to be represented by a lawyer whom the client can trust. Because these principles form an important part of a fiduciary relationship, conflicts are often the source of a breach of attorney’s duty to his client. Conflicts of interest come in many forms. See generally TEX . DISCIPLINARY R. P ROF’L CONDUCT 106, 108 & 1.09 They include adverse representation against a current client, multiple representation of clients in a single matter, representation against a former client, advocate-witness conflicts, and conflicts involving the lawyer’s own personal or financial interest. The Texas Disciplinary Rules require counsel to refuse to accept or continue employment if such representation would involve a “substantially related” matter that would materially and directly adverse to the interests of another client, or if such representation would become limited by the attorney’s responsibilities to another client. Id 1.06(b), 115(a)(1) In Goffney v

Rabson, 56 S.W3d 186, 193-94 (Tex AppHouston [14th Dist.] 2001, pet granted) the court stated: “Breach of fiduciary duty bay an attorney most often involves the attorney’s failure to disclose conflicts of interest, failure to deliver funds belonging to the client, placing personal interests over the client’s interests, improper use of client confidences, taking advantages of the client’s trust, engaging in self-dealing, and making misrepresentations.” Id at 193-94 6 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE against Abel. Prior to the hearing, the Division filed an emergency motion to disqualify Abel’s attorney from representing both Abel and five witnesses that the Division had placed on its witness list. The Division argued that an actual or potential conflict of interest existed in the multiple representation, even though Abel and each of the five witnesses had waived any potential conflict. The ALJ denied the Division’s motion. On an

interlocutory appeal, the SEC found that the facts of the case warranted disqualification. It explained that it had an “obligation to ensure that administrative proceedings are conducted fairly in furtherance of the search for the truth and a just determination of the outcome.” Moreover, “the attorney’s representation of Abel with respect to subject matters that are substantially related to his representation of the witness clients could result in divided loyalties that will prevent him from fulfilling his duty to act in good faith.” Finally, the SEC concluded that “the appearance of lack of integrity ‘cannot be addressed by the consent of the attorney’s clients to his representation of them.” The SEC’s “appearance” standard is much narrower than the Texas standard. In Texas, an attorney may represent multiple clients if he “reasonably believes the representation of each client will not be materially affected,” and “each affected or potentially affected

client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.” TEX DISCIPLINARY R. PROF’L CONDUCT 106; see also Mandell & Wright v. Thomas, 441 S.W2d 841, 846 (Tex 1969) (holding that before interest of different clients can be said to conflict precluding representation by single law firm or attorney, their respective interests must be adverse and hostile). Chapter 28 client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantage involved, if any.” Rule 106 (c)(2). If any affected client refuses to consent, then the attorney may not proceed with the multiple representation. Also, the lawyer has the primary responsibility for advising the prospective client of possible conflicts of interests in their positions. See

Burnap v. Linnartz, 914 SW2d 142, 150 (Tex. AppSan Antonio 1995, writ denied) Determining whether “full disclosure” has occurred is case specific. The sophistication of the client, whether the lawyer is dealing with in-house counsel, the length of the relationship between client and attorney, the legal issues involved and the experience of the lawyer are considered. ABA Comm On Ethics and Prof’l Responsibility, Formal Op. 93-372 (1993) 4. Example of Attorney Breach of Fiduciary Duty In Burrow v. Arce, 997 SW2d 229 (Tex 1999), the Texas Supreme Court discussed the liability of an attorney for breaches of fiduciary duty occurring in connection with the settlement of his clients’ cases. Twentythree individuals were killed and hundreds were injured in a series of explosions at a chemical plant. Five attorneys represented 126 plaintiffs. The case was settled for $190 million, of which the attorneys received a contingent fee of more than $60 million. Later, forty-nine of the

plaintiffs sued the attorneys for, among others, breach of fiduciary duty, alleging that the attorneys solicited business through a lay intermediary, failed to fully investigate and assess individual claims, failed to communicate offers received and demands made, entered into an aggregate settlement of all plaintiffs’ claims without their authority or approval, agreed to limit their law practice by not representing others involved in the same incident, and intimidated and coerced their clients into accepting the settlement. The trial court granted summary judgment for the defendants on the ground that the plaintiffs failed to show that they suffered any actual damages. The court of appeals 3. Multiple Party Representation An attorney may represent multiple clients if he “reasonably believes the representation of each client will not be materially affected,” and “each affected or potentially affected 7 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE

Chapter 28 affirmed on all but the fiduciary duty claim, on the basis that forfeiture is an appropriate remedy for an attorney’s breach of a fiduciary duty owed to a client and that actual damages are not a prerequisite for fee forfeiture. See Arce v. Burrow, 958 SW2d 239 (Tex App Houston [14th Dist.] 1997, writ granted) The supreme court held: • An attorney can be held liable in damages for alleged breach of fiduciary duty in connection with a settlement entered into by his client even if the client: (1) accepted and approved of the settlement; (2) did not show that the settlement was unfair or inadequate in any way; and (3) did not establish what award he or she would have received absent the breach of duty. Id at 937-943 • A client could measure her damages in terms of the fee paid to the breaching attorney and recover all or some portion of that fee as damages, with the amount of forfeiture determined by the severity of the breach involved. Id • Finally, the court

concluded that while the issue of whether an attorney breached his or her fiduciary duty to a client generally would involve issues of fact to be resolved by a jury, the issue of amount of fees to be forfeited in the event of a breach would be one of law for the court. Id at 943-44 wrongfully appropriate where attorney withheld client’s funds). 6. Breach of Fiduciary Claims Require Expert Testimony In Ersek v. Davis & Davis, PC, 69 S.W3d 268 (Tex AppAustin, pet denied), Ersek sued the law firm, alleging negligence and violations of the DTPA. Five months after the suit was filed, and in response to discovery requests, the client indicated that he had not retained an expert witness. He supplemented his answers in September, but still did not identify an expert. In November 2000, the firm filed a motion for summary judgment. The client filed a response which included a supporting affidavit from an attorney, a motion for continuance, and a supplemental response to disclosure

identifying the attorney who provided the affidavit as an expert witness. The trial court granted the firm’s motion to strike the affidavit and for summary judgment. The court of appeals affirmed. The court first noted that the client was required to designate his expert witness by October 19, 2000. Id at 270 Having failed to do so, he was not entitled to designate an expert later in a supplementary discovery response. Id at 271. Moreover, because he waited over a year to do so, he was not entitled to designate an expert witness late on the ground of good faith. Id at 271-72 The court then concluded that without an expert witness, the client had no evidence to support his cause of action. In Hoover v. Larkin, No 14-00-00427CV (Tex AppHouston [14th Dist] Sep 13, 2001, pet. filed) (not designated for publication), 2001 WL 1046266, the trial court granted the defendant attorney’s motion for summary judgment. In concluding that the attorney’s affidavit did not conclusively establish

that he did not breach a duty owed to the client, the court noted that “at no point does he describe what that standard of care is; or what duty he owes to his client when involved in settlement negotiations.” Id at *3. 5. Client May Recover Mental Anguish and Exemplary Damages A legal malpractice plaintiff may recover mental anguish damages. The courts which have considered the issue of mental anguish damages, however, have held that such damages are not recoverable in a claim based on negligence. See Delp v Douglas, 948 S.W2d 483, 495 (Tex AppFort Worth 1997), rev’d on other grounds, 987 S.W2d 879 (1999); Rhodes v. Batilla , 848 SW2d 833, 844-45 (Tex. AppHouston [14th Dist] 1993, writ denied). Punitive damages are also allowed in a legal malpractice case. They are appropriate when an attorney intentionally and knowingly breaches his fiduciary duties and obligations to his client. Id; see also Avila v Havana Painting Co., 761 SW2d 398, 400 (Tex. AppHouston [14th Dist] 1988,

writ denied) (holding that punitive damages were 8 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE The dissent noted that the attorney “does more than say, “Take my word for it, I know .” Id at *12 (emphasis and ellipses in original). Chapter 28 concern legal malpractice, the impact of its holding can lead to unnecessary litigation. In Levine v. Bayne, Snell & Krause, 40 SW3d 92 (Tex. 2001), it was the attorneys who sued the clients, to recover additional attorney fees under a contingency fee contract, which stated that the clients would pay the lawyers onethird of “any amount received by settlement or recovery” from their lawsuit against Donald and Pat Smith. Originally, the Levines hired Bayne, Snell, & Krause to sue the Smiths for their failure to disclose foundation defects in the home they sold to the Levines. Because of the alleged defects, the Levines stopped making mortgage payments to the Smiths. The Smiths counterclaimed for breach

of the mortgage agreement. After a jury verdict, the trial judge awarded the Levines $243,644 in damages for the foundation defects, along with interest and attorney’s fees. However, the court also found that the Smiths were entitled to the balance due on the mortgage, accrued interest and attorney’s fees, all of which totaled $161,851.38 In the end, the trial court offset the awards, and awarded the Levines $81,792.38 and clear title to their home After the award was affirmed on appeal, the Levines ended up with $104,110.31 and the clear title. Bayne Snell then sent the Levines a statement claiming $155,866.13 in fees: one-third of the Levines’ award before the offset, prejudgment interest, and costs; plus court-awarded attorney’s fees, and postjudgment interest and expenses. The Levines disagreed with the calculation, claiming that amount did not reflect the offset. The Levines nonetheless gave Bayne Snell $104,110.31 Bayne Snell sued to collect the remainder. The court’s

analysis focused on the fact that the phrase “any amount received” in the contingency fee agreement was not defined. It then noted that Section 35 of the Restatement (Third) of the Law Governing Lawyers and its comment provides the answer to the issue in the case. Id at 94 “That section states that ‘when a lawyer has contracted for a contingent fee, the lawyer is entitled to receive the specified fee only when and to the extent the client receives payment.’” Id. (quoting RESTATEMENT (THIRD ) OF LAW GOVERNING D. Breach of Contract as Cause of Action Against Attorney The client-lawyer relationship derives from mutual consent, and in that respect, it is shaped by agreement. The lawyer’s duty to the client, more often than not, arises as an implied term of the client-lawyer agreement. Of course the contract may be explicit and in writing. Such contracts may specify the services the lawyer is being retained to provide. They may be very specific, including such terms as, for

example, which lawyers in a firm will work on the client’s behalf, the rates that will be charged, billing arrangements, and fee collection. Despite the contractual nature of the attorney-client relationship, courts are hesitant to allow a plaintiff to divide or fracture legal malpractice claims into breach of contract claims (or other claims, for that matter). See Goffney v. Rabson, 56 SW3d 186, 190-94 (Tex. AppHouston [14th Dist] 2001, pet granted) (holding that because legal malpractice claim was dropped before trial, plaintiff was not entitled to recover on her breach of contract, DTPA, and breach of fiduciary duty claims). Indeed, the First Court of Appeals has concluded that breach of contract actions against attorneys are limited to claims for excessive fees. Greathouse v McConnel, 982 S.W2d 165, 172 n2 (Tex App.Houston [1st Dist] 1998, no pet) The following subsections discuss some of the problems associated with attorney fees. 1. Attorney’s Fees are a Common Source of

Disputes between Clients and Attorneys. “When a Lawyer Has Contracted For a Contingent Fee, The Lawyer is Entitled To Receive The Specified Fee Only When And To The Extent The Client Receives Payment” A recent and important Texas Supreme Court case addressed contingency fee agreements. Thus, though the case does not 9 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE LAWYERS § 35 (2000)). The remainder of the court’s analysis stressed that lawyers are invariably more sophisticated then their clients at least as far as fee agreements are concerned. Id. at 95 From this it follows that lawyers’ should bear the burden of clarifying attorneyclient contracts. Id There were two other opinions issued in this case. Justice Owen concurred, noting that “the Court’s opinion is overly broad.” Id at 96. She observed that, for example, “if a client takes action after a fee agreement is consummated that would not be anticipated by counsel, and that action gives

rise to a counterclaim, the attorney’s contingent fee should not be diminished.” Id Justice Hecht dissented. Justice Hecht saw two serious flaws in the court’s holding. First, “the Court does not say that the contract is this case is ambiguous or contrary to any public policy. Yet the court refuses to give effect to its plain language .” Id at 100– 101. Second, the “Levines received a financial benefit from the cancellation of their mortgage debt to the Smiths.” Id at 101 Chapter 28 Gaspard’s claims and sanctioned him for filing a frivolous claim against the woman’s attorney for filing a counterclaim against him. The jury ruled in favor of the woman, awarding her actual and exemplary damages. On appeal, the First Court of Appeals reversed all but the sanctions ruling. In essence, the court’s ruling can be pared down to the statement that “rude behavior does not equate to outrageousness [or fraud].” Id at 238. E. Statutory Causes of Action The Texas Deceptive

Trade Practices Act (DTPA), see TEX. BUS & COM CODE ANN §§17.41 et seq (Vernon 2002), specifically intended to regulate deceptive business practices, applies to lawyers. Latham v Castillo , 972 S.W2d 66 (Tex 1998) Since the 1995 changes, the DTPA no longer applies to any claim for damages “based on the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion, or similar professional skill.” DTPA §1749 This change has effectively eliminated the DTPA as a basis for most legal malpractice claims. However, the DTPA may still apply to certain conduct. Misrepresentation of material facts, a failure to disclose information, and certain unconscionable acts or breach of an express warranty may still provide the basis of a DTPA claim for legal malpractice. Id “Attorneys can be found to have engaged in unconscionable conduct by the way they represent their clients.” Latham, 972 SW2d at 68. To succeed in a claim for misrepresentations,

general statements will not suffice. For example, in Francisco v Foret et al., No 01-00783 (Tex AppDallas April 11, 2002, no pet. h), 2002 Tex App LEXIS 2610, the court held that statements by attorney claiming “he had ‘a lot’ of experience in the area of medical malpractice and [the client] had a ‘90% chance of winning,’” were not specific enough to support liability under the DTPA; see also Mazuca v. Schumann, No 00-00228 (Tex. AppSan Antonio May 17, 2002, no pet. h), 2002 Tex App LEXIS 2668 (on rehearing) (en banc) (after discussing 2. Sending a Client a Bill and Ending a Relationship With Them At The Same Time is Simply Not Extreme and Outrageous Behavior In Gaspard v. Beadle, 36 SW3d 229 (Tex. AppHouston [1st Dist] 2001, pet denied), an attorney sued the client for pastdue legal fees. The client counterclaimed for fraud, misrepresentation, and intentional infliction of emotional distress. A couple hired Gaspard to represent them in a real estate matter. Several months

later, the wife filed for divorce. Sometime after the divorce and the real estate matter were both pending, the wife and Gaspard began dating. But for a short period, they dated for about three years. During that time, Gaspard drafted pleadings and did some research for the wife on a usury counterclaim in the divorce case. Gaspard, however, eventually told her to get another attorney because he could “no longer work for free.” Several months after they stopped dating, the attorney sent her a bill for his work on the usury counterclaim almost two years earlier. At trial, the judge dismissed 10 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE DTPA, court noted that attorney “made no misrepresentations, only bad judgments). Other state and federal statutes may also serve as the basis of legal malpractice claims. Such statutes include civil conspiracy and various securities actions. Chapter 28 hire another attorney to handle the case. The trial ended in a

$750,000 judgment against the Rabson, and the she ultimately settled with the other parties to that suit. Rabson sued Goffney for legal malpractice, breach of contract, deceptive trade practices, and breach of fiduciary duty. Before trial, however, Rabson dropped her malpractice claim. The jury found for her on the other causes of action. In reversing, the court of appeals held that the client could not recover on her breach of contract, DTPA, and breach of fiduciary duty claims because they are all in the nature of a tort action for legal malpractice, and the client abandoned her malpractice claim prior to trial. Id at 192 The court noted that the breach of contract claim was based on the allegation that Goffney abandoned Rabson on the day of trial, which the court characterized as a breach of Goffney’s duty to represent the client, a malpractice claim. Id The court also noted that Rabson’s claim that she was seeking as damages the fees she paid Goffney, as opposed to malpractice

damages, did not recast her claim. As to her DTPA claim, the court noted that Rabson’s allegations do not involve the type of deceptive conduct, as opposed to negligent conduct, required to support a cause of action under the DTPA against an attorney. Id at 192-93 Finally, the court held that in support of her breach of fiduciary duty claim, Rabson raised the same allegations as in her breach of contract and DTPA claims (that Goffney abandoned her at trial, did not properly prepare the case for trial, and misled Rabson into believing the case had been properly prepared for trial). Id at 192 The holding of this case is sure to surprise some. Even assuming that the court’s analysis of Rabson’s breach of contract and DTPA claims is correct, it is difficult to justify the court’s conclusion that the lawyer’s abandonment of the client at trial does not rise to the level of a breach of fiduciary duty. V. A Legal Malpractice Plaintiff May Not Split His/Her Claims Although there are

several theories under which a claimant might seek recovery, the ultimate issue is whether the attorney has breached his duty of care, resulting in damages. As discussed below, claimants often have an incentive to couch their claims in terms other than legal malpractice. In Sledge v. Alsup, the court of appeals stated: Nothing is to be gained by fracturing a cause of action arising out of bad legal advice or improper representation into claims for negligence, breach of contract, fraud or some other name. If a lawyer’s error or mistake is actionable, it should give rise to a cause of action for legal malpractice . Nothing is to be gained in fracturing that cause of action into three or four different claims and sets of special issues. The real issue remains one of whether the attorney exercised that degree of care, skill and diligence as lawyers of ordinary skill and knowledge commonly possess and exercise. 759 S.W2d 1, 2 (Tex AppEl Paso 1988, no writ). In Goffney v. Rabson, 56 SW3d

186 (Tex. AppHouston [14th Dist] 2001, pet granted), Rabson hired a lawyer to handle an estate suit. That lawyer brought in another lawyer, Goffney, to work on the suit. Several days before trial was to begin, the first lawyer told Rabson he could not continue due to a heart condition. Goffney, now given the responsibility of going to trial, got another lawyer to help with getting a continuance. The trial judge refused to grant a continuance. Rabson claimed that that when the court recessed for lunch, Goffney left the courtroom. Rabson eventually managed to 11 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE VI. Defenses to Legal Malpractice Claims Chapter 28 Under Texas law, an attorney owes a duty only to those parties in privity of contact with him. Because an attorney has no duty of care to non-clients, a non-client can have no claim for negligence against an attorney. Third parties in Texas have no standing to sue attorneys on causes of action arising out

of their representation of others. A. DefensesGenerally This section considers defenses to a negligence or breach of fiduciary duty action, assuming the client establishes a duty and resulting damages. Not every defense available will be discussed. As a general rule, the attorney may assert any defenses in the malpractice suit that the defendant in the original suit could have asserted. Mathew v McCoy, 847 S.W2d 397, 401 (Tex App Houston [14th Dist.] 1993, no writ) In Mathews, the court stated that defending against legal malpractice claim by arguing doctors in the underlying suit did not commit medical malpractice after pursuing medical malpractice claim is permissible. The following is an incomplete list of defenses available in a legal malpractice action: (a) estoppel; (b) contributory negligence; (c) collateral estoppel; (d) settlement; and (e)-(f) limitations and privity, both of which get their own sections in the article. One recent case illustrates the point that many defenses

are available in a legal malpractice action. A lawyer drafted loan documents that allegedly contained a usurious rate of interest. The lender was sued on the note. He then sued the lawyer for malpractice The jury found that the plaintiff was not a client of the lawyer with respect to the loan transaction, and the trial court rendered a takenothing judgment for the lawyer’s estate. In affirming the trial court, the court of appeals held that the plaintiff’s testimony left unclear the exact parameters of the relationship between himself and the lawyer. Sutton v Estate of McCormick , 47 S.W3d 179 (Tex App.Corpus Christi 2001, no pet) Bossin v. Towber, 894 SW2d 25, 33 (Tex App.Houston [14th Dist] writ denied) While other jurisdictions have relaxed the privity rule, Texas courts have refused to deviate from the strict privity rule for attorneys. See First Mun Leasing Corp v Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W2d 410, 413 (Tex AppDallas 1983, writ ref’d n.re) The

privity rule applies equally to a third party beneficiary of the attorney’s services. In Barcelo , an attorney prepared a will and an inter vivos trust agreement for his client. Upon her death, the trust was to terminate, and certain assets would be distributed to he children, with the remainder to her grandchildren. After her death, two of the children contested the validity of the trust, and the probate court found it invalid and unenforceable. The grandchildren then sued the lawyer because, they alleged, his negligence resulted in a much smaller share for them. Barcelo, 23 SW2d at 576 The supreme court noted that most other states have relaxed the privity barrier in the context of estate planning, but went to hold, after noting the benefits of a bright-line rule, that “an attorney retained by a testator or settlor to draft a will or trust owes no professional duty of care to persons named as beneficiaries under the will or trust.” Id at 578-79 The privity rule, however, does

not protect attorneys from liability to third parties for fraudulent conduct. “[A]n attorney is liable if he knowingly commits a fraudulent act that injures a third person, or if he knowingly enters into a conspiracy to defraud a third person.” Likover v Sunflower Terrace II, Ltd., 696 SW2d 468, 472 (Tex App Houston [1st Dist.] 1985, no writ) Cases B. Third Party Liability and the Privity Defense Texas law holds that an attorney owes no duty to third party non-clients and is not ordinarily liable to third parties for damages resulting form the performance of professional services. Barcelo v Elliott, 923 SW2d 575, 578-79 (Tex. 1996) One court has summarized the rule as follows: 12 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE involving securities transactions are a frequent source of allegations against attorneys. See Manning Gilbert Warren III, The Primary Liability of Securities Lawyers, 50 S.MU L REV. 383, 390-91 (1996) Attorneys also may be liable to

non-clients for assisting other attorneys in unethical transactions. TEX DISCIPLINARY R. P ROF’L CONDUCT 401 cmt 2. Chapter 28 attorney appealed, and argued that the trial court erred in not ruling as a matter of law that the client’s breach of fiduciary duty claim was barred by limitations. Id Specifically, he “contended that the limitations period on breach of fiduciary duty is two years.” Id In upholding the application of the fouryear statute of limitations to the breach of fiduciary duty claim, the court first observed that other courts have held similarly. Id at 682 (citing Rowe v. Rowe, 887 SW2d 191 (Tex. AppFort Worth 1994, writ denied)) More important, however, was the court’s reference to the amended version of section 16.004 of the Texas Practices and Remedies Code. In 1999, the legislature added breach of fiduciary duty to the list of claims having a four-year limitations period. Id at 682 n2 (citations omitted); see also TEX . CIV PRAC & REM . CODE ANN §

16004 (Vernon Supp 2002). 5 On appellant’s motion for rehearing, the court addressed his contention that prior cases have held that the breach of fiduciary duty is subject to a two-year statute of limitations. McGuire, 41 S.W3d at 684 The court noted that “legal malpractice claims based on intentional fraud are governed by a four-year statute.” Id (citing Estate of Degley v Vega, 797 S.W2d 299, 303 (Tex AppCorpus Christi 1990, no writ)). In Degley, the Corpus Court of Appeals applied a two-year limitations period to a fraud claim. Id at 302– 03. In doing so, however, the court observed “an important distinction between an action for negligent legal malpractice, which is clearly governed by the two-year limitations period applicable to personal injuries, and for intentional fraud committed by an attorney.” Id. (citations omitted) Finally, the McGuire court noted that the cases relied upon by appellantWillis v. Maverick , 760 SW2d 642, 644 (Tex. 1988), and Jampole v C.

Statue of Limitations The general rule is that a two-year statute of limitations governs legal malpractice claims. Apex, 41 SW3d at 120 This limitations period applies regardless of whether the claim is based in tort, contract, or any other theory. Id Section 16003 of the Civil Practice and Remedies Code, while not explicitly stating that it applies to legal malpractice claims, sets out the two-year limitations period. TEX CIV PRAC & REM CODE ANN. § 16003 (Vernon Supp 2002)4 Application of this general rule is tempered by three related issues: (1) when is a claim against an attorney deriving from services rendered not a legal malpractice claim; (2) for the purpose of determining the time of limitations, when does the “action accrue”; and (3) the effect of the Hughes tolling rule. 1. When is a Claim Not A Legal Malpractice Claim, Such That A Four-year Statute of Limitations Applies? In McGuire v. Kelley, 41 SW3d 679 (Tex. AppTexarkana 2001, no pet), the client brought claims

against an attorney for breach of fiduciary duty, breach of contract, and fraud, alleging the attorney failed to account to client for her rightful share of the settlement in client’s underlying personal injury action. The jury found for the client on her breach of contract, breach of fiduciary duty, and fraud claims. Id at 681 The 4 Section 16.003(a) states: “Except as provided by Sections 16.010 and 160045, a person must bring suit for trespass for injury to the estate or to the property of another, conversion of personal property, taking or detaining the personal property of another, personal injury, forcible entry and detainer, and forcible detainer not later than two years after the day the cause of action accrues.” 5 In amending section 16.004, the legislature stated, “The intent of this Act is to clarify existing law by resolving a conflict in case law concerning the applicable statute of limitations for actions for fraud and breach of fiduciary duty.” Act of May

26, 1999, 76th Leg., RS, ch 950, § 2, 1999 Tex Gen. Laws 3687 13 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE Matthews, 857 S.W2d 57, 64 (Tex App Houston [1st Dist.] 1993, writ denied)did not involve a breach of fiduciary duty claim based on fraudulent misrepresentation. McGuire 41 S.W3d at 684 Despite the holding in McGuire, the issue regarding how a plaintiff labels a particular cause of action and the applicable statute of limitations remains unsettled. Recently, the San Antonio Court of Appeals held that “Legal malpractice claims are governed by the two-year statute of limitations.” Burnap v Linnartz, 38 S.W3d 612, 623 (Tex App San Antonio 2000, no pet.); see also Apex, 41 S.W3d at 120; Davenport v Verner & Brumley, 2001 WL 969249 (Tex. App Dallas Aug. 28, 2001, no pet) (“The statute of limitations on appellant’s claims for negligence, breach of fiduciary duty, breach of implied warranty, fraud, and DTPA violations is two years. The fraud

claim is two years, rather than four, since it is the basis of a legal malpractice claim.”) Chapter 28 The discovery rule can apply in legal malpractice claims. Willis 760 SW2d at 645 In a malpractice case, the statute of limitations does not begin to run until the claimant discovers or should have discovered through the exercise of reasonable care and diligence the facts establishing the elements of his cause of action. Id at 645–46 In Willis, the supreme court concluded that the relationship between an attorney and the client justifies the imposition of the discovery rule. In so holding, the court stated: A fiduciary relationship exists between attorney and client. As a fiduciary, an attorney is obligated to render a full and fair disclosure of facts material to the client’s representation. The client must feel free to rely on his attorney’s advice. Facts which might ordinarily require investigation likely may not excite suspicion where a fiduciary relationship is involved.

Further, breach of the duty to disclose is tantamount to concealment 2. When Does the Action Accrue For the Purpose of the Statute of Limitations? Id. at 645 (citations omitted) Not unlike prior years, the plaintiffs in this year’s cases pleaded the discovery rule to get around the affirmative defense of limitations. The accrual of a cause of action is a question of law. Willis v Maverick , 760 S.W2d 642, 644 (Tex 1988) A legal malpractice cause of action accrues when the client sustains a “legal injury.” Legal injury in tort occurs when the tort is committed and damage suffered, even if the fact of the injury is not discovered until later or some of the damages have not occurred. SV v RV, 933 S.W2d 1, 4 (Tex 1993) Two exceptions limit application of the two-year statute of limitations. The discovery rule and the fraudulent concealment rule. b. The Distinction Between The Discovery Rule and Fraudulent Concealment Often May Be Blurred in Legal Malpractice Actions Where Failure

to Disclose is Tantamount to Concealment Fraudulent concealment “tolls the statute of limitations until the fraud is discovered or could have been discovered with reasonable diligence. Velsicol Chem Corp v Winograd, 956 S.W2d 529, 531 (Tex 1997) The doctrine of fraudulent concealment concerns whether, and for how long, the statute of limitations is tolled. In contrast, the discovery a. The Discovery Rule Is an Exception to the Statute of Limitations 6 6 In a recent opinion, the supreme court addressed the discovery rule in a non-legal malpractice case. The court noted that “we determine whether an injury is inherently undiscoverable on a categorical basis because such an approach ‘brings predictability and consistency to the jurisprudence.” Wagner & Brown v Horwood, 58 S.W3d 732, 735 (Tex 2001) (quoting Apex Towing, 41 S.W3d at 122) In other words, the question is whether “the type of injury that [is at issue] generally is discoverable by the exercise of reasonable

diligence.” Id (internal quotations omitted). 14 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE rule determines when a cause of action accrues. Arabian Shield Dev Co v Hunt, 808 S.W2d 577, 585 (Tex AppDallas 1991, writ denied). Also, unlike the discovery rule, the party asserting fraudulent concealment has the burden of raising it in response to the summary judgment motion and must come forward with evidence raising a fact issue on each element of fraudulent concealment. In Gibson v. Ellis, 58 SW3d 818 (Tex App Dallas 2001, no pet.), the client’s pleading stated, “Due to Defendant’s fraudulent concealment, the Plaintiff could not have discovered his claim until September of 1995.” Id at 824 The court interpreted that statement as an “implicit pleading of the discovery rule.” Id at 824-25 Chapter 28 did not accrue until October 19, 1994, when HUD issued a charge of discrimination against the Brentses and they discovered that the MHMR lawsuit was

groundless. Id 913–14 In rejecting the Brentses’ argument, the court noted that the test for discovery of injury “is not when they knew the suit was groundless but when they knew they were at risk of harm.” Id at 915 “As a matter of law, the Brentses discovered they were at risk of economic harm when they received the HUD letter [on September 14, 1991].” Id Another case illustrating this point is Manning v. Jenkins & Gilchrist, No 08-0000153-CV (Tex AppEl Paso Aug 16, 2001, no pet.) (not designated for publication), 2001 WL 925738. In that case, Manning, the plaintiff, was originally a co-defendant in a sexual discrimination case. The sexual discrimination case was settled with the defendants in 1994. The employer codefendant, however, failed to make payment on the settlement. The plaintiff in the discrimination case then attempted to collect from Manning in 1997. Manning’s attorneys, Jenkins & Gilchrist (J&G), refused to provide him with a defense. Following

the granting of partial summary judgment against him on the issue of liability, Manning entered into an agreed judgment. Afterward, Manning filed a malpractice suit against J&G. J&G filed a motion for summary judgment on several grounds, including statute of limitations. Id at *1–2. On appeal, Manning argued that he did not discover J&G’s failure to disclose facts relevant to the settlement agreement until after he hired new counsel in 1997. The court noted that because Manning allegedly obtained erroneous advice from J&G and entered into the settlement agreement on or about December 1993, his malpractice cause of action accrued on that date. Id at *4. c. Discovery of Injury Occurs When Plaintiff is Exposed to the Risk of Harm In Brents v. Haynes & Boone, 53 SW3d 911 (Tex. AppDallas 2001, pet denied), Haynes & Boone filed a lawsuit on behalf of the Brentses and others against Edward Pine and other defendants, seeking to prevent them from selling residential

property to the Tarrant County Mental Health Mental Retardation Association (MHMR). The plaintiffs applied for a temporary restraining order. On July 8, 1991, the TRO was dismissed, and the following day Pine was nonsuited from the case. On September 14, 191, the Brentses received a notice of a discrimination complaint from the United States Department of Housing and Urban Development (HUD). On October 18, 1991, the Brentses told Haynes & Boone that they no longer wanted to be involved in the MHMR lawsuit. On November 9, 1992, the remaining allegations in the MHMR lawsuit were voluntarily dismissed. On October 19 1994, HUD charged the Brentses with discrimination. In 1996, a United State district court concluded that Thomas Brents had acted in a discriminatory manner. On October 18, 1996, the Brentses filed their legal malpractice action against Haynes & Boone. Eventually, the case was dismissed based on the affirmative defense of limitations. On appeal, the Brentses argued

that their cause of action d. Discovery of Injury Applies to the Knowledge of Facts As Opposed to A Knowledge of the Law In Johnson v. Walker, No 07-00-0314CV (Tex AppAmarillo Sept 5, 2001, no pet. h) (not designated for publication), 2001 WL 1011463, Johnson hired Walker, in May 15 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE 1993, to represent him after an arrest for the offense of possession of a firearm. While Johnson was out on bond, Walker sought and obtained a preliminary hearing on the charge. During the hearing, the judge hinted that she would find there was no probable cause and dismiss the charge. Walker suggested that Johnson be continued on bond until the case was heard by the grand jury. The judge agreed and Johnson remained on bond until he was indicted for that offense on June 24, 1993. Sometime later, Johnson was arrested for a parole violation. Walker represented Johnson during two parole hearings. After those hearings Johnson relieved

Walker from the case and obtained another attorney. Eventually, Johnson pleaded guilty and was sentenced to six years confinement. On November 16, 1999, Johnson filed suit against Walker, alleging malpractice, breach of contract, breach of fiduciary duty, breach of warranty, and DTPA violations. Id at *1. Walker’s answer contained a general denial and asserted the affirmative defense of limitations. Id In December 1999, Johnson moved for summary judgment on his claims and also asserted the discovery rule and fraudulent concealment. Id Walker also moved for summary judgment, which was granted. In affirming the grant of summary judgment, the appeals court noted that “Johnson argues that he ‘discovered the wrong and unjust legal injury in the month of June 1999 while doing legal research.’” Id at *3. The court responded by noting that “the discovery rule applies to the knowledge of the facts on the part of the appellant as opposed to a knowledge of the law.” Id (citing

Willis v Maverick , 760 S.W2d 642 (Tex 1988)) (internal quotations omitted). Chapter 28 in litigation, the statute of limitations on the malpractice claim against the attorney is tolled until all appeals on the underlying claim are exhausted.” Id at 157 In essence, the Hughes rule seeks to avoid the harsh results that the legal injury and discovery rules can create. These rules may force a client to bring suit against the attorney when the client discovers the injury regardless of whether the attorney is still prosecuting or defending the client’s claim. Id at 156–57 Were a client placed in the circumstance of having to prosecute a case against her own attorney, the practical result would be that the client would be forced into asserting “inherently inconsistent litigation postures,” arguing the propriety of counsel’s actions in the underlying suit and impropriety in the malpractice suit. Id Thus, the Hughes court concluded that the limitations period should be tolled for

the second cause of action “because the viability of the second cause of action depends on the outcome of the first.” Id at 157. In a subsequent case, the supreme court seemingly modified the Hughes rule. In Murphy v. Campbell, 964 SW2d 265 (Tex 1997), the court held the mere fact that a client must take inconsistent litigation positions is not dispositive of when the tolling rule applies. The decisive element is whether the client is forced to obtain new counsel. Following Murphy, the application of the Hughes/Murphy rule resulted in confusing and inconsistent application of the rule. For a discussion of the struggle faced by intermediate courts in applying the rule, see Eiland v. Turpin, Smith, Dyer, Saxe & McDonald, 64 S.W3d 155 (Tex AppEl Paso 2001, no pet.), and the cases cited therein. The ensuing confusion eventually forced the supreme court to grant petition in a case and resolve the confusion. See Apex Towing Co. v Tolin , 41 SW3d 118 (Tex 2001) In Apex, the plaintiffs

sued their attorneys for mishandling the defense of a maritime personal injury lawsuit. Specifically, Apex alleged, in part, that the attorneys failed to file a timely maritime limitations-of-liability pleading, leaving Apex exposed to a judgment 3. The Hughes/Murphy Rule is Again Just the Hughes Rule Ordinarily, the limitations period for a legal malpractice claim runs from the time that the legal injury is discovered. However, in Hughes v. Mahaney & Higgins, 821 SW2d 154 (Tex. 1991), the supreme court held that “when an attorney commits malpractice in the prosecution or defense of a claim that results 16 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE in excess of the value of the vessel and its freight. On August 31, 1994, the trial court in the underlying suit rendered judgment on a jury verdict for an amount in excess of any limit that could have been imposed had Apex’s attorneys filed a timely maritimelimitations pleading. Apex hired additional

counsel to file post-judgment motions and an appeal. The case was ultimately settled, and the court of appeal dismissed the appeal on May 19, 1995. In the legal malpractice law suit, filed on February 19, 1997, the attorneys moved for summary judgment on the grounds that the two-year statute of limitations began to run no later than January 27, 1995, when the parties purportedly agreed to settle the underlying law suit. The trial court granted summary judgment for the attorneys. The Beaumont Court of Appeals affirmed. Apex Towing Co v. Tolin, 997 SW2d 903 (Tex App Beaumont 1999, pet. granted), rev’d, 41 S.W3d 113 (Tex 2001) The supreme court emphatically stated: Chapter 28 partnership, and against the its partner as guarantors. A non-jury trial began on June 6, 1991. During trial, the judge ordered the parties to mediation, which was ultimately unsuccessful. In the meantime, two of the defendants filed for bankruptcy in late 1991. In April 1992, Vanasek wrote a letter to one of

Underkofler’s partners expressing concerns about Underkofler’s work. In May 1992, the trial court granted Underkofler’s motion to withdraw. Afterward, Vanasek hired another attorney. Trial resumed on April 29, 1994 Trial was again recessed and reset several times. Eventually, Vanasek settled with one of the defendants and obtained default judgments against others, on September 24, 1994. Before the settlement agreement, Vanasek sued Underkofler for malpractice, alleging negligence, gross negligence, breach of contract, breach of implied and express warranties, and DTPA violations. Id at 345 Underkofler filed a motion for summary judgment, which was granted. Id The court of appeals reversed in part, and affirmed in part. Id. Specifically, the court of appeals held that limitations on DTPA claims should be tolled because the policy reasons behind Hughes likewise applied to those claims. Id In disagreeing with the court of appeals on that issue, the court stated, “The Legislature

has adopted a specific statute of limitations for DTPA claims, and has included only two exceptions to the general rule that limitations begins to run on the date the wrongful act occurred, a discovery rule and a fraudulent concealment rule[.]” Id at 346 In 1995, the Legislature amended the DTPA to exclude from it scope claims for damages based on “the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion, or similar professional skill.” TEX BUS & COM CODE ANN. § 1749(c) (Vernon Supp 2001) The practical effect of this amendment has been to eliminate the DTPA as a basis for most legal malpractice claims because those claims are usually predicated on the attorney’s allegedly erroneous advice, judgment, opinion, or professional skill. Therefore, to the extent a malpractice claim is based in negligence, the We conclude that Murphy did not modify the rule we announced in Hughes, and today we reaffirm that rule: When an

attorney commits malpractice in the prosecution or defense of a claim that results in litigation, the statute of limitations on a malpractice claim against that attorney is tolled until all appeals on the underlying claim are exhausted or the litigation is otherwise finally concluded. Apex, 41 S.W3d at 119 In the case, therefore, the underlying case was not finally concluded until May 19, 1995, when the court of appeals issued its order dismissing Apex’s appeal. 4. The Hughes Tolling Rule Does Not Apply to DTPA Claims In Underkofler v. Vanasek , the supreme court held that the Hughes rule does not toll the statute of limitations incorporated into the DTPA. Underkofler v Vanasek , 53 SW3d 343, 345 (Tex. 2001) There, Vanasek hired Underkofler and his law firm to pursue recovery on a note against the maker, a limited 17 Source: http://www.doksinet ATTORNEY LIABILITY/ATTORNEY MALPRACTICE DTPA does not provide a cause of action, restricting the holding in Underkofler to its facts.

Chapter 28 A. Client Communication This is the easiest, but most overlooked, step attorneys could take to avoid problems later. Return calls; forward documents; report your activities to the client; explain discovery procedures; solicit your clients’ opinions; clarify dates and facts during the initial meeting with the client; keep precise time logs of work completed for each client; keep all client files. In sum, lawyers’ failure to communicate regularly with their clients is often a source of alleged errors. The ABA Study shows that errors categorized under “Client Relations” accounts for 12% of the errors alleged. VII. Practical Tips for Avoiding Malpractice Claims A. Saying “No” to A Prospective Client There are a myriad of reasons for not taking on new clients. Here are a few of them: for whatever reason, it’s the type of cases you may neglect; the subject matter of the suit is not one with which you are familiar; or you simply do not have the time. B. Establish

Who Your Clients Are Use of an engagement letter clears any misunderstanding about who the client is and what is expected of you. Client-lawyer agreements are contracts, subject to the rules of contract law, as well as other rules which govern the fiduciary relationship between them. Thus, a lawyer must define clearly the matters for which they are agreeing to represent their clients. Subjects that should be addressed in such an agreement include: who the client is, especially in a corporation or other legal entity; the lawyer or lawyers within the firm who will handle the client’s case; and fee agreements. The use of engagement letters on a regular basis furthers the important goal of never agreeing to undertake a matter in an informal setting. D. Calendar System The best protection against malpractice is to calendar all important dates in the case. Loss of substantive rights due to missing a date is likely to be negligence per se. The ABA Study indicates that failure to calendar

properly or to know deadlines accounts for 22% of the alleged errors committed by lawyers. C. Check for Conflicts Before Accepting Representation The key here is to do the conflicts check before obtaining any confidential information from the prospective client. Often it is necessary for a prospective client to reveal and for the lawyer to learn confidential information prior to the formation of a clientlawyer relationship. In such instances, the lawyer must treat that information as confidential in the interest of the prospective client, even if no attorney client relationship is ever formed. See, eg, BF Goodrich Co v Formosa Plastics Corp., 638 F Supp 1050 (S.D Tex 1986) 18