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Rogers v. Zanetti

Supreme Court of Texas

April 28, 2017

James O. Rogers, William A. Burmeister, Conservative Care, Inc. and Care Affiliates, Inc., Petitioners,
Victor B. Zanetti, Charles L. Perry and Andrews Kurth, LLP, Respondents

          Argued January 11, 2017

         On Petition for Review from the Court of Appeals for the Fifth District of Texas

          Justice Guzman did not participate in the decision.



         This appeal concerns a summary judgment in a legal-malpractice action. The court of appeals affirmed the summary judgment in the defendant attorneys' favor, concluding that no summary-judgment evidence existed to raise a fact issue as to causation, an essential element of the clients' malpractice claim. ___ S.W.3d ___ (Tex. App.-Dallas 2015) (mem. op.). We agree and affirm.

         I. Background

         The underlying malpractice action arises out of a failed investment by James Rogers in a home-healthcare company. The company was initially funded by its founding members: Daniel Alexander; his wife, Leslie Alexander; and Judith Pucci. After creating a limited liability company and obtaining the necessary licenses, the founding members began operations as Accent Home Health in 2002. By the end of the year, Accent was making a profit and came to Rogers' attention.

         Rogers contacted Accent's founders, expressing an interest in their business. Rogers represented himself to be the owner of outpatient clinics with substantial contacts in the medical community. He also represented himself as an active investor with substantial resources and an interest in helping Accent grow its business. He told the founders that his background and connections would greatly enhance Accent's potential and that he and his other companies could provide administrative services to the growing company. Probably of most significance to the founders, Rogers represented that he had money to commit to Accent's expansion. Rogers offered to provide his services and a financial commitment of $250, 000 in return for a majority interest in Accent's future business. The founders eventually agreed to these terms, and Rogers had his attorney, Victor Zanetti, draft an investment agreement.

         Rogers obtained the founders' signatures to the agreement and thereafter gained access to Accent's financial accounts. At about this same time, Rogers introduced Accent's founders to William Burmeister, a certified public accountant and the chief financial officer of Rogers' other healthcare entities. Burmeister subsequently assumed control of Accent's receivables and other financial matters, freeing the founders to devote their full time and attention to expanding the business's healthcare services.

         Rogers, however, did not follow through with his financial commitment to the business but instead began to draw on Accent's accounts. After he transferred substantial sums from Accent's bank to another bank account that only Rogers controlled, the founders became concerned. They demanded access to the accounts in Burmeister's hands and to the new bank account established by Rogers. After obtaining additional information about Rogers' activities, including his failure to financially support the business as promised, the founders hired an attorney and filed suit. The lawsuit named Rogers and Burmeister as defendants and asserted claims of fraud, conversion and civil theft, civil conspiracy, and breach of fiduciary duty. The founders further sought a declaratory judgment that the investment agreement with Rogers was void, or alternatively that Rogers had breached the agreement. Two of Rogers' companies that received some of Accent's funds were also joined as defendants.

         After Rogers was sued, he asked his attorney, Zanetti, for a trial-attorney recommendation. Zanetti recommended Charles Perry, and Rogers hired Perry to defend the Alexander case. Zanetti knew Perry well because they practiced law together at the Andrews Kurth law firm. At some point before trial, Andrews Kurth recommended that Rogers find new defense counsel, which he did.

         A jury trial ensued. The jury found Rogers had defrauded Accent's founders and that Burmeister and Rogers' two companies had knowingly participated. The trial court rendered judgment on the verdict, awarding the damages found by the jury. In its final judgment, the trial court also declared the investment agreement void because it was procured by fraud, was unconscionable, and lacked consideration. The court of appeals thereafter affirmed the trial court's judgment in Rogers v. Alexander, 244 S.W.3d 370 (Tex. App.-Dallas 2007, pet. denied) (the "Alexander case").

         Several years later, Rogers and the other defendants in the Alexander case (hereafter referred to as "Rogers")[1] sued their former defense attorney, Perry; the attorney who drafted the investment agreement, Zanetti; and the law firm at which they both practiced. Rogers alleged in the malpractice suit that Perry should not have accepted employment as his defense counsel because Perry's existing relationship with Zanetti and their law firm, Andrews Kurth, created a conflict of interest. Rogers further contended that the conflict caused Perry not to designate Zanetti and Andrews Kurth as responsible third parties in the Alexander case, demonstrating that Perry was more interested in protecting his associate, Zanetti, from the consequences of the negligently drafted investment agreement than he was in defending Rogers. And although Perry withdrew from the defense before the case was tried, Rogers complained that Perry's negligence had already compromised his defense by that time. Rogers submits that Perry's negligence during the Alexander case included Perry's failure to advise Rogers of a settlement offer that might have ended the litigation, Perry's failure to designate a rebuttal expert on Accent's value that led to an excessive damages award, and Perry's engagement in discovery misconduct that prejudiced Rogers' defense. Rogers also alleged breach of fiduciary duty and sought disgorgement of the fees paid to his attorneys.

         Rogers' former lawyers answered and moved for summary judgment. They argued, among other grounds, that there was no evidence of causation, that the fraud finding in Alexander and collateral-estoppel principles barred Rogers' malpractice claim as did the statute of limitations, and that Rogers' fiduciary-breach claims were merely restated negligence claims. After Rogers' response and a hearing on the motion, the trial court rendered summary judgment for the lawyers without specifying the grounds. Rogers appealed, and the court of appeals affirmed. See ___ S.W.3d at ___, ___.

         II. The Court of Appeals' Decision

         The court of appeals identified the principal appellate issue as whether Rogers, in responding to the lawyers' no-evidence motion, raised a genuine fact issue on the causation element of his malpractice claim. Id. Holding that Rogers failed to raise such a fact issue, the court affirmed the summary judgment. See ___S.W.3d at ___. In making that determination, the court analyzed Rogers' causation evidence in the context of his various negligence complaints. Rogers alleged that (1) Zanetti's negligence in drafting the investment agreement caused the adverse Alexander judgment, id. at ___; (2) Perry's failure to raise a proportionate-responsibility defense caused Rogers' injury, id. at ___; (3) Perry's failure to communicate a settlement offer caused Rogers' injury, id. at ___; (4) Perry's failure to designate a damages expert to rebut the Alexanders' damages model caused Rogers' injury, id. at ___; and (5) Perry's misconduct during discovery caused Rogers to lose the Alexander case, id. at ___.

         To prove a legal-malpractice claim, the client must establish that: (1) the lawyer owed a duty of care to the client; (2) the lawyer breached that duty; and (3) the lawyer's breach proximately caused damage to the client. Stanfield v. Neubaum, 494 S.W.3d 90, 96 (Tex. 2016). A lawyer can be negligent and yet cause no harm. And, if the breach of a duty of care does not cause harm, no valid claim for legal-malpractice exists. See, e.g., Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 119 (Tex. 2004) (noting that "an abundance of evidence as to [breach] cannot substitute for a deficiency of evidence as to [causation]"). In brief, that is the court of appeals' holding in this case: Rogers failed to raise a fact issue about whether the lawyers' claimed negligence caused his injury.

         The parties do not argue about duty or breach here, and thus we assume for purposes of this appeal that the lawyers' alleged conduct fell below the standard of care. The issue is simply whether Rogers' summary-judgment evidence raised a material fact issue as to causation. ___ S.W.3d at ___. And although causation is typically a question of fact, it may be determined as a matter of law when reasonable minds could not arrive at a different conclusion. Mo. Pac. R.R. Co. v. Am. Statesman, 552 S.W.2d 99, 105 (Tex. 1977); Green v. McKay, 376 S.W.3d 891, 898 (Tex. App.-Dallas 2012, pet. denied).

         III. The Legal-Malpractice Claims

         When a legal-malpractice case arises from prior litigation, the plaintiff must prove that the client would have obtained a more favorable result in the underlying litigation had the attorney conformed to the proper standard of care. Elizondo v. Krist, 415 S.W.3d 259, 263 (Tex. 2013). "The traditional means of resolving what should have happened is to recreate the underlying case." 4 Ronald E. Mallen, Legal Malpractice § 33:7 at 673 (2017). This re-creation is typically referred to as the "case-within-a-case" or "suit-within-a-suit" and "is the accepted and traditional means of resolving the issues involved in the underlying proceeding in a legal malpractice action." Id. at § 37.87 at 1695. Where the injury claimed does not depend on the merits of the underlying action, however, the case-within-a-case methodology does not apply. See id. (listing examples such as a lawyer's misappropriation or misallocation of settlement proceeds); see also Elizondo, 415 S.W.3d at 270 (concluding that "'suit within a suit' analysis is not required in a [malpractice] case" alleging negligent settlement).

         Rogers' primary argument here is that we should not apply this standard because it is generally unfair and specifically inappropriate for most of his malpractice claims. Rogers narrows those claims in this Court to four allegations of negligence, arguing that our traditional case-within-a-case methodology should not apply to (1) Zanetti's drafting errors in the investment agreement, (2) Perry's failure to join Zanetti and his law firm as responsible third-parties in the Alexander litigation, (3) Perry's failure to designate an expert to rebut the Alexanders' valuation of Accent, and (4) Perry's failure to communicate a settlement opportunity in the Alexander litigation. Rogers asserts that each of these errors contributed to his damages and that the court of appeals erred in holding otherwise. We consider Rogers' arguments in the context of his various malpractice complaints.

         A. Did either negligence in drafting the investment agreement or the failure to raise a proportionate-responsibility defense cause Rogers' harm?

         Because the findings in the Alexander case are material to both of these complaints, we consider them together. In Alexander, the jury determined that Rogers defrauded Accent's founders, and the trial court rendered judgment on the jury's verdict. The court of appeals thereafter affirmed, concluding that the "case involved a course of fraud that led up to a void investment agreement." Alexander, 244 S.W.3d at 390. In their motion for summary judgment, the lawyers argued that Alexander's fraud finding conclusively negated the element of proximate causation in these malpractice claims.

         Rogers argues, however, that Zanetti's drafting error was transactional malpractice that contributed to his ultimate loss and was, at least in part, a cause of his ultimate damages. Rogers argues further that this transactional malpractice requires a separate causation analysis that should be measured under a more relaxed "substantial factor" test. Although Rogers does not otherwise explain his preferred test, he concludes that, under this relaxed standard, evidence of causation exists irrespective of the fraud findings in Alexander.

         Citing our summary-judgment rule, the defendant lawyers respond that Rogers' argument for a new causation standard should "not be considered as grounds for reversal" here because it was not raised below. See Tex. R. Civ. P. 166a(c) ("Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal."). But the lawyers also contend that Rogers cannot prevail even under his proposed new test because Zanetti's alleged drafting errors did not in fact cause him any harm. The lawyers submit that the judgment in Alexander, which held that Rogers' antecedent fraud voided the investment ...

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