V&E Law Firm Defense Team’s Annual Review of Texas Professional-Liability Opinions

1. The Texas Supreme Court Allowed a Bankruptcy Court Assignment of the Proceeds of a Legal Malpractice Claim, But Remanded the Case for a New Trial Because the Plaintiff’s Expert Testimony on Damages was Conclusory.

Henry S. Miller Commercial Company v. Newsom, Terry & Newsom, LLP, No. 22-1143, 2024 WL 5249801 (Tex. Dec. 31, 2024)

In a lengthy opinion delivered on the last day of the year, the Texas Supreme Court issued new guidance on two critical issues that will have a substantial impact on future professional liability cases in Texas: (1) whether a debtor in federal bankruptcy court can assign to its creditor the proceeds of its legal malpractice claim without violating Texas public policy prohibiting the assignment of legal malpractice claims; and (2) the expert testimony required to prove what a jury would have done in a hypothetical lawsuit devoid of the attorney’s alleged malpractice, routinely referred to in Texas as the “case within a case.”

The law firm here defended a client in an underlying jury trial, which resulted in a verdict against the law firm’s client. Unable to pay the judgment, the client ended up in bankruptcy, during which the client reached an agreement to share with its former adversary a portion of the proceeds of its legal malpractice claim against the law firm. The agreement included a requirement that the adversary “support” the malpractice suit and gave the adversary the right to consent to any settlement under a specific dollar amount.

In the client’s malpractice case, the client argued that, in the underlying lawsuit, the firm failed to timely designate another individual as a “responsible third party,” which under Texas procedure would have allowed the jury to apportion a percentage of liability to the third party and thus proportionally reduced the client’s ultimate liability. At trial, the client presented testimony from his adversary’s counsel and another expert who both opined – based solely on their subjective experience – that had the law firm timely designated the responsible third party, the jury would have apportioned 85% to 100% of the liability to the third party, substantially reducing or eliminating the client’s liability. The jury in the malpractice suit ultimately found the law firm was negligent in failing to timely designate the responsible third party and proximately caused the entire amount of the judgment against the client.

In addressing whether the bankruptcy agreement was an invalid assignment of a legal malpractice claim, the Texas Supreme Court recognized that the agreement caused a “pernicious distortion of positions” – including the adversary’s counsel essentially switching sides in testifying that his former adversary (against whom he previously argued sole liability) should not have been held liable. Despite this side-switching, the court declined to bar the claim because the client continued to assert the malpractice claim in its own name, retained substantial control of the litigation, and the jury was adequately informed about the distortion of positions.

In addressing whether the evidence was sufficient for the jury to find that the firm proximately caused the entire judgment, the court found that the client’s expert testimony that the jury would have apportioned 85% to 100% of the liability to the third party was conclusory because it was based solely on the witnesses’ subjective experience. Instead of rendering judgment in favor of the firm, however, the court made the surprising decision to remand the case for a new trial, because the court concluded that there was some evidence that the firm caused damages (but insufficient evidence to determine the proper amount of damages).

In a concurring opinion, Justice Evan Young noted that the “position-switching” in this case was “troubling,” and although he agreed that it did not rise to the level of an invalid assignment, he raised the possibility that, in future cases like this, the standard of proof could be raised to clear and convincing evidence to make sure “the malpractice was genuine and harmful and not just a post hoc spin by lawyers.”

In a dissenting opinion, Justice Jane Bland criticized the majority’s decision to remand the case for a new trial. Justice Bland argued the court should have rendered judgment for the firm because the lack of evidence was not “a partial failure of damages evidence,” but rather a lack of causation evidence. According to Bland, “no legal expert, even with decades of sophisticated experience, could testify as to an amount that a hypothetical jury in the underlying fraud case would have awarded had [the third party] been designated,” and thus the client could never prove causation.

2. The Dallas Court of Appeals Affirmed the Dismissal of a Bankruptcy Trustee’s Assigned Claims Because of a Flawed Assignment and Affirmed Dismissal of Its Direct Claims Based on Several Common Defenses.

Willow Tree Consulting Group, LLC v. Perkins Coie, LLP, No. 05-23-00264-CV, 2024 WL 575263 (Tex. App.—Dallas Feb. 13, 2024, pet. denied)

In affirming summary judgment in favor of the law firm, this opinion tackled several issues that commonly arise when a bankruptcy trustee attempts to bring claims against the debtor’s pre-petition law firm for purportedly failing to stop the debtor’s wrongful business practices.

Here, in what has become a common strategy, the bankrupt debtors’ creditors tried to assign their claims against the law firm to the bankruptcy trustee. The court found, however, that the assignment was ineffective to transfer the creditors’ pre-petition claims because the assignment expressly prohibited the trustee from pursuing any claims against “Exculpated Parties,” and the law firm – which also had served as post-petition bankruptcy counsel – was an Exculpated Party by definition, even though the exculpation applied only to post-petition conduct. Importantly, the court rejected the trustee’s belated attempt to fix the flaw through a post-suit amended assignment and held that standing was determined solely at the time of filing.

The court next turned to the trustee’s direct claims. The court dismissed the trustee’s breach-of-fiduciary-duty claim because the trustee failed to show that the law firm received an improper benefit beyond the mere receipt of attorneys’ fees. The court also dismissed the trustee’s legal malpractice claim as time barred holding that: (1) the discovery rule could not toll limitations because the debtor (including a purported “innocent insider”) received notice of its potential wrongdoing outside the limitations period; and (2) adverse domination could not toll limitations because the doctrine applied to toll limitations only as to officers and directors who adversely dominated a corporate entity, not to outsiders such as a law firm. Finally, the court dismissed the trustee’s fraudulent-transfer claim because it argued only that the law firm’s services were not worth the fees paid, and thus was barred by the Texas Anti-Fracturing Rule, which prohibits a plaintiff from converting a legal malpractice claim into different causes of action.

The Texas Supreme Court declined to review this decision.

3. The Beaumont Court of Appeals Held That an Out-of-State Law Firm Was Not Subject to Personal Jurisdiction in Texas for Having Communications with a Prospective Texas Client About a Texas Matter.

Oshman v. Wilkison, No. 09-23-00201-CV, 2024 WL 1100005 (Tex. App.—Beaumont Mar. 14, 2024, pet. filed)

Here, the out-of-state firm’s website advertised that it handled personal injury cases in all 50 states and invited potential clients to submit online case evaluation forms. The plaintiff, a Texas resident, submitted a form regarding a potential wrongful death matter in Texas. Lawyers at the firm had follow-up communications with the plaintiff and asked plaintiff to submit various other documents from Texas. Ultimately, the firm declined to take the matter. The plaintiff sued the firm in Texas arguing that the firm failed to properly advise plaintiff about a looming limitations issue.

Reversing the trial court on an interlocutory appeal, the court found that the firm was not subject to personal jurisdiction in Texas and rejected several arguments routinely employed to establish jurisdiction over an out-of-state firm. Among other things, the court held: (1) legal work done out of state did not establish jurisdiction in Texas, even if done on behalf of a Texas resident; (2) mere communications between an out-of-state firm and a Texas resident did not establish jurisdiction in Texas; (3) a firm website that is accessible to Texas residents did not establish jurisdiction in Texas when it was nationally accessible; and (4) discussing a prospective Texas matter with a Texas resident did not establish jurisdiction in Texas because the matter was never filed.

The plaintiff has asked the Texas Supreme Court to review this decision, but the Texas Supreme Court has not decided if it will grant a discretionary review.

4. The Houston Fourteenth Court of Appeals Held That a Law Firm Was Subject to Personal Jurisdiction in Texas for Work on an Out-of-State Matter Because It Solicited the Client (and its Affiliates) for Unrelated Work in Texas.

Akerman, LLP v. Landry’s Seafood House-Florida, Inc., No. 14-23-00778-CV, 2024 WL 5051198 (Tex. App.—Houston [14th Dist.] Dec. 10, 2024, no pet. h.)

This opinion reached the startling conclusion that a Florida-based law firm was subject to personal jurisdiction in Texas for alleged legal malpractice committed when Florida attorneys performed legal services in Florida for a Florida-based plaintiff on a matter involving Florida real estate. The court acknowledged that no legal work on the underlying matter was performed in Texas, that the client was the one who reached out to the Florida attorneys for representation on the underlying matter, and that, although the firm had Texas offices, no Texas attorneys were involved in the underlying matter. Despite these facts, however, the court found the firm was subject to personal jurisdiction in Texas because there was evidence that the firm previously solicited unrelated work in Texas from the client and its Texas-based affiliated companies and that these solicitation efforts led to the firm’s hiring on the underlying matter.

The time period for the law firm to request a discretionary review by the Texas Supreme Court has not passed.

5. The Tyler Court of Appeals Held That a Legal Malpractice Plaintiff Must Have Expert Testimony on Causation, Even When Arguing a “Lost-Settlement-Opportunity” Theory.

Chamblee Ryan, P.C. v. JBS Carriers, Inc., 691 S.W.3d 797 (Tex. App.—Tyler 2024, no pet.)

The law firm here was hired to defend a client in an underlying personal injury case, which culminated in an adverse jury verdict against the client. The client subsequently alleged that, at various times throughout the litigation, the firm failed to properly evaluate and advise the client about the risks and potential liability of the underlying case, which caused the client to lose the opportunity to settle the case for a cheaper amount. The client presented testimony from its litigation adversary that the adversary would have accepted a cheaper settlement and its own testimony that it would have accepted the cheaper settlement if it had been properly advised of the risks, but no expert testimony was submitted on this causation theory.

The court rejected the plaintiff’s reliance on lay witnesses to establish causation in this case. The court noted that to allow the underlying parties, as interested witnesses, to opine on the appropriate settlement with the benefit of hindsight was not consistent with Texas legal malpractice law, which generally requires expert testimony on causation. Because the plaintiff did not have expert testimony comparing reasonable settlements in similar cases, the court reversed the trial court judgment and rendered judgment for the firm.

The plaintiff did not ask the Texas Supreme Court to review this decision.

About V&E’S Law Firm Defense Team

When lawyers need a lawyer – for themselves or their clients – they call Vinson & Elkins’ Law Firm Defense team to appear in trial and appellate courts anywhere our clients need us to be. Our “go-to” experienced team defends local, regional, and international law firms in litigation and arbitrations, disqualification proceedings, disciplinary actions, and fee disputes. Such matters include claims alleging malpractice, conflicts of interest, conspiracy, deceptive practices, fraud, RICO, and breach of fiduciary duties in substantive areas including antitrust, appellate practice, bankruptcy, copyrights, corporate transactions, criminal law, employment law, environmental law, estate planning, financial services, franchising, intellectual property, litigation, patents and trademarks, personal injury, real estate, securities, tax, trial, and wills and trusts.

Below are Co-Heads of V&E’s Law Firm Defense Team: