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Ethics & Professional Responsibility FLASHPOINTS June 2024

Terrence P. McAvoy, J. Ryan Head & Katherine G. Schnake
Lawyers for the Profession, Hinshaw & Culbertson LLP, Chicago
312-704-3000 | E-mail Terrence P. McAvoy | E-mail J. Ryan Head | E-mail Katherine G. Schnake

Texas Court of Appeals Affirms Summary Judgment in Favor of Attorney Due to Plaintiff’s Failure To Show “But For” Proximate Cause in Transactional/Contract Setting

In Forshee v. Moulton, NO. 14-22-00781-CV, 2024 WL 1559714 (Tex.App. April 11, 2024), the Texas Court of Appeals held that when a plaintiff’s claim against his or her former attorney properly sounds in professional negligence, the plaintiff cannot also bring a breach of fiduciary duty claim against the attorney. Further, the court ruled that a legal malpractice plaintiff must prove that his or her lawyer’s negligence was the proximate cause of cognizable damages and, in situations regarding contract formation, that the other contracting party would have agreed to the additional or changed contractual terms.

Complete Summary

This dispute arose from a 2014 transaction that merged certain real estate businesses. Plaintiff Paula Forshee owned and operated a property management company. The plaintiff was represented by the defendant. In June 2014, the plaintiff entered into a series of contracts with Alan Schnur and David Anderson, who owned a number of apartment complexes for investment purposes. The series of contracts executed between the plaintiff, Schnur, and Anderson essentially merged their businesses and formed a new entity to solicit new investors to purchase additional properties. The plaintiff alleged that her attorney, the defendant, represented not only the plaintiff but also Schnur and Anderson during the contract negotiations and drafting.

Schnur and Anderson terminated the contracts effective in March 2015. The plaintiff sued Schnur, Anderson, the defendant, and several other entities, asserting a number of contract and tort claims. The plaintiff settled her claims against Schnur, Anderson, and their related entities, but she continued with her claims against the defendant for breach of fiduciary duty and professional negligence. The plaintiff alleged that the defendant failed to exercise ordinary care and had various undisclosed conflicts of interest. Specifically, the plaintiff alleged that the contracts were negligently drafted and allowed Schnur and Anderson to “circumvent” or “cut out” the plaintiff from future deals. 2024 WL 1559714 at *1. The plaintiff claimed that the defendant did not draft the contracts herself but engaged another law firm to draft the contracts without the plaintiff’s consent. The plaintiff also alleged that the defendant had financial interests in the apartment properties, and if the defendant had disclosed her conflicts, the plaintiff would have hired new counsel and benefited from more favorable contract terms.

The defendant moved for summary judgment and argued that she had no attorney-client relationship with the plaintiff, that the plaintiff was impermissibly splitting her professional negligence claim, and that the evidence established that the defendant did not breach any duty. The trial court granted the defendant’s motion, and the plaintiff appealed.

The appellate court first considered whether the plaintiff’s claims against Moulton properly sounded in negligence alone or whether the plaintiff also alleged an independent claim for breach of fiduciary duty. In summary, Texas has a rule called the “anti-fracturing rule.” 2024 WL 1559714 at *2. A claim pled in the alternative to a negligence claim is barred by the anti-fracturing rule if the “crux of the alternative claim focuses on the quality or adequacy of the professional’s representation.” 2024 WL 1559714 at *3. Texas courts have generally held that a fiduciary duty claim focuses on “whether an attorney obtained an improper benefit from representing the client,” while a negligence claim focuses on “whether an attorney represented a client with the requisite level of skill.” Id. The plaintiff argued that she had an attorney-client relationship with the defendant and that the defendant breached her fiduciary duty by undertaking the representation “fraught with conflicts of interest” and by hiring a separate law firm to draft the agreements. Id. The court held that the plaintiff’s allegation that the defendant hired another law firm to draft the agreements sounded in negligence, not a breach of fiduciary duty. The court held that simultaneous representation, without more, did not constitute a breach of fiduciary duty, noting that the plaintiff failed to show that the defendant obtained any improper benefit or placed her own pecuniary interests over the plaintiff’s interests.

Next, the court noted that to prevail on a professional negligence (legal malpractice) claim, the plaintiff must prove (1) duty, (2) breach of duty, (3) proximate cause, and (4) damages. The components of proximate cause consist of cause-in-fact and foreseeability. Cause-in-fact requires a showing that the act or omission was a substantial factor in bringing about the injury and without which harm would not have occurred. Thus, the cause-in-fact standard requires that the act or omission not only be a substantial factor but also a “but for” cause of the injury. The plaintiff argued that the defendant’s negligence put her at a significant disadvantage in the lawsuit and caused her to recover a lower settlement amount from Schnur, Anderson, and their companies. The defendant argued that the plaintiff failed to show that the plaintiff that the other contracting party would have agreed to the additional or changed contract terms, which would have been more favorable to the plaintiff. The court agreed and affirmed summary judgment in the defendant’s favor.

Significance of Decision

This decision once again demonstrates that a plaintiff in a legal malpractice action must establish that the attorney’s alleged negligence is the proximate cause of his or her damages. Also, in a transactional or contract setting, a plaintiff must show that but for the defendant’s alleged negligence, the other party would have agreed to different terms that would have been more favorable for the plaintiff, a difficult burden.

For more information about ethics and professional responsibility, see ELEMENTS OF ILLINOIS LAW: PRACTICING ETHICALLY (2023). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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