NFTD, LLC F/K/A BERNARDO GROUP, LLC; BERNARDO HOLDINGS, LLC; PETER J. COOPER; AND JACQUELINE MILLER, Appellants
HAYNES & BOONE, LLP AND ARTHUR L. HOWARD, Appellees
Appeal from the 269th District Court Harris County, Texas
Trial Court Cause No. 2015-10626
consists of Justices Christopher, Hassan, and Poissant.
NFTD, LLC f/k/a Bernardo Group, LLC, Bernardo Holdings, LLC,
Peter J. Cooper, and Jacqueline Miller appeal the grant of
(1) a summary judgment and (2) a plea to the jurisdiction in
favor of Appellees, Haynes & Boone, LLP and Arthur L.
Howard. We reverse and remand, holding that attorney immunity
does not apply in a business transaction.
appeal stems from a lawsuit relating to business asset sales
and involving, among other parties, three consecutive owners
of the Bernardo women's footwear company, investor
Jacqueline Miller, attorney Arthur Howard, and the law firm
Haynes and Boone, LLP (who represented the first owners in
the sale of the company's business assets to the second
owners). Appellants and Appellees refer to the
relevant parties as follows:
• Bernardo 1 (Owner No. 1): TEFKAB Footwear, LLC f/k/a
Bernardo Footwear, LLC, Wilma Jean Smith, and Cynthia Smith
(third-party defendants in the trial court);
• Bernardo 2 (Owner No. 2): NFTD, LLC f/k/a Bernardo
Group, LLC, Bernardo Holdings, LLC, and Peter J. Cooper
(defendants and third-party plaintiffs in the trial court and
• Bernardo 3 (Owner No. 3): JPT Group, LLC (plaintiff);
• The Lawyers: Haynes and Boone, LLP and Arthur Howard
(third-party defendants in the trial court and Appellees
• The Investor: Jacqueline Miller (intervenor in the
trial court and an Appellant herein).
1 was owned by Roy R. Smith, Jr., his wife Wilma Jean Smith,
and designer Dennis Comeau. Roy R. Smith, Jr. died in 2002,
leaving one half of his estate to his daughter Cynthia Smith
and the other half of his estate to his son Roy R. Smith, III
(known as "Trae") and Trae's three children.
After Roy Smith, Jr.'s death, Trae started managing the
2008, Jean, Cynthia, and Dennis were concerned about
Trae's management of the company. In August 2009, they
hired Haynes and Boone and Howard to "represent the
Company and communicate concerning any and all business,
financial and legal matters related to the Company." On
the same day, Howard terminated Trae's employment with
the company. Dennis and Jean removed Trae as the managing
member of Bernardo 1, and they started serving as managers.
1's managers engaged Howard to conduct an internal
investigation of the company and prepare an
"investigative report." Bernardo 1's outgoing
attorney, James Hanson, sent a memorandum to Howard to
provide an "update/status of legal matters and issues of
client [Bernardo 1]" in September 2009. In the
memorandum, Hanson disclosed, among other things, that
another attorney (who is not a party to this case) had
brought a "design infringement claim relating to
Olem's knock off of [Bernardo 1]'s Miami sandal"
on behalf of Bernardo 1, but had to dismiss the suit after
learning in discovery that Bernardo 1's "patent
applic[ation] filing was tardy." Hanson also disclosed
that another attorney had filed a legal malpractice suit in
Maryland against attorneys "on the Miami Sandal late
filing," and Hanson advised Howard to check with Trae
whether the suit was still pending.
averred in an affidavit that he discussed Bernardo 1's
legal malpractice suit against its former patent and
intellectual property attorneys on several occasions with
Arthur Howard in August and September 2009. Specifically, he
alleged Bernardo 1's "former patent/IP lawyers had
messed up several design patents, of which [Dennis] was the
inventor, by filing the patent applications too late."
Howard denied that he had knowledge about the allegations
Bernardo 1 made in the Maryland malpractice suit or that
there were potential issues with several of Bernardo 1's
August 2010, managers Dennis and Jean signed a resolution to
sell Bernardo 1's assets and authorized Dennis and Haynes
and Boone to "immediately pursue the potential sale of
the Company or its assets." Howard prepared a
confidential business profile in November 2010. The profile
contained statements about Bernardo 1's intellectual and
intangible property, such as, "Bernardo Footwear owns
intellectual property in many forms, including patented,
trademarked, and copyrighted properties." The profile
also listed numerous trademarks and patents, including
patents that were allegedly unenforceable and
"worthless" because the applications were filed
knew Bernardo 2 co-owner Peter Cooper from college, so a
business profile was sent to Peter and Todd Miller (the other
co-owner of Bernardo 2), in February 2011. Bernardo 2 was
interested in buying Bernardo 1's assets and negotiations
continued for several months; Bernardo 1 was represented by
Howard while Bernardo 2 was represented by its own counsel.
According to Bernardo 1, with regard to due diligence
surrounding the 2011 asset sale, Bernardo 2 had access to
records, including a box of materials related to the Maryland
malpractice suit, during the negotiation process.
to Todd Miller, he had many conversations with Bernardo 1 and
Howard and he was never told "Bernardo 1 had filed a
malpractice lawsuit against its Maryland patent lawyers,
alleging that a number of its valuable patents were filed too
late and [were] thus unenforceable and/or invalid." Todd
Miller averred in his affidavit that Howard never told him
"there were issues with several of Bernardo 1's
design patents that would have prevented a future owner of
those assets from being able to enforce the patent rights for
various sandals that it sold." He also averred Howard
told him several times "that he wanted to represent
Bernardo 2 if Bernardo 2 ended up acquiring the Bernardo
1 and Bernardo 2 signed an asset purchase agreement in
September 2011 (the "2011 APA"), under which
Bernardo 2 acquired all of Bernardo 1's assets for a $3
million payment at closing and potential earn-out payments
based on Bernardo 2's performance over several years.
Bernardo 2 ran the business for a few years and then sold the
assets (including "all of the copyrights, trademarks,
patents, and other intellectual property") to Bernardo 3
in early 2014. Later that year, Bernardo 3 allegedly
attempted to enforce its rights for seven women's shoes
design patents that it purchased as part of the asset sale,
but "it discovered that five of those seven patents were
worthless, having previously been declared invalid years
before" its asset purchase from Bernardo 2 in 2014.
3 sued Bernardo 2 in February 2015 for breach of contract and
breach of warranty. It alleged that despite Bernardo 2's
warranty that all its patents were enforceable and valid, the
five most valuable design patents were all invalid based on
untimely patent applications.
2 then asserted third-party claims against Bernardo 1 for,
among other things, breach of the 2011 APA,
misrepresentation, and fraud. Bernardo 2 also filed a
third-party petition against the Lawyers, alleging
negligence, negligent misrepresentation, fraud, and fraud in
the inducement (arising from the Lawyers' alleged
concealment and false representations regarding the validity
of design patents).
Miller (an investor in Bernardo 2) filed a petition in
intervention asserting fraud and negligent misrepresentation
claims against Bernardo 1 and the Lawyers. Miller alleged she
relied on representations made in the business profile Howard
drafted for Bernardo 1 and other representations regarding
the validity of design patents made during the negotiations
of the 2011 APA.
Lawyers moved for summary judgment based on their asserted
attorney immunity defense, arguing that attorney immunity
barred Bernardo 2's fraud claim and Miller's claims
in intervention for fraud and negligent misrepresentation.
The Lawyers argued attorney immunity applies not only in the
litigation context but also in a transactional setting, and
their actions in this case were ...