ETHICS RELOADED! AVOIDING AND DEFENDING MALPRACTICE …

ETHICS RELOADED! AVOIDING AND DEFENDINGMALPRACTICE CLAIMS AGAINST ENTERTAINMENT LAWYERS

STEVE MCCONNICOScott, Douglass & McConnico, L.L.P.

600 Congress Avenue, Suite 1500Austin, Texas 78701

WALTER L. TAYLORLaw Offices of Walter L. Taylor

2106 E. Martin Luther King, Jr. Blvd.Austin, Texas 78702

State Bar of Texas13TH ANNUAL ENTERTAINMENT LAW INSTITUTE

Legal and Business Aspects of the Film and Music IndustriesOctober 10-11, 2003

Austin, Texas

CHAPTER 2

Walter L. Taylor is a songwriter and musician who is also a sole practitioner in Austin. His experience and

practice have focused exclusively on litigation and he has represented artists, songwriters and music publishers

in the protection of their work against infringement, artists and managers in litigation to void or uphold

management or other industry related contracts as well as industry related vendors and service providers on

such issues as contracts and collections.

Ethics Reloaded! Avoiding and Defending Malpractice Claims Against Entertainment Lawyers Chapter 2

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TABLE OF CONTENTS

I. SCOPE OF ARTICLE ................................................................................................................................ 1

II. WHO CAN SUE – PRIVITY ....................................................................................................................... 1A. Privity Rule ......................................................................................................................................... 1B. Policy Behind Privity Rule ..................................................................................................................... 1C. Privity Rule in Will Cases ..................................................................................................................... 1D. Assignment of Legal Malpractice Claims ................................................................................................. 2E. When Privity Is Not Required ................................................................................................................ 3

1. Fraud ........................................................................................................................................... 32. Failure to Advise That No Attorney-Client Relationship Exists ............................................................. 33. Negligent Misrepresentation ............................................................................................................ 44. Texas Deceptive Trade Practices – Consumer Protection Act (“DTPA”) ............................................. 45. Subrogation .................................................................................................................................. 4

F. Unsuccessful Attempts to Overcome Privity Rule .................................................................................... 51. Defamation – Absolute Privilege Applies ........................................................................................... 52. Absolute Privilege Bars Other Causes of Action Based on Privileged Conduct ....................................... 53. Other Defenses ............................................................................................................................. 5

III. PERSON CONVICTED OF CRIME CANNOT SUE ATTORNEY .................................................................. 5

IV. WHEN TO SUE – STATUTE OF LIMITATIONS .......................................................................................... 6A. Legal Malpractice Statute of Limitations .................................................................................................. 6B. When Cause Of Action Accrues And Limitations Begins to Run ................................................................. 6

1. The Legal Injury Rule .................................................................................................................... 62. Tolling Provisions .......................................................................................................................... 6

a. Duty to Disclose Rule a/k/a The Continuous Representation Rule ................................................. 6b. The Discovery Rule ................................................................................................................ 7c. The Exhaustion Of Appeals Rule .............................................................................................. 7

C. Summary of Statute of Limitations Analysis in Legal Malpractice Claims .................................................... 7

V. WHAT TO SUE FOR – THEORIES OF LIABILITY .................................................................................... 8A. Legal Malpractice ................................................................................................................................. 8B. Evidentiary Considerations: Locality Rule ............................................................................................... 9C. Breach of Fiduciary Duty ...................................................................................................................... 9D. Fraud ................................................................................................................................................ 10E. Texas Deceptive Trade Practices – Consumer Protection Act (“DTPA”) .................................................. 10

1. DTPA Applicable to Attorneys ...................................................................................................... 102. Consumer Status ......................................................................................................................... 103. DTPA Violations Applicable to Legal Services ................................................................................. 104. DTPA Causation ......................................................................................................................... 11

F. Breach Of Contract ............................................................................................................................ 12G. Conspiracy ........................................................................................................................................ 12H. Professional Misconduct ..................................................................................................................... 12I. Frivolous Lawsuits And Pleadings ........................................................................................................ 12J. Debt Collection .................................................................................................................................. 12K. Retention of Client’s Money ................................................................................................................ 13L. Federal And State Securities Law ......................................................................................................... 13

VI. CONCLUSION ........................................................................................................................................ 13

VII. ENTERTAINMENT LAW HYPOTHETICALS FOR FURTHER CONSIDERATION ..................................... 13Example 1 ................................................................................................................................................ 13Example 2 ................................................................................................................................................ 13


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Example 3 ................................................................................................................................................ 14Example 4 ................................................................................................................................................ 14Example 5 ................................................................................................................................................ 15


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ETHICS RELOADED! AVOIDING ANDDEFENDING MALPRACTICE CLAIMSAGAINST ENTERTAINMENT LAWYERS

I. SCOPE OF ARTICLEThis paper provides an overview of Texas law on

law yer liability, including legal malpractice. It addresseswho can sue, when to sue, and what to sue for.Hopefully, a little knowledge of malpractice law willhelp lawyers avoid malpractice claims.

II. WHO CAN SUE – PRIVITYA. Privity Rule

As a general rule, persons outside the attorney-clientrelationship do not have a cause of action for injuries theysustain due to an attorney’s failure to perform, or anattorney’s negligent performance of, a duty owed to aclient. In the absence of privity, an attorney owes no dutyto third-party non-clients. See e.g., Gamboa v. Shaw, 956S.W.2d 662 (Tex. App. – San Antonio 1997, no writ)(lawyer representing a corporation does not have fiduciaryduty to shareholders of corporation because lawyer not inprivity with shareholders). Wavell v. Roberts, 818 S.W.2d462, 465 (Tex. App. – Corpus Christi 1991, writ denied)(intended victim of conspiracy to murder not in privitywith attorney who represented ex-girlfriend whoattempted to have victim killed); Draper v. Garcia, 793S.W.2d 296, 301 (Tex. App. – Houston [14th Dist.] 1990,no writ)(insurer not in privity with attorney insured hiredto handle insured’s claims). Also, an insurance companycannot be held liable for the legal malpractice of anindependent attorney it appointed to represent an insured.State Farm Mutual Auto. Ins. Co. v. Traver, 980 S.W.2d625, 628 (Tex. 1998).

The privity rule can also be used to protect attorneysin a class action lawsuit from legal malpractice claims ofnon-clients. There is no implied attorney-clientrelationship between the attorney and potential classmembers; therefore, there is no privity between themuntil the class is certified. Gillespie v. Scherr, 987S.W.2d 129, 131 (Tex. App. – Houston [14th Dist.] 1998,no pet. h.). Even if the attorney’s work was intended tobenefit the potential class members, the attorney owes noprecertification duty to potential class members thatcould be the subject of a legal malpractice claim. Id. at131-132.

B. Policy Behind Privity RuleTexas courts have advanced many policy concerns

in favor of the privity rule. First, liability to non-clientswould hamper an attorney’s vigorous representation ofhis own client. As one court stated: “The attorney’spreoccupation or concern with the possibility of claimsbased on mere negligence (as distinguished from fraud)by any with whom his client might deal would prevent

him from devoting his entire energies to his client’sinterest. The result would be both an undue burden onthe profession and a diminution in the quality of the legalservices received by the client.” Bell v. Manning, 613S.W.2d 335, 339 (Tex. Civ. App. – Tyler 1981, writ ref’dn.r.e.); see also American Centennial Ins. v. Canal Ins.,843 S.W.2d 480, 485 (Tex. 1992)(“Texas courts havebeen understandably reluctant to permit a malpracticeaction by a non-client because of the potentialinterference with the duties an attorney owes to theclient.”).

A second concern is that liability to non-clients may“tend to encourage a party to contractual negotiations toforego personal legal representation and then sue counselrepresenting the other contracting party for negligentmisrepresentation if the resulting contract later provesdisfavorable in some respect.” Bell v. Manning, 613S.W.2d at 339. Furthermore, “[i]t is obvious thatopening attorney-client contracts to third party scrutinywould entail a vast range of potential liability.” Dickeyv. Jansen, 731 S.W.2d 581, 583 (Tex. App. – Houston[1 s t Dist.] 1987, writ ref’d n.r.e.). Nevertheless, theTexas Supreme Court has opened the door to allow suitsby non-clients for negligent misrepresentation by anattorney. (See Section III.E. 3 below).

C. Privity Rule in Will Cases In Dickey, the intended beneficiaries under a

testator’s testamentary trust brought suit against thetestator’s attorney for negligent preparation of the trust.The court of appeals held that the intended beneficiarieswere not in privity with the testator’s attorney, and lackof privity precluded the action. While the TexasSupreme Court ultimately upheld the decision, JusticeEvans of the Houston First Court of Appeals, provided astrong dissent in favor of creating an exception to theprivity rule when third parties are the intendedbeneficiaries of the services sought by the client. Id. at583-84 (Evans, J., dissenting).

In Thompson v. Vinson & Elkins, 859 S.W.2d 617(Tex. App. – Houston [1st Dist.] 1993, writ denied), thecourt of appeals refused to “relax” the privityrequirement stated in Dickey. Citing the lack of privitybetween the residual beneficiaries of the will and estate’slaw firm, the court dismissed the plaintiffs’ theories ofnegligence and breach of fiduciary duty. The court alsogranted summary judgment to the firm on the DTPAclaim, as the will beneficiaries were not consumers whodirectly sought or acquired any “goods or services” fromthe firm.

Two opinions from the Texas Supreme Courtdeserve mention. In Huie v. DeShazo, 922 S.W.2d 920(Tex. 1996), the Court held that only the trustee, not thetrust beneficiary, is a client of the trustee’s attorney.While the trustee still has a fiduciary duty to the

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beneficiary, any communic ation between the trustee andhis attorney is protected (from the beneficiary) becauseof the attorney-client privilege. Id. Along the samelines, the Court held that a testator’s attorney has noprofessional duty of care to named beneficiaries of thewill or trust. Barcello v. Elliot, 923 S.W.2d 575 (Tex.1996) (stating that “the greater good is served bypreserving a bright line privity rule which denies a causeof action to all beneficiaries whom the attorney did notrepresent.”

D. Assignment of Legal Malpractice ClaimsAs a general rule, legal malpractice claims in Texas

may not be assigned. Zuniga v. Groce, Locke & Hebdon,878 S.W.2d 313 (Tex. App. – San Antonio 1994, writref’d). The Zuniga court explained its reasoning thisway:

To allow such assignments would serve twoprinciples: enabling the defendant-client to extricatehimself from liability, and in funding the originalplaintiff’s judgment. But to allow assignments wouldexact high costs: the plaintiff would be able to drive awedge between the defense attorney and his client bycreating a conflict of interest; in time, it would becomeincreasingly risky to represent the underinsured,judgment proof defendant; and the malpractice casewould cause a reversal of the positions taken to each setof lawyers and clients which would embarrass anddemean the legal profession.

Id. at 317. The Texas Supreme Court subsequentlyrefused to grant the application for writ of error inZuniga, effectively adopting the court of appeals decisionto prohibit the assignment of legal malpractice claims inTexas. In State Farm Fire & Casualty Co. v. Gandy, 925S.W.2d 696 (Tex. 1996), the Supreme Court discussedZuniga and its underlying rationales. The Court statedwith approval the holding in Zuniga that the assignmentof the legal malpractice cause of action to Zuniga wasinvalid. Id. at 708.

Other courts of appeal have addressed theassignment issue. In McLaughlin v. Martin, 940 S.W.2d261 (Tex. App.–Houston [14th Dist.]), the appellate courtrelied on the policy arguments in Zuniga to rejectassignment of a legal malpractice claim even when theattorney was a co-defendant from the start of litigation.See also Izen v. Nichols, 944 S.W.2d 683 (Tex. App.--Houston [14th Dist.] 1997)(holding assignment of legalmalpractice claims invalid based on public policyconsiderations in Zuniga). Similarly, in Charles v.Tamez, 878 S.W.2d 201 (Tex. App.--Corpus Christi1994, writ denied), the court denied the plaintiff the rightto require the overturn of a legal malpractice action thatthe client had not asserted and whose validity the clientdenied. Finally, another court of appeals applied thepolicy of Zuniga to reject the argument that

governmental entities should be excepted from the ruleprohibiting assignments. City of Garland v. Booth, 895S.W.2d 766 (Tex. App.--Dallas, 1995 writ denied).

The holding by Texas courts that malpractice claimscannot be assigned primarily provides relief to personalinjury defense attorneys. In almost all of the assignmentcases, a defense attorney was the target. In the typicalcase, a large judgment was returned against an uninsuredor underinsured defendant. The defendant thenattempted to assign his malpractice claim against his owndefense attorney to the plaintiff, in exchange for theplaintiff releasing his judgment against the defendant.

The Dallas Court of Appeals recently refused toextend Zuniga’s prohibition against assignments to aplaintiff assigning his malpractice claim against his ownattorney. Baker v. Mallios, 971 S.W.2d 581 (Tex. App.– Dallas 1998, pet. for review granted). Baker, theplaintiff, hired Mallios, the attorney, in a personal injuryaction against a pub. Mallios sued a company hebelieved to own the pub, obtaining a default judgment inexcess of $1 million. According to Mallios, however, thedefendant was judgment-proof and the judgment wasuncollectible.

Baker then responded to a third-party advertisementoffering to buy judgments in excess of $25,000. Thethird party judgment buyer determined that Mallios hadsued the wrong party, but by that time the statute oflimitations had run on the personal injury action, barringBaker from pursuing it further. Baker, the third party,and another attorney then entered into a contractualagreement whereby the attorney would represent Bakerin a malpractice action against Mallios. The lawsuit wasto be financed by the third party in exchange for anassignment of 50 percent of any proceeds recovered bythe plaintiff.

In the malpractice action, the trial court grantedsummary judgment for Mallios on the grounds that theagreement between Baker and the third party was aninvalid assignment of a legal malpractice claim. Thecourt of appeals reversed and remanded the case to thetrial court. The Texas Supreme Court has granted apetition for review, and as of August 1999, has yet todecide the case.

While Zuniga and its progeny held that legalmalpractice claims are generally not assignable, the courtof appeals in Baker chose a different path based onfactual differences between the cases. In Zuniga, thelosing defendant in the underlying suit assigned its legalmalpractice claim against its defense attorneys to theplaintiffs, who then sued their former adversary’sattorneys. Zuniga, 878 S.W.2d at 314. This created “anillogical reversal of roles”; the plaintiffs in the underlyingcase had argued that they had a meritorious tort claimagainst the defendant, while in the malpractice case, theyargued that they would have lost the underlying suit but














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for the defense attorneys’ malpractice. Id. In contrast,the plaintiff in Baker sued his own attorneys, thusmaintaining the position he held in the underlying suit,that his personal injury suit had merit and would havesucceeded but for his attorney’s malpractice. Becausethe plaintiff was able to maintain the same argument inboth the underlying and malpractice actions, the Bakercourt could find no “demeaning role reversal” that hadled to a rejection of the assignment in Zuniga. Baker,971 S.W.2d at 587. Furthermore, the court reasoned thatBaker still owned his legal malpractice claim based onhis legal, though not financial, control of the litigation.

Despite the opportunity, the Texas Supreme Courthas not squarely decided the issue of whether abankruptcy trustee can sell and assign a bankruptcyestate’s legal malpractice claim. Douglas v. Delp, 987S.W.2d 879 (Tex. 1999). The court of appeals hadimplied that it was error to allow the trustee to assign theclaim, but the Court did not reach the issue. It did,however, rule that the person filing for bankruptcy doesnot have standing to challenge the assignment of thelegal malpractice claim outside of the bankruptcyproceeding. Id. at 882.

E. When Privity Is Not Required1. Fraud

Privity is not a defense to fraud directed against athird party. Likover v. Sunflower Terrace II, Ltd., 696S.W.2d 468, 472 (Tex. App.--Houston [1st Dist.] 1985,no writ). In Likover, a non-client sued an attorney forconspiracy to defraud. The court rejected the attorney'snon-duty argument: "An attorney has no general duty tothe opposing party, but he is liable to third parties whenhis conduct is fraudulent or malicious. He is not liablefor breach of a duty to the third party, but he is liable forfraud." Id. at 472.

Fraud is based on a misrepresentation of a materialfact. Trenholm v. Ratliff, 646 S.W.2d 927, 930 (Tex.1983). Against entertainment law practitioners, thesecases generally arise out of representations concerningthe benefits or obligations arising from a transaction,representations concerning the business climate, or theexistence or non-existence of facts or information.

The prudent practitioner should note that Rule 4.01of the Texas Disciplinary Rules of Professional Conductprovides:

RULE 4.01 TRUTHFULNESS INSTATEMENTS TO OTHERSIn the course of representing a client, a lawyer shall

not knowingly:

(a) make a false statement of material fact or lawto a third person; or

(b) fail to disclose a material fact to a thirdperson when disclosure is necessary to avoidmaking the lawyer a party to a criminal act orknowingly assisting a fraudulent actperpetrated by a client.

Tex. Disciplinary R. Prof’l Conduct 4.01. Although thedisciplinary rules can be evidence of a lawyer’s standardof care when a duty is owed (see V, H below), Rule 4.01is less likely to be used for that purpose. Not only isfraud not a “duty” tort, but Rule 4.01 also does not addanything of substance to the elements of common lawfraud. Nevertheless, Rule 4.01 does provide a basis fordisciplinary action, independently of the civil cause ofaction for damages, and lawyers should be aware of itsexistence.

2. Failure to Advise That No Attorney-ClientRelationship ExistsPrivity is not a defense when a non-client sues an

attorney for negligently failing to advise the non-clientthat the attorney is not representing the non-client, whenthe circumstances would lead the non-client to believethe attorney has undertaken the representation. See, e.g.,Cantu v. Butron, 921 S.W.2d 344, 351 (Tex. App.--Corpus Christi 1996, writ denied); Byrd v. Woodruff, 891S.W.2d 689, 700 (Tex. App.--Dallas 1994, writ denied);Perez v. Kirk & Carrigan, 822 S.W.2d 261, 265-66 (Tex.App.--Corpus Christi 1991, writ denied) ("An agreementto form an attorney-client relationship may be impliedfrom the conduct of the parties. . . . the relationship doesnot depend upon the payment of a fee, but may exist asa result of rendering services gratuitously."); Parker v.Carnahan, 772 S.W.2d 151, 157 (Tex. App.--Texarkana1989, writ denied); Kotzur v. Kelly, 791 S.W.2d 254,257-58 (Tex. App.--Corpus Christi 1990, no writ) ("Anattorney-client relationship may be implied from theconduct of the parties . . . further, an attorney may beheld negligent when he fails to advise a party that he isnot representing them on a case when the circumstanceslead the party to believe that the attorney is representingthem.").

An entertainment attorney should clearly state inwriting that the attorney does not represent a person whomay have cause to believe that attorney represents him.An attorney declining a potential Plaintiff’s case shouldtell the potential client in writing that he is not taking thatperson's case, and when the statute of limitations runs onthe case. A defense attorney should also tell co-defendants in writing that the attorney does not representthe co-defendants and that the co-defendants need to seeklegal representation to protect their own interests.

A negligent failure to advise of non-representationarises out of duty, and the disciplinary rules can thereforebe used as evidence of the standard of care (see V, H














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below). Rule 4.03 of the Texas Disciplinary Rules ofProfessional Conduct states:

R U L E 4 . 0 3 D E A L I N G W I T HUNREPRESENTED PERSON

In dealing on behalf of a client with a personwho is not represented by counsel, a lawyershall not state or imply that the lawyer isdisinterested. When the lawyer knows orreasonably should know that the unrepresentedperson misunderstands the lawyer’s role in thematter, the lawyer shall make reasonableefforts to correct the misunderstanding.

Tex. Disciplinary R. Prof’l Conduct 4.03. The Commentto Rule 4.03 further provides that “. . . the lawyer shouldnot give advice to an unrepresented person other than theadvice to obtain counsel.” Tex. Disciplinary R. Prof’lConduct 4.03 cmt. Arguably, the Rule incorporates the“negligent failure” standard with the phrase “[w]hen thelawyer knows or reasonably should know that theunrepresented person misunderstands the lawyer’s role.. .,” and the best practice is to err on the side ofdocumenting the communication of non-representationand refraining from providing legal advice to non-clients,even in the face of such documentation.

3. Negligent MisrepresentationGenerally, a person who is not in privity with an

attorney cannot sue for legal malpractice. McCamish,Martin, Brown, & Loeffler v. F.E. Appling Interests, 991S.W.2d 787, 792 (Tex. 1999). At the same time, anattorney may be subject to a negligent misrepresentationclaim even if there is no legal malpractice claim;therefore, it is possible for a non-client to have a claimfor negligent misrepresentation against an attorney evenif he may lack standing to sue for legal malpractice. Id.The Texas Supreme Court limited liability under thistheory to situations in which the attorney is aware of thenon-client and intends for the non-client to rely on theinformation provided. Id. at 794 (“cause of action isavailable only when information is transferred by anattorney to a known party for a known purpose”). TheCourt suggested that an attorney may avoid, or at leastminimize, liability to a non-client by stating: “(1)limitations as to whom the representation is directed andwho should rely on it, or (2) disclaimers as to the scopeand accuracy” of the information forming the basis of theattorney’s representation. Id.

4. Texas Deceptive Trade Practices – ConsumerProtection Act (“DTPA”)A "consumer" may recover against a third party

under the DTPA without privity of contract when the

transaction was consummated for the benefit of the thirdparty. See, e.g., Arthur Andersen & Co. v. PerryEquipment Corp., 945 S.W.2d 812 (Tex. 1997); Amstadtv. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996);Kennedy v. Sale, 689 S.W.2d 890 (Tex. 1985); Flennikenv. Longview Bank & Trust Co., 661 S.W.2d 705 (Tex.1983). One Texas court has held that a third party mayrecover under the DTPA against an attorney if the thirdparty qualifies as a "consumer." Parker v. Carnahan,772 S.W.2d 151, 158-59 (Tex. App.--Texarkana 1989, nowrit); see also V.E.2, infra; but see, Thompson v. Vinson& Elkins, supra, (beneficiaries of a trust held to not beconsumers of services of the attorney whom the trusteehired).

Recent tort reform legislation in Texas blocks someprofessional liability under the DTPA. The TexasBusiness and Commerce Code §17.49 (c) provides:

This subsection does not apply to a claim fordamages based on the rendering of aprofessional service, the essence of which isthe providing of advice, judgment, opinion, orsimilar professional skill. The exemption doesnot apply to:

(1) an express misrepresentation of amaterial fact that cannot becharacterized as advice, judgment, oropinion;

(2) a failure to disclose informationin violation of Section 17.46(b)(2);

(3) an unconscionable action orcourse of action that cannot becharacterized as advice, judgment, oropinion; or

(4) breach of an express warrantythat cannot be characterized asadvice, judgment, or opinion.

However, this DTPA exemption would not stopDTPA liability for (1) failing to timely file a claim, (2)self dealing in client funds, or (3) failing to inform aclient of his contractual rights, provided the plaintiffproved that he or she was a “consumer” of the attorney’sservices.

5. SubrogationThe Corpus Christi Court of Appeals in Stonewall

Surplus Lines Ins. Co. v. Drabek, 835 S.W.2d 708 (Tex.App. – Corpus Christi 1992, writ denied) held that anexcess insurer and subrogee of the insureds’ cause of










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action could sue the attorneys hired to represent theinsured.

In Stonewall, the defendant attorneys representedthe insureds in the underlying case. The trial court struckthe insureds’ pleadings in the underlying suit due to theattorneys’ discovery abuses. The primary and excessinsurers subsequently settled the lawsuit for $1,300,000.The excess insurer then sued the attorneys fornegligence. The defendant attorneys moved for summaryjudgment based on lack of privity. The trial courtgranted the attorneys’ motion for summary judgment; thecourt of appeals reversed and remanded. Id. at 709-10.

Stonewall paves the way for subrogees to sue anattorney with whom the subrogee lacks direct privity.See also American Centennial Ins. v. Canal Ins., 843S.W.2d 480, 484 (Tex. 1992) (citing Stonewall, Courtrecognizes an equitable subrogation action by excesscarrier against defense counsel to enforce duties owed toinsured).

Presently, there are several pending Texas suitswhere the excess insurer is suing the defense counselhired by the primary carrier. When excess insurance isinvolved, the defense counsel should ask the excesscarrier in writing at the start of the litigation if the excessinsurer wishes to be kept informed of the progress of thelitigation.

F. Unsuccessful Attempts to Overcome Privity Rule1. Defamation – Absolute Privilege Applies

Attempts by non-clients to sue lawyers for allegedlydefamatory statements contained in correspondence topotential witnesses, or in pre-suit communications suchas cease and desist letters to multiple parties, have beenlargely unsuccessful. This is because Texas recognizesthe absolute privilege of lawyers to make evendefamatory statements, provided they bear “somerelation” to a pending or contemplated judicialproceeding. Russell v. Clarke, 620 S.W.2d 865, 868(Tex. App. – Dallas 1981, ref’d n.r.e.) (“Public policydemands that attorneys be granted the utmost freedom intheir efforts to represent their clients. . . [The absoluteprivilege] protects the attorney from liability in an actionfor defamation irrespective of his purpose in publishingthe defamatory matter, his belief in its truth, or even hisknowledge of its falsity.” [emphasis added]; see alsoCrain v. Smith, 22 SW.3d 58 (Corpus Christi 2000, nopet.); Thomas v. Bracy, 940 S.W.2d 340, 344 (Tex. App.– San Antonio 1997, no writ) (“Even statements aimed atparties not involved in the proceeding are absolutelyprivileged if they bear some relation. . .”).

2. Absolute Privilege Bars Other Causes of ActionBased on Privileged ConductNon-clients have also attempted to plead around the

absolute privilege by creatively casting their claims as

other causes of action. Where the sole conduct at issueis the communication of statements protected by theabsolute privilege, Texas courts have held that theprivilege bars the other causes of action as well.Specifically, absolute privilege has barred tortuousinterference, Martinez v. Hardy, 864 S.W.2d 767, 776(Tex. App. – Houston [14th Dist.] 1993, no writ); Griffinv. Rowden, 702 S.W.2d 692, 694-695 (Tex. App. –Dallas 1985, writ ref’d. n.r.e.), civil conspiracy,negligence (brought by non-client), constitutionalviolation, Laub v. Pesikoff, 979 S.W.2d 686 (Tex. App.– Houston [1st Dist.] 1998, writ denied), intentionalinfliction of emotional distress, Lamb, supra; see alsoRose v. First Am. Title Ins. Co. of Texas, 907 S.W.2d639, 643 (Tex. App. – Corpus Christi 1995, no writ).

3. Other DefensesAlthough the absolute privilege should defeat all

claims based on conduct to which it applies, a prudentmotion for summary judgment should also include othertraditional defamation defense arguments, such as thatthe statements are not capable of defamatory meaning.Musser v. Smith Protective Serv., Inc., 723 S.W.2d 653,654-655 (Tex. 1987). The statements must be read incontext, and a statement may be false, abusive,unpleasant, and objectionable to the plaintiff withoutbeing defamatory, Schaver v. Memorial Care Sys., 856S.W.2d 437 (Tex. App. – Houston [1st Dist.] 1993, nowrit); Rawlins v. McKee, 327 S.W.2d 633, 635 (Tex. Civ.App. – Texarkana 1959, writ ref’d n.r.e.). Statements ofopinion are constitutionally protected free speech.Yiamouyiannis v. Thompson, 764 S.W.2d 338, 340 (Tex.App. – San Antonio 1988, writ denied) (“quack” and“outrageous hoke artist and imported fear monger”constitutionally protected); Gertz v. Robert Welch, Inc.,418 U.S. 323, 94 S. Ct. 2997, 41 L. Ed. 2d 789 (1974).

III. PERSON CONVICTED OF CRIME CANNOTSUE ATTORNEY“Because of public policy, we side with the majority

of courts and hold that plaintiffs who have beenconvicted of a criminal offense may negate the soleproximate cause bar to this claim for legal malpractice inconnection with that conviction only if they have beenexonerated on direct appeal, through post-convictionrelief, or otherwise. . . . [This is so because] it is theillegal conduct rather than the negligence of a convict’scounsel that is the cause in fact of any injuries flowingfrom the conviction.” Peeler v. Hughes & Luce, 909S.W.2d 494, 497-498 (Tex. 1995) (affirming summaryjudgment for defendants).
















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IV. WHEN TO SUE – STATUTE OFLIMITATIONS

A. Legal Malpractice Statute of Limitations

In Texas, a cause of action for legal malpractice isa tort. The two year statute of limitations applies. Willisv. Maverick, 760 S.W.2d 642, 644 (Tex. 1988);American Medical Electronics v. Korn, 819 S.W.2d 573,576 (Tex. App. – Dallas 1991, writ denied). Unlikemalpractice claims, fraud claims against attorneys will begoverned by the four-year statute of limitations. SeeWilliams v. Khalaf, 802 S.W.2d 651 (Tex. 1990).

Some plaintiffs have attempted to apply the four-year statute of limitations to legal malpractice claims bystructuring their pleadings to allege breach of contract.The courts have consistently uncovered this “wolf insheep’s clothing.” As the Dallas Court of Appealsrecently stated, “attorney malpractice claims sound in tortregardless of whether they are framed as tort or contractactions.” American Medical Electronics, 819 S.W.2d at576; see also Sledge v. Allsup, 759 S.W.2d 1, 2 (Tex.App. – El Paso 1988, no writ). In a recent case, anotherappellate court snuffed out an attempt by plaintiffs toevade the two-year malpractice statute of limitations bystyling the claim as one of breach of fiduciary duty.Norman v. Yzagguire & Chapa, 988 S.W.2d 460, 461(Tex. App. – Corpus Christi 1999, n. pet. h.).

Rule 94 of the Texas Rules of Civil Procedure liststhe defense that a claim is barred by the Statute ofLimitations as a matter of confession and avoidance, oraffirmative defense. Tex. R. Civ. P. 94. The burden toplead, prove, and request an appropriate jury restrictiontherefore rests with the defendant lawyer. QuantumChem. Corp. v. Toennies, 47 S.W.3d 473, 481 (Tex.2001).

B. When Cause Of Action Accrues And LimitationsBegins to RunThe critical question regarding the applicable statute

of limitations is not what limitations period applies, butwhen the cause of action accrues and limitations beginsto run. When a cause of action accrues is a question oflaw for the court. Computer Assoc. Int’l, Inc. v. Altai,Inc., 918 S.W.2d 453 (Tex. 1994); Willis v. Maverick,760 S.W.2d at 644; Black v. Wills, 758 S.W.2d 809, 815(Tex. App. – Dallas 1988, no writ).

1. The Legal Injury RuleTexas has adopted the legal injury rule. The legal

injury rule provides that a legal malpractice cause ofaction accrues only when the negligence of the attorneyresults in damage to the client. Willis v. Maverick, 760S.W.2d 642, 644 (Tex. 1988); American MedicalElectronics v. Korn, 819 S.W.2d 573, 577 (Tex. App. –Dallas 1991, writ denied). Previously, Texas applied the

occurrence rule which provided the legal malpracticecause of action accrued when the negligent act occurred,without regard to whether injury had occurred. Crawfordv. Davis, 148 S.W.2d 905, 907 (Tex. Civ. App. –Eastland 1941, no writ); Fox v. Jones, 14 SW. 1007 (Tex.Ct. App. 1889, no writ).

The legal injury rule avoids the problem of the legalmalpractice action being barred before any damageoccurs. However, it does not require plaintiff’s damagesbe fully ascertained or even known. See Trinity RiverAuthority v. URS Consultants, Inc., 889 S.W.2d 259, 262(Tex. 1994); Jim Arnold Corp. v. Bishop, 928 S.W.2d761, 768 (Tex. App. – Beaumont 1996, no writ). Thelegal injury rule only requires the existence of a “legalinjury” that would support the filing of suit. Once thisthreshold requirement is met, the cause of action accruesand limitations begins to run. As a result, many legalmalpractice actions may be time-barred before the clientis aware of the injury or the necessity of filing a suit.J.H. Bauman, The Statute of Limitations for LegalMalpractice in Texas, 44 BAYLOR L. REV. 425, 431-36(1992).

2. Tolling ProvisionsTexas courts have adopted three tolling provisions

to protect plaintiffs from the sometimes harsh applicationof the legal injury rule. Two are alive and well; one isnot.

a. Duty to Disclose Rule a/k/a The ContinuousRepresentation RuleThe continuous representation rule defers accrual or

tolls the running of limitations while the allegedlynegligent attorney continues to represent the clients in thematter in which the negligence occurred. Id. at 437. Thecontinuous representation rule allows time for thenegligent attorney to attempt to correct the situation,while preserving the client’s right to sue if the efforts arenot successful. Id.

For instance, in McClung v. Johnson, 620 S.W.2d644 (Tex. Civ. App. – Dallas 1981, writ ref’d n.r.e.), theappellate court found the attorney occupied a position oftrust and confidence with respect to the client thatimposed a duty to disclose facts material to therepresentation. Breach of the duty of disclosure, thecourt said, is tantamount to concealment. The court heldthat “the failure to disclose operates to toll the statute oflimitations for so long as the duty exists, and that theduty to disclose ceases when the relationship giving riseto the duty ends.” Id. at 657.

The Texas Supreme Court, however, disposed of the“duty to disclose/continuous representation” rule. Willis,760 S.W.2d at 645-46 n. 3; see also Estate of Degley v.Vega, 797 S.W.2d 299, 303 n. 3 (Tex. App. – CorpusChristi 1990, no writ) (“In Willis the court expressly






















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disapproved of this approach to accrual, holding that thediscovery rule balances limitations policies better thansimply tolling limitations during the attorney-clientrelationship”). It is important to note, however, in FDICv. Nathan, 867 F. Supp. 512 (S.D. Tex. 1994), that JudgeHarmon appeared to rely on the “continuousrepresentation” rule to toll the running of limitationsagainst the FDIC.

b. The Discovery RuleThe discovery rule applies to legal malpractice

actions. The discovery rule provides that the statute oflimitations for legal malpractice actions does not begin torun until the claimant discovers or should havediscovered through the exercise of reasonable care anddiligence the facts establishing the elements of theclaimant’s cause of action. Willis, 760 S.W.2d at 646;Gordon v. Ward, 822 S.W.2d 90, 93 (Tex. App. –Houston [1st Dist.] 1991, writ denied); American MedicalElectronics, 819 S.W.2d at 577; Medical Protective Co.v. Groce, Locke & Hebdon, 814 S.W.2d 124, 127 (Tex.App. – Corpus Christi 1991, writ denied); RTC v. Boyar,Norton & Blair, 796 F. Supp. 1010, 1013 (S.D. Tex.1992). The discovery rule protects clients injured byattorney malpractice whose injuries may not bediscovered until after the formal legal injury rule hasbeen satisfied.

The discovery rule is determined by the facts ofeach case. Jampole v. Matthews, 857 S.W.2d 57 (Tex.App. – Houston [1st Dist.] 1993, writ denied). “[T]helimitations period begins to run as soon as the plaintiffdiscovers or should discover any harm, however slight,resulting from the negligence of the defendant.”American Medical Electronics, 819 S.W.2d at 577.Hence, if the plaintiff discovers a minor injury but waitsuntil the injury becomes substantial to sue, and two yearshave expired since the discovery of the minor injury, thesuit will be time barred. Id. at 577.

The discovery rule is a plea in avoidance. Woods v.William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex.1988). A claimant seeking to avoid the statute oflimitations has the burden of pleading the discovery rule,and has the burden at trial of establishing factssupporting application of the discovery rule. Id. at 518;Audry v. Dearman, 933 S.W.2d 182, 192 (Tex. App. –Houston [14th Dist.] 1996, writ denied); Gordon v. Ward,822 S.W.2d 90, 94 (Tex. App. – Houston [1st Dist.] 1991,writ denied). Once the claimant pleads the discoveryrule, however, the defendant can only obtain summaryjudgment based on limitations by showing that no issueof fact exists concerning the time when the plaintiffdiscovered or should have discovered the cause of action.Burns v. Thomas, 786 S.W.2d 266, 267 (Tex. 1990);Farah v. Mafrige & Kormanik, P.C. , 927 S.W.2d 663,676 (Tex. App. – Houston [1st Dist.] 1996, no writ);

American Medical Electronics, 819 S.W.2d at 576;Medical Protective Co. v. Groce, Locke & Hebdon, 814S.W.2d 124, 127 (Tex. App. – Corpus Christi 1991, writdenied). If the defendant moves for summary judgmentand produces evidence of when plaintiff should havediscovered the cause of action, the plaintiff, to avoid thesummary judgment, must show that a person exercisingreasonable diligence would not have discovered thecause within the statutory period. Smith v. Flinn, 968S.W.2d 12 (Tex. App. – Corpus Christi 1998, no pet. h.).

The discovery rule tolls the running of limitations.It is not an accrual rule for legal malpractice causes ofaction. The discovery rule does not replace the legalinjury rule to determine acc rual of legal malpracticecauses of action. See, J.H. Bauman, The Statute OfLimitations For Legal Malpractice in Texas, 44 BAYLOR

L. REV. 425, 440 (1992).

c. The Exhaustion Of Appeals RuleThe Texas Supreme Court has held that “when an

attorney commits malpractice in the prosecution ordefense of a claim that results in litigation, the statute oflimitations on the malpractice claim against the attorneyis tolled until all appeals on the underlying claim areexhausted.” Hughes v. Mahaney & Higgins, 821 S.W.2d154, 157 (Tex. 1991). The limitations period begins torun, however, as soon as the client retains new counsel inthe underlying action. Norman, 988 S.W.2d at 461-62.

The Court justified the “exhaustion of appeal” ruleby finding that without such a rule a client may be forcedinto adopting inconsistent litigation positions as to theunderlying case and the malpractice case if an attorneymakes a mistake in the course of representing the client.Hughes, 821 S.W.2d at 156; see also, Washington v.Georges, 837 S.W.2d 146, 147 (Tex. App. – San Antonio1992, writ denied); Norwood v. Pro, 887 S.W.2d 177(Tex. App. – Texarkana 1994, writ denied). This rulealso applies in the bankruptcy context, as the statute oflimitations is tolled during the pendency of an attorney’srepresentation of a client in a bankruptcy proceeding.Guillot v. Smith, 1999 WL 318840, *3 (Tex. App . –Houston [1st Dist.], May 20, 1999). The plaintiff has theburden of pleading and proving the applicability of the“exhaustion of appeal” rule to toll limitations. Hughes,821 S.W.2d at 157; Stephenson v. Courtney, 919 S.W.2d454, 464 (Tex. App. – Fort Worth 1996, writ denied).

C. Summary of Statute of Limitations Analysis inLegal Malpractice ClaimsThe two-year limitations period is applicable to

legal malpractice claims. The legal injury ruledetermines when the cause of action accrues andlimitations begins to run. Three available tollingprovisions may toll the limitations period: (1) the Texasversion of the continuous representation rule (which

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probably no longer exists), (2) the discovery rule, and(3) the “exhaustion of appeals” rule.

V. WHAT TO SUE FOR – THEORIES OFLIABILITYTraditionally, legal malpractice causes of action

have been based upon theories of negligence, breach offiduciary duty, and fraud.

A. Legal MalpracticeA legal malpractic e action in Texas is based on

negligence. Barcello, III v. Elliot, 923 S.W.2d 575, 580(Tex. 1996); Cosgrove v. Grimes, 774 S.W.2d 662, 664(Tex. 1989); Judwin Properties v. Griggs & Harrison,911 S.W.2d 498, 507 (Tex. App.–Houston [1st Dist.]1995, no writ); Medical Protective Co. v. Groce, Locke& Hebdon, 814 S.W.2d 124, 127 (Tex. App. – CorpusChristi 1991, writ denied). As with any other negligenceaction, the traditional elements of negligence apply andmust be proven by the plaintiff. The plaintiff mustprove: (1) there is a duty owed by the attorney to theclient, (2) a breach of that duty, (3) that the breachproximately caused the client’s injury, and (4) damagesoccurred. Cosgrove v. Grimes, 774 S.W.2d at 665;Judwin Properties, 911 S.W.2d at 507.

Cases involving the alleged mishandling oflitigation have created a question of how causationshould be established. To establish causation, “the clientmay be required to prove that he or she would have beensuccessful in prosecuting or defending the underlyingaction, if not for the attorney’s negligence or otherimproper conduct.” See Joseph H. Koffler, LegalMalpractice Damages In a Trial Within a Trial – CriticalAnalysis of Unique Concepts: Areas ofUnconscionability, 73 MARQ. L. REV. 40-41 (1989).This means the plaintiff will conduct a “trial within atrial” where both the malpractice claim and theunderlying claims are tried to the same jury, with themalpractice defendant forced to represent the opponentin the underlying action. Id.; see also Patterson &Wallace v. Frazier, 93 S.W.2d 146 (Tex. 1906)(“Thedefendants were entitled to stand just where [thedefendant in the underlying suit] would have stood in thetrial of the suit against her, and to have before the juryevery fact that tended to lessen the damages.”); Gibsonv. Johnson, 414 S.W.2d 235 (Tex. Civ. App. – Tyler1967, writ ref’d n.r.e) cert. denied 390 U.S. 946 (1967).

Texas cases are not clear on how this case within acase should be submitted to the jury. In Cosgrove v.Grimes, 774 S.W.2d 662 (Tex. 1989), the trial courtsubmitted a separate question as to whether or not theplaintiff would have prevailed at the prior trial but for thenegligent conduct of the attorney. However, in Rhodesv. Batilla, 848 S.W.2d 833 (Tex. App. – Houston [14th

Dist.] 1993, writ denied), a separate question as to

whether the plaintiff would have prevailed at the priorIRS administrative level but for the negligent conduct ofthe attorney was omitted.

In Haynes & Boone v. Bowser Bouldin, 896 S.W.2d179 (Tex. 1995), the Texas Supreme Court addressed theissue of causation in a legal malpractice context. TheSupreme Court held that “to recover damages, a plaintiffmust produce evidence from which the jury mayreasonably infer that the damages sued for have resultedfrom the conduct of the defendant.” The court furtherheld that the above requirement of proof is met when ajury is presented with pleading and proof that establishesa direct causal link between damages awarded, actions ofthe defendant, and the injury suffered.

Following Bowser, the Texarkana Court of Appealsin Mackie v. McKenzie, 900 S.W.2d 455 (Tex. App. –Texarkana 1995) held the lawyer being sued formalpractice was entitled to summary judgment becausethe plaintiff had failed to show damages. The court heldthere should be no recovery in the legal malpracticeaction because the client ultimately recovered moremoney than she would have had the attorney succeededin the underlying suit. Hence, causation was not present.Id.

Texas courts have failed to clarify whether anobjective or subjective standard should be used to provethe direct causal link. Many commentators and otherstates do recognize such a distinction. As stated inMallen & Smith, Legal Malpractice, § 32.8 (1996):

Often “should” and “would” are usedinterchangeably. There is a difference becausethe objective of a trial-within-a-trial is todetermine what the result should have been (anobjective standard) not what the result wouldhave been by a particular judge or jury (asubjective standard). The phrase “would have”been, however, does have the same meaning as“should have,” if the inquiry is what areasonable judge or jury “would have”decided. . . . In any event, what “could have”or “might have” been decided is speculativeand is not the standard.

The language in many Texas cases suggests Texasadheres to a subjective standard of what a particularjudge or jury would have done. See e.g., Cosgrove, 774S.W.2d at 665 (plaintiff must show what “would havebeen recovered and collected . . . if the suit had beenproperly prosecuted”); Mackie, 900 S.W.2d at 445 (clientmust prove he “would have been successful”); MNDDrilling Corp. v. Lloyd, 866 S.W.2d 29 (Tex. App. –Houston [14th Dist.] 1987, no writ) (“client must prove hewould have been successful but for the negligence of hisattorney”). However, none of these courts have directly








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confronted the distinction between an objective standard,i.e., what should have occurred, and a subjectivestandard, i.e., what a particular judge or jury would havedone; indeed, the two standards are often muddled.

In an appellate legal malpractice claim, the plaintiffmust prove that he would have prevailed on appeal in theunderlying case but for the attorney’s negligence. Smithv. Heard, 980 S.W.2d 693 (Tex. App. – San Antonio1998, no pet. h.). The plaintiff must prove the “casewithin a case” in order to prove that the attorney’snegligence caused the damage; if the appeal would nothave been successful, then the attorney’s negligencecould not have caused harm. Id. at 696. In Heard, theappellate court rejected the plaintiffs’ contention thattheir attorney had negligently failed to challenge the trialcourt’s calculation of damages, as the trial court’scalculation was valid and would not have been error evenif the attorney had properly appealed. Id. Similarly, theappellate court in the underlying case stated that thecertification of the defendant’s expert witness was“patently immaterial,” thus any failure of the attorney topursue this avenue of appeal could not have damaged theplaintiffs, thus barring a malpractice claim on this issue.Id.

The judge who tried an underlying lawsuit cannotoffer his opinion on whether or not malpractice wascommitted. See Joachim v. Chambers, 815 S.W.2d 234,238-39 (Tex. 1991); McDuffie v. Blassingame, 883S.W.2d 329, 334 (Tex. App. – Amarillo 1994, writdenied). But, opposing counsel in the underlying trialcan offer such testimony and can testify as to whethersuch malpractice caused harm to the complaining party.Only one more reason to stay on good terms withopposing counsel.

While the Texas Supreme Court has upheld anaward for mental anguish damages that occurred as aresult of attorney negligence, the Court has not endorsedrecovery of mental anguish damages in all legalmalpractice cases. Douglas v. Delp, 987 S.W.2d 879,884 (Tex. 1999; see Cosgrove v. Grimes, 774 S.W.2d662 (Tex. 1989). Indeed, the Court recently held that aparty could not recover for mental anguish damages thatare a consequence of economic loss resulting from legalmalpractice. Delp, 987 S.W.2d at 885. This rule isconsistent with the majority of other states in recognizingthat mental anguish is typically not a foreseeable result oflegal malpractice, and that recovery should generally belimited to making the plaintiff whole for their economicloss.

B. Evidentiary Considerations: Locality RuleIn Texas, the relevant standard of care for an

attorney’s conduct is measured against the conduct ofattorneys who practice in the same community where thedefendant/attorney practices. Tijerina v. Wennermark,

700 S.W.2d 342, 347 (Tex. App. – San Antonio 1985, nowrit) overruled on other grounds, 744 S.W.2d 662 (Tex.1989). Cook v. Irion, 409 S.W.2d 475, 477-78 (Tex. Civ.App. – San Antonio 1966, no writ) (the court held anAlpine attorney not qualified to testify as to the standardof care of an El Paso attorney, practicing 220 milesaway), overruled on other grounds, 774 S.W.2d 662(Tex. 1989). The locality rule is based on the fact thatlocal practice, customs, strategies, and social and culturalmake-up may differ based on the particular population ofthe community.

“Most jurisdictions that at one time followed thelocality rule have since expanded the relevant territorialregion to create a statewide standard of care.” Lawyers’Responsibilities and Lawyers’ Responses, 107 HARV. L.REV. 1547, 1565 (1994).

C. Breach of Fiduciary DutyThe relation between attorney and client is fiduciary

in nature and has been described as “one of uberrimafides, which means ‘most abundant good faith,’ requiringabsolute and perfect candor, openness and honesty andthe absence of any concealment of deception.” Perez v.Kirk & Carrigan, 822 S.W.2d 261, 265 (Tex. App. –Corpus Christi 1991, writ denied); see also Hefner v.State, 735 S.W.2d 608, 624 (Tex. App. – Dallas 1987,writ ref’d); State v. Baker, 539 S.W.2d 367, 374 (Tex.Civ. App. – Austin 1976, writ ref’d n.r.e.) overruled onother grounds, 774 S.W.2d 662 (Tex. 1989).

Breach of fiduciary duty usually occurs when theattorney’s personal interests conflict with the interests ofthe client or when there is a conflict of interest betweenan attorney’s clients. See, e.g., Willis v. Maverick, 760S.W.2d 642 (Tex. 1988) (attorney failed to disclosecritical information); Robinson v. Garcia, 804 S.W.2d238 (Tex. App. – Corpus Christi 1991, no writ) (attorneyfailed to disclose information concerning effect of feeagreement).

There should be an increase in breach of fiduciaryduty cases in class action and mass tort cases in which aclass or group member sues the attorney for breach offiduciary duty relating to the amount of or calculation ofthe attorneys’ fees. In a landmark decision, the TexasSupreme Court recently held that a client need not proveactual damages to obtain a forfeiture of attorney’s feesfor an attorney’s breach of fiduciary duty. Burrow v.Arce, 1999 WL 450770, *9 (Tex. July 1, 1999).Automatic forfeiture of the entire fee is not appropriate;instead, the amount of fee to be forfeited depends on anumber of factors. Id. While not an exclusive list, thesefactors include:

(1) the gravity and timing of the violationcommitted by the attorney or law firm;





















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(2) the willfulness (i.e., culpability) of theattorney’s breach of duty;

(3) the effect of the violation on the value of theattorney’s work for the client;

(4) any other threatened or actual harm to theclient;

(5) the adequacy of other remedies available to theclient, and

(6) the public interest in maintaining the integrityof attorney-client relationships.

Id. at *10-11.

D. FraudAn attorney may be liable for fraud or fraudulent

concealment to either clients or non-clients . Likover v.Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex.App. – Houston [1st Dist.] 1985, no writ); Hennigan v.Harris County, 593 S.W.2d 380, 383 (Tex. Civ. App. –Waco 1979, writ ref’d n.r.e.). The elements of fraud are:(1) misrepresentation of a material fact; (2) with intent toinduce action or inaction; (3) reliance upon themisrepresentation by the plaintiff; and (4) resultingdamage. Likover, 696 S.W.2d at 472; Hennigan, 593S.W.2d at 383. Privity is not required for a third party tomaintain a fraud action against an attorney. Likover, 696S.W.2d at 472; see also II.E.1, supra.

E. Texas Deceptive Trade Practices – ConsumerProtection Act (“DTPA”)

1. DTPA Applicable to AttorneysThe DTPA may be applied to attorneys. Lucas v .

Nesbitt, 653 S.W.2d 883, 886 (Tex. App. – CorpusChristi 1983, writ ref’d n.r.e.); Barnard v. Meconn, 650S.W.2d 123, 125 (Tex. App. – Corpus Christi 1983, writref’d n.r.e.); DeBakey v. Staggs, 605 S.W.2d 631, 633(Tex. Civ. App. – Houston [lst Dist.] 1980, writ ref’dn.r.e.), 612 S.W.2d 924 (Tex. 1981). In DeBakey, 605S.W.2d at 633, the court held the DTPA applied to thepurchase or acquisition of legal services. The courtreasoned that an attorney sells legal services and theclient purchases them. Therefore, an attorney’s client isa “consumer” under the DTPA.

2. Consumer Status“Consumer” status establishes the requisite standing

to bring a DTPA action. To establish “consumer” statusunder the DTPA, plaintiff has the burden of showing: (1)plaintiff acquired goods or services by purchase or lease,and (2) the goods or services purchased or leased formthe basis of the complaint. Marshall v. Quinn-L Equities,Inc., 704 F.Supp. at 1393 (citing Cameron v. Terrell &Garrett, Inc., 618 S.W.2d 535, 539 (Tex. 1981)).

In determining the “consumer” status of thirdparties, Texas courts have split. One Texas court has

interpreted “consumer” to include a third party if thetransaction was consummated for the benefit of the thirdparty. Parker v. Carnahan, 772 S.W.2d 151, 158-59(Tex. App. – Texarkana 1989, no writ).

Other Texas courts have held that third parties donot qualify as DTPA “consumers.” See Roberts v.Burkett, 802 S.W.2d 42, 47-8 (Tex. App. – CorpusChristi 1990, no writ) (court denied “consumer” statusbecause no purchase of legal services actually occurred,although legal services were sought and acquiredgratuitously); Fielder v. Abel, 680 S.W.2d 655, 657 (Tex.App. – Austin 1984, no writ); First Mun. Leasing Corp.v. Bankenship, Potts, Aikman, Hagin & Stewart, 648S.W.2d 410, 417 (Tex. App. – Dallas 1983, writ ref’dn.r.e.).

3. DTPA Violations Applicable to Legal ServicesA plaintiff may recover under the DTPA if he

proves the attorney: (1) committed a laundry listviolation, (2) breached an express warranty, or (3)committed an unconscionable act. A plaintiff may notrecover under the DTPA for breach of an impliedwarranty. Willis v. Maverick , 760 S.W.2d 642, 647 (Tex.1988); Dyer v. Schafer, Gilliland, David, McCollum &Ashley, Inc., 779 S.W.2d 474, 479 (Tex. App. – El Paso1989, writ denied).

The most commonly alleged laundry list violationsagainst an attorney relate to statements by the lawyerabout his qualifications or experience. Such allegationsmay include, but will not necessarily be limited to:

(5) representing that goods or services havesponsorship, approval, characteristics,ingredients, uses, benefits, or quantities whichthey do not have or that a person has asponsorship. approval, status, affiliation orconnection which he does not;

. . .

(7) representing that goods or services are of aparticular standard, quality or grade, or thatgoods are of a particular style or model, if theyare of another;

. . .

Tex. Bus. & Comm. Code Ann., § 17.46(5), (7) (VernonSupp. 2003).

Legal malpractice plaintiffs frequently allege thatthe lawyer “puffed” his qualifications or experience toinduce the client into hiring that lawyer on a specializedmatter. They usually allege such “puffing” was aproducing cause of harm, because asa result, the lawyer
























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practiced outside of his/her area and either made amistake, or the bill was substantially larger than it shouldhave been. Since such claims are usually accompaniedby common law negligent misrepresentation claims, theTexas Disciplinary Rules of Professional Conduct maybe admissible to establish the lawyer’s standard of care.Rule 7.02 addresses statements lawyers may makeconcerning their own or other lawyers’ qualifications orservices. It provides:

RULE 7.03 COMMUNICATIONSCONCERNING A LAWYER’S SERVICES

(a) A lawyer shall not make a false ormisleading communication about thequalifications or the services of any lawyer orfirm. A communication is false or misleadingif it:

(1) c o n t a i n s a m a t e r i a lrepresentation of fact or law, oromits a fact necessary to make thestatement considered as a whole notmaterially misleading;

(2) is likely to create an unjustifiedexpectation about results the lawyercan achieve, or states or implies thatthe lawyer can achieve results bymeans that violate these rules orother law;

(3) compares the lawyer’s serviceswith other lawyers’ services, unlessthe comparison can be substantiatedby reference to verifiable, objectivedata;

(4) states or implies that the lawyeris able to influence improperly orupon irrelevant grounds any tribunal,legislative body, or public official; or

(5) designates one or more specificareas of practice in an advertisementin the public media or in a writtensolicitation unless the advertisinglawyer is competent to handle legalmatters in each such area of practice.

(b) Rule 7.02(a)(5) does not require that alawyer be certified by the Texas Board ofSpecialization at the time of advertising in aspecific area of practice, but such certificationshall conclusively establish that such lawyer

satisfies the requirements of Rule 7.02(a)(5)with respect to the area(s) of practice in whichsuch lawyer is certified.

(c) A lawyer shall not advertise in the publicmedia that the lawyer is a specialist except aspermitted under Rule 7.04.

(d) Any statement or disclaimer required bythese rules shall be made in each language usedin the advertisement or writing with respect towhich such requirements statement ordisclaimer relates; provided however, the merestatement that a particular language is spokenor understood shall not alone result in the needfor a statement or disclaimer in that language.

Tex. Disciplinary R. Prof’l Conduct 7.03.

With respect to advertisements in the public media,Rule 7.04(b)(3) states that the lawyer:

. . . shall state with respect to each areaadvertised in which the lawyer has not beenawarded a Certificate of Special Competenceby the Texas Board of Legal Specialization,“Not Certified by the Texas Board of LegalSpecialization,” however, if an area of law soadvertised has not been designated as an areain which a lawyer may be awarded aCertificate of Special Competence by theTexas Board of Legal Specialization, thelawyer may also state, “No designation hasbeen made by the Texas Board of LegalSpecialization for a Certificate of SpecialCompetence in this area.”

Tex. Disciplinary R. Prof’l Conduct 7.04(b)(3). Asentertainment law has not been recognized in Texas as anarea in which a Certification of Special Competency bythe Texas Board of Legal Specialization is available, aTexas entertainment attorney should not only exercisecare in communicating his qualifications or experience,but in particular should avoid using the words“specialist,” “specialty,” “specializing,” or other suchterms.

4. DTPA CausationLatham v. Castillo, 972 S.W.2d 66 (Tex. 1998), is

the Texas Supreme Court’s latest application of theDTPA to attorney misconduct. In the case, there wasevidence that attorney Latham affirmativelymisrepresented to his clients, the Castillos, that he hadfiled a medical malpractice claim when in fact he hadnot. The Castillos offered no evidence that they would



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have prevailed in their medical malpractice suit againstthe hospital had it been brought properly by Latham. Id.at 67.

The Court held that Latham’s affirmativemisrepresentations caused the Castillos to lose theopportunity to prosecute their claim against the hospital.Because this was “unconscionable conduct” that resultedin unfairness to the consumer, the Castillos were able tobring their suit under the DTPA. Id. at 67-69 (noting thatthe resulting unfairness must be “glaringly noticeable,flagrant, complete, and unmitigated”). Under the statute,the Castillos were not required to prove that they wouldhave won the underlying medical malpractice action toprevail in their DTPA cause of action against Latham.Id. at 69. This is in contrast to a legal malpractice claim,in which the client would have to prove the “case withina case,” i.e., that the client would have won theunderlying suit but for attorney malpractice. Finally, theCourt held that the Castillos did not have to first provethat they have suffered economic damages to recovermental anguish damages. Justice Owen, joined byJustices Gonzalez, Hecht, and Enoch, concurred anddissented, concluding that because the Castillos did notprove that they had a meritorious claim against thehospital, the Castillos presented no evidence ofunconscionable action by Latham, and no evidence ofactual damages. Id. at 72 (Owen, J., concurring in part,dissenting in part).

F. Breach Of ContractPlaintiffs have attempted to take advantage of the

four-year period of limitations applicable to breach ofcontract actions by framing their legal malpractice claimas a breach of contract. The Texas courts, however, havetreated such breach of contract claims as tort claims. SeeWillis v. Maverick , 760 S.W.2d 642, 647 (Tex. 1988);American Medical Electronics v. Korn, 819 S.W.2d 573,576 (Tex. App. – Dallas 1991, writ denied); Sledge v.Allsup, 759 S.W.2d 1, 2 (Tex. App. – El Paso 1988, nowrit); Woodburn v. Turley, 625 F.2d at 589 (5th Cir.1980).

G. ConspiracyAn attorney may be liable for conspiracy. Likover

v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex.App. – Houston [1st Dist.] 1985, no writ); Bourland v.State, 528 S.W.2d 350, 353-57 (Tex. Civ. App. – Austin1975, writ ref’d n.r.e.). To recover against an attorneyfor conspiracy, the plaintiff must show that: (1) theattorney knew the object and purpose of the conspiracy;(2) there was an understanding or agreement to inflict awrong or injury; (3) there was a meeting of minds on theobject or cause of action; and (4) there was some mutualmental action, coupled with an intent to commit the actthat resulted in the injury. Likover, 696 S.W.2d at 472.

Nonetheless, privity is not required to bring a conspiracycause of action. Id . Note, however, that as discussedabove (II.F.), Courts generally reject thinly veiledpleadings that attempt to “plead around” otherwiseapplicable legal doctrines or defenses.

H. Professional MisconductParagraph 15 of the Preamble to the Texas

Disciplinary Rules Of Professional Conduct provides:“Violation of a rule does not give rise to a private causeof action nor does it create any presumption that a legalduty to a client has been breached . . . . [N]othing in therules should be deemed to augment any substantive legalduty of lawyers or the extra-disciplinary consequences ofviolating such a duty.” Texas Disciplinary Rules OfProfessional Conduct, preamble, ¶15 (1989).

Professional misconduct does not give rise to aprivate cause of action. Dyer v. Shafer, Gilliland, Davis,McCollum & Ashley, Inc. , 779 S.W.2d 474, 479 (Tex.App. – El Paso 1989, writ denied); Blanton v. Morgan,681 S.W.2d 876, 879 (Tex. App. – El Paso 1984, writref’d n.r.e.).

Texas courts do, however, use the disciplinary rules asstandards of conduct for attorneys in legal malpracticeactions. See e.g., Avila v. Havana Painting Co., Inc., 761S.W.2d 398, 400 (Tex. App. – Houston [14th Dist.] 1988,writ denied) (code required attorney to promptly deliverfunds to client, failure to do so gave rise to legal malpracticecause of action); Heath v. Herron, 732 S.W.2d 748, 751(Tex. App. – Houston [14th Dist.]1987, writ denied).

I. Frivolous Lawsuits And PleadingsA party or his attorney may be liable for attorneys’ fees

incurred by an adversary in defending against certainfrivolous pleadings and lawsuits: (1) under the DTPA,Donwerth v. Preston II Chrysler-Dodge, Inc., 775 S.W.2d634, 637 (Tex. 1989); (2) under Texas Rule of CivilProcedure 13; (3) under Texas Civil Practice & RemediesCode §9.011 (Vernon 1987); and (4) under Federal Rules ofCivil Procedure 11, Thomas v. Capitol Security Services,Inc., 836 F.2d 866, 876 (5th Cir. 1988).

J. Debt CollectionAn attorney may be liable for violating the Federal Fair

Debt Collection Practices Act, 15 U.S.C. §§ 1692a-1692o(1982), and/or the Texas Debt Collection Act. TEX. REV.CIV. STAT . ANN. arts. 5069-11.01 – 5069-11.11 (Vernon1987). To prevail on an unfair debt collection action underthe federal or Texas statutes, however, plaintiff must provethe attorney is a “debt collector,” as defined in the applicablestatute. Cathermen v. First State Bank of Smithville, 796S.W.2d 299, 302 (Tex. App. – Austin 1990, no writ).














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K. Retention of Client’s MoneyTexas Government Code §82.063 provides a statutory

right for a client to recover on demand money an attorneyreceives or collects on the client’s behalf. Tex. Gov’t CodeAnn. §82.063 (Vernon 1988); see also Avila v. HavanaPainting Co., 761 S.W.2d 398, 400-01 (Tex. App. –Houston [14th Dist.] 1988, writ denied).

L. Federal And State Securities LawAttorneys may be liable under the 1993 Securities Act,

the Securities and Exchange Act of 1933, the InvestmentAdvisers Act of 1940, and the Texas Securities Act. See,e.g., SEC v. Spectrum, Ltd., 489 F.2d 535 (2d Cir. 1973);SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082 (2d Cir.1972); Marshall v. Quinn-L Equities, Inc., 704 F.Supp. 1384(N.D. Tex. 1988); In re North American Acceptance Corp.Security Cases, 513 F.Supp. 608 (N.D. Ga. 1981).

VI. CONCLUSIONGenerally, absent fraud, negligent misrepresentation,

negligent failure to advise no representation exists, or otherspecial circumstance, only a client can sue a lawyer underTexas law, for actions taken in the context of representingthat lawyer’s client. Carefully written communicationsclarifying the lawyer’s role can serve as documentaryevidence likely to discourage claims by non-clients, or tobuild a successful defense in the event such a claim is filed.Unless a specific tolling provision applies, the client mustfile negligence and DTPA claims within two (2) years ofsuffering legal injury, and within four (4) years of fraudulentconduct or breach of fiduciary duty. Finally, although TexasDisciplinary Rules of Professional Conduct create neitherprivate causes of action nor presumptions of negligence,they may nevertheless be admissible as evidence of theappropriate standard of care.

VII. ENTERTAINMENT LAW HYPOTHETICALSFOR FURTHER CONSIDERATION

Example 1

You are the lawyer for Big Dawg Records, a subsidiary ofa major label, and you have been hired to draft a recordingc ontact. You draft the document and forward it to theRecording Artist for review and signature. The Artist, whodoes not get his own lawyer, then calls you and asksquestions like “what does this mean,” “is this standard,” etc.

1. If you answer the questions, is an attorney/clientrelationship established?

2. Even if no attorney/client relationship is established, doyou nevertheless risk liability to the non-client RecordingArtist if you answer?

3. What if you advised Recording Artist (in writing at theoutset) that you only represent Big Dawg, and RecordingArtist should hire his own lawyer?

4. What if, at the time you advise Recording Artist heshould hire his own lawyer, you know that Recording Artistis a struggling, destitute musician, who will not be able toafford his own lawyer?

5. What if, even after your written directive that heshould hire his own lawyer, the Recording Artistnevertheless asks questions? Is it necessary for you toreiterate in response to each question that you only representBig Dawg? Can you still incur liability if you answer?Does it matter whether you are giving your professionaljudgment or stating facts? If you are saying something is“standard,” is that a fact or an opinion?

Example 2

Ahab, Bonnie, Clyde, Dwight and Einstein are in a bandcalled “Desert Soul.” Their manager’s name is StinkyGreen. Stinky calls you at home on Thursday night to tellyou that Desert Soul is being signed by Aerostar Records inLos Angeles, and they are flying out Friday afternoon toplay some weekend showcases and meet with record labelexecutives Monday morning. They absolutely have to meetwith you Friday morning at 11:00 a.m., and you will haveabout an hour and a half to advise them of everything theyneed to know before they catch their flight. Then you willbe reviewing the Aerostar contract by fax on Monday andnegotiating with Aerostar.

And by the way, Stinky Green has a publishing companycalled Sour Grapes Music, and he wants you to draft apublishing agreement between Sour Grapes and the band’stwo songwriters, Bonnie and Clyde. Stinky has co-writtena couple of the songs with Bonnie and Clyde.

You recognize quickly that Bonnie and Clyde are the realtalent in the band, because they are the cute ones, they singwell, and they write all of the songs. You know fromexperience that Ahab, Dwight and Einstein may be gone ina year or two.

1. Who should be your client, and how do you take careof that in the initial meeting and with the record company’scontract?

2. Although you have never represented Sour Grapesbefore, it is only a d/b/a for Stinky Green, whom you haverepresented on minor, unrelated matters. Is Stinky Greenyour client, is the whole band your client, or are Bonnie andClyde going to be your clients?







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3. What if Stinky wants to take this opportunity to reducehis management agreement with the band to writing? Canyou handle that, and whom will you represent?

4. Assume you have elected to tell Bonnie and Clyde thatthey themselves should be a partnership called “DesertSoul,” that Ahab, Dwight and Einstein should be employees,and that Ahab, Dwight and Einstein should probably not beon the contract with Aerostar. Bonnie and Clyde haveinsisted that Ahab, Dwight and Einstein have been withthem from the beginning, they all live together in one houseand have driven all over the state in a van together playinggigs for tips. They won’t cut them out now. Can you nowrepresent a general partnership called “Desert Soul,” withAhab, Dwight and Einstein in it as partners, when you havepreviously told the other two partners, Bonnie and Clyde,that Ahab, Dwight and Einstein should not be in thepartnership?

5. What if you discuss the publishing issues betweenBonnie, Clyde and Stinky, in front of Ahab, Dwight andEinstein? Does that waive the attorney/client privilege oryour work product?

6. What if Bonnie and Clyde, who are going to be yourclients, ask questions in front of Stinky or the other bandmembers that require confidential responses?

7. What if Stinky, who is technically the adverse party,asks questions? Do you incur liability to Stinky?

8. What if Ahab, Dwight and Einstein ask questionsabout co-writing out of curiosity, because now they thinkthey should be songwriters too? If you answer, do you riskliability to Ahab, Dwight and Einstein? Should you answer,if your answers might help Ahab, Dwight and Einstein getmore of their own songs on the record, thereby diluting thenumber of Bonnie and Clyde’s songs on the record andconsequently their revenue stream?

9. Two years later Bonnie and Clyde finally “get it,” andthey want Ahab, Dwight and Einstein out of the band. Ifyou represented Desert Soul as a partnership with fivepartners, can you now represent Bonnie and Clyde innegotiations with the existing partners?

Example 3

Your client has already negotiated a deal with another party.All issues about who represents whom have been resolved.All the client needs now is a simple three page contractpapering the transaction. After you agree to draft anddeliver the contract for a low flat rate, the deal blows up. Itwill now require several hours of negotiations and additionaldrafting, editing and revisions to finish the project. You

inform the client how much it is going to cost, and the clientrefuses to pay for the additional work.

1. If you have already finished the final contract beforethe client refuses to pay, can you refuse to deliver thecontract?

2. If the client demands a complete copy of his or her file,including the contract, but has refused to pay, can yourefuse to provide the file or copies?

3. If, over the life of the project, you have previouslycopied the client on everything (but the client claims to havelost his or her copy) is it appropriate to refuse unless theclient pays for the copies?

4. What if the blowing up of the deal was not the client’sfault? What if it was?

5. What if the deal blew up because of issues you raisedthat the client believes are not important? What if, in yourprofessional judgment, they are more important than theclient realizes, and essential to the deal?

6. What if the client insists that the new issues you haveraised be left out of the contract because they are going tocost additional money? What if the client also does notwant to incur additional fees for having the issues explainedto him, verbally or in writing?

Example 4

You previously performed work for a major publishingcompany, Antitrust, Inc., on a couple of minor projects.You always hoped you could land some of their majorwork, but have not yet been able to beat out your largercompetitors. Nevertheless, you have maintained a goodrelationship with Antitrust, Inc.’s decision makers, and hopedown the line to receive some of their larger business. In themeantime, you have the current opportunity to represent aSongwriter in negotiating his contract with Antitrust, Inc.

1. Can you represent Songwriter in negotiatingSongwriter’s contract with Antitrust, Inc.?

2. Must you disclose to the songwriter that you havepreviously represented Antitrust, Inc. on unrelated matters?

3. Must you disclose to the Songwriter that you havecontinued to “shmooze” Antitrust, Inc. unsuccessfully forbusiness?

4. What disclosures do you need to make to Antitrust,Inc. before you represent Songwriter in negotiations withAntitrust, Inc.?


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5. Do the answers to Questions 2 and 3 change ifAntitrust, Inc. referred the Songwriter to you, and youwould like future referrals from Antitrust, Inc. if you cannothave their larger business?

6. What if Songwriter later wants to sue Antitrust, Inc.?Can you represent Songwriter in that case?

7. Assume the Songwriter has no track record, and if he“makes waves” on this contract, it may very well blow thedeal, ending his career before it even starts, and labeling hima “problem.”

a. Can you separate Songwriter’s need not to “makewaves” from your own need not to “make waves,” becauseyou want Antitrust, Inc.’s business or future referrals?

b. Do you have to disclose to Songwriter that youare having to differentiate between his need and your neednot to “make waves?”

Example 5

You represent a singer/songwriter whom you believehas a great future, but who currently cannot afford yourservices. You keep track of your time hourly, but youanticipate carrying the fees for years before you ever see adime from her.

1. Can you take a percentage of her first record deal?

2. What percentage would be appropriate? Does it matterhow many hours you worked and whether or not they wererelated to getting her the deal? Can you “value-add,” basedon the relationship between your efforts and the fact she gotthe deal, or on the length of time you had to wait?

3. Can you take a percentage of any of her other revenuestreams? Her publishing? Her live performance revenue?Her life story? Can you “value-add?” Does there have to bea relationship between your work and the specific project?

4. Do you have to disclose up front which potentialsources of revenue you may take an interest in? Does ithave to be in writing?

5. What if you got her the record deal, which bombed,but she got the publishing deal on her own, which has nowtaken off because she knows George Strait and BarbraStreisand, and they think she is a great songwriter? Do youhave any rights in the publishing deal?

Documents

ETHICS RELOADED! AVOIDING AND DEFENDING MALPRACTICE …