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A LAWYER’S DUTIES OWED TO CLIENTS, PROSPECTIVE

CLIENTS, AND NONCLIENTS

CHARLES HERRING, JR.

Herring & Irwin, L.L.P.

701 Brazos Street, Suite 650

Austin, Texas 78701

(512) 320-0665

(512) 320-0931

State Bar of Texas

BUSINESS TORTS INSTITUTE

October 28-29, 2010

Dallas

CHAPTER 22

A Lawyer’s Duties Owed to Clients,Prospective Clients, and Nonclients Chapter 22

TABLE OF CONTENTS

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. DUTIES OWED TO PROSPECTIVE CLIENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. THE PRIVITY RULE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV. WHEN DOES AN ATTORNEY-CLIENT RELATIONSHIP EXIST? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

V. WHEN DOES THE DUTY END? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

VI. NEGLIGENT MISREPRESENTATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

VII. EQUITABLE SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

VIII. DUTY TO WARN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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A LAWYER’S DUTIES OWED TOCLIENTS, PROSPECTIVE CLIENTS,AND NONCLIENTS

I. INTRODUCTION.All lawyers know that they owe duties to clients, but

many lawyers are less certain about duties owed toprospective clients and nonclients. This article focuses onsome of the duties owed to clients, prospective clients, andnonclients.1

II. DUTIES OWED TO PROSPECTIVE CLIENTS.At this writing, the Texas Supreme Court has

proposed amendments to the Texas Disciplinary Rules ofProfessional Conduct. The State Bar Board is scheduledto vote on those proposals on October 1st. The currentexpectation is that a State Bar referendum vote will occurat the end of this year or early next year. One of theproposals is a new rule concerning duties owed toprospective clients, proposed Rule 1.17.

Proposed Disciplinary Rule of Professional Conduct1.17 reads as follows:

Rule 1.17:

(a) A person who in good faith discusses with alawyer the possibility of forming a client-lawyer relationship with respect to a matteris a prospective client.

(b) A lawyer shall not use or discloseconfidential information provided by theprospective client, except as provided in Rule1.05 or (d)(2).

(c) A lawyer who has received confidentialinformation from a prospective client shallnot represent a person with interestsmaterially adverse to those of theprospective client in the same or asubstantially related matter, except asprovided in (d)(1) or (d)(2). When a lawyeris personally prohibited by this paragraphfrom representing a person in a matter, nolawyer who is affiliated with the personallyprohibited lawyer, and who knows orreasonably should know of the prohibition,shall represent that person in that matter.

(d) When a lawyer has received confidentialinformation from a prospective client,representation of a client with interestsmaterially adverse to those of theprospective client in the same or asubstantially related matter is permissible if:

(1) the prospective client has provided informedconsent, confirmed in writing, to therepresentation; or

(2) the lawyer conditioned the discussion with theprospective client on the prospective client’sinformed consent that no information disclosedduring the discussion would be confidential orprohibit the lawyer from representing a differentclient in the matter.

Note these key points concerning Proposed Rule 1.15: (1)The rule would create protections for prospective clientsagainst lawyers who undertake adverse representation ordisclosing confidential information. (2) The good-faithprerequisite in paragraph (a) of the rule is to prevent tactical“conflict interviews.” Anecdotal reports are that in smallcommunities, and in specialized bars (e.g., family law), someattorneys have had clients interview other lawyers in order toconflict them from representing the adverse party. (3) Theexception in paragraph (d)(1) probably is not very useful. Itrequires that the client give “informed consent” before thelawyer could represent an opposing party or disclose theprospective client’s confidential information. However,under proposed Rule 1.00(k), in order to obtain “informedconsent,” a lawyer must explain all “material risks” and all“reasonably available alternatives.” It’s difficult to imaginewhen a prospective client, informed of all “material risks” ofallowing a lawyer to use and disclose confidentialinformation against the prospective client, would consent tosuch potentially self-destructive disclosures and adverserepresentation. (4) The exception in paragraph (d)(2) fits aclient/law-firm “beauty contest.” For example, a prospectivecorporate client may want to interview a number of law firmsfor potential representation, but one or more of the firms maywant to preserve the right to assume representation adverse tothe prospective client. This provision would permit the firmand the prospective corporate client to work out a limited-disclosure interview to permit the prospective client toevaluate the firm, but protect the firm’s potential opportunityto represent adverse parties.

See generally ABA Model Rule 1.18 (stating dutiesowed to prospective clients, “[e]ven when no client-lawyerrelationship ensues,” including (with certain exceptions) theduties not to disclose information learned in the consultation”(with certain exceptions), and not to represent a client “withinterests materially adverse to those of a prospective client in

1 For a more detailed discussion of these issues,please see the author’s book, Texas Legal Malpractice &Lawyer Discipline (ALM Media Properties, LLC 2010). Excerpts from that volume are used in this paper withpermission of ALM Media.

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the same or a substantially related matter if the lawyerreceived information from the prospective client that could besignificantly harmful to that person in the matter”);Restatement (Third) of the Law Governing Lawyers § 15(providing generally that a lawyer owes certain duties to aprospective client, even when “no … relationship ensues,”including duties of confidentiality, protection of property,“reasonable care to the extent the lawyer provides the personlegal services,” and to avoid certain subsequent conflicts ofinterest when the lawyer has obtained “confidentialinformation that could be significantly harmful to theprospective client” unless specified screening or consentprocedures are followed); Perez v. Kirk & Carrigan, 822S.W. 2d 261, 265 n.4 (Tex. App. — Corpus Christi 1991,writ denied) (stating that “[a]n attorney’s fiduciaryresponsibilities may arise even during preliminaryconsultations regarding the attorney’s possible retention if theattorney enters into discussion of the client’s legal problemwith a view toward undertaking representation.” (citing Nolanv. Foreman, 665 F.2d 738, 739 n.3 (5th Cir. 1982));Sourceprose Corp. v. Fidelity Nat’l Fin., 2006 WL 887394,at *3 (E.D. Tex. 2006) (citing and quoting from Nolan, thatan “attorney’s fiduciary responsibilities may arise duringpreliminary consultations”); Tex. Comm. on ProfessionalEthics, Op. 494 (1994) (noting that “some duties, such as thatof confidentiality … may attach before a client-lawyerrelationship has been established,” and that “[b]oth thefiduciary relationship existing between the lawyer and theclient and the proper functioning of the legal system requirethe preservation by the lawyer of the confidential informationof one who has employed or sought to employ the lawyer”(quoting from the Preamble ¶ 12 and from Comment 1 toRule 1.05));.

III. THE PRIVITY RULE. In general, lack of privity remains a defense to legal

malpractice claims in Texas. Thus, parties outside the lawyer-client relationship normally do not have a cause of action forinjuries sustained as a result of a lawyer’s failure to performa duty owed to the client. But exceptions exist, including:

1. Negligent misrepresentation.2. DTPA claims. 3. Equitable subrogation claims by excess

insurers against an insured’s lawyer. 4. Breach of the “duty to warn,” when

a lawyer is not representing aperson, but under the circumstancesthe lawyer should reasonably expectthat the person could believeotherwise.

In Barcelo v. Elliott, 923 S.W. 2d 575 (Tex. 1995), the TexasSupreme Court reaffirmed the privity requirement. The courtheld that “an attorney retained by a testator or settlor to drafta will or trust owes no professional duty of care to personsnamed as beneficiaries under the will or trust.” 923 S.W. 2dat 579. Frances Barcelo had retained attorney Elliott to assisther with estate planning. He drafted a will and inter vivostrust agreement. After Barcelo died, two of her childrensuccessfully contested the validity of the trust. Barcelo’sgrandchildren—the intended remainder beneficiaries underthe trust—settled for what they contended was a substantiallysmaller share of the estate than what they would havereceived pursuant to a valid trust. The grandchildren thensued Elliott and his firm, alleging that his negligence causedthe trust to be invalid.

The Supreme Court recognized that “[a]t common law,an attorney owes a duty of care only to his or her client, not tothird parties who may have been damaged by the attorney’snegligent representation of the client.” Id. at 577. As therationale for this “privity barrier,” the court stated that “clientswould lose control over the attorney-client relationship, andattorneys would be subject to almost unlimited liability.” Id.at 577-78.

Although the opinion recognized that “[t]he majority ofother states addressing this issue have relaxed the privitybarrier in the estate planning context,” the court expressedconcern with “the inevitable problems with disappointed heirsattempting to prove that the defendant attorney failed toimplement the deceased testator’s intentions.” Id. at 577-78.The court also concluded that the potential tort liability tothird parties would “create a conflict during the estateplanning process, dividing the attorney’s loyalty between hisor her clients and the third-party beneficiaries.” Id. at 578.

The court concluded that “the greater good is served bypreserving a bright-line privity rule which denies a cause ofaction to all beneficiaries whom the attorney did notrepresent.” Id. at 578. Finally, the court rejected recovery ona third-party-beneficiary contract theory, observing that “[i]nTexas … a legal malpractice action sounds in tort and isgoverned by negligence principles,” and that even if the clientintended the lawyer’s work to benefit the will or trustbeneficiaries, the court would not extend the lawyer’s duty tothe persons not represented. Id. at 579. The court, however,expressly stated “no opinion as to whether the beneficiary ofa trust has standing to sue an attorney representing the trusteefor malpractice.” Id. at 579 n.2.

See also Huie v. DeShazo, 922 S.W. 2d 920, 925 (Tex.1996) (holding that the attorney-client privilege protectedcommunications between a trustee and his or her attorneyrelating to trust administration from discovery by a trustbeneficiary; and concluding that “under Texas law … thetrustee who retains an attorney to advise him or her inadministering the trust is the real client, not the trust

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http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=TX_caselaw&volume=822&edition=S.W.2d&page=261&id=125595_01


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_5thcircuit&volume=665&edition=F.2d&page=738&id=125595_01






beneficiaries.… It would strain reality to hold that a trustbeneficiary, who has no direct professional relationship withthe trustee’s attorney, is the real client.”); Thompson v. Vinson& Elkins, 859 S.W. 2d 617 (Tex. App. — Houston [1st Dist.]1993, writ denied) (holding that the beneficiary lackedstanding to sue the trustee’s attorney for malpractice, as noattorney-client relationship existed between them); 1AveryPharmaceuticals, Inc. v. Haynes & Boone, L.L.P., 2009 WL279334, at *4 (Tex. App. – Fort Worth 2009, no pet.) (“Atcommon law, the rule of privity limits an attorney’s liabilityto those in privity with the attorney.”); Bergthold v. WinsteadSechrest & Minick, P.C., 2009 WL 226026, at *4 (Tex. App.– Fort Worth 2009, no pet.) (“An attorney owes a duty of careonly to his or her client, not to third parties who may havebeen damaged by the attorney’s negligent representation ofthe client.”); Parish v. Wilhelm, 2008 WL 5246685, at *2(Tex. App. — Waco 2008, no pet.) (holding that when adefendant lawyer allegedly failed to submit a beneficiarychange on an insurance policy before the client died, thedeceased client’s children could not sue the lawyer; stating“[t]he Texas Supreme Court has expressly held that (1) ‘anattorney retained by a testator or settlor to draft a will or trustowes no professional duty of care to persons named asbeneficiaries under the will or trust’; and (2) a ‘lawyer’sprofessional duty [does not] extend to persons whom thelawyer never represented.’ . . . Parish’s contention thatBarcelo does not apply and, therefore, the Martins should beallowed to bring suit without privity is essentially anargument that Barcelo should be somehow changed. This wecannot do.”); Dutton v. Clay Dugas & Assoc., P.C., 2008 WL2369149, at *2 (Tex. App. — Beaumont 2008, no pet.)(affirming the trial court judgment in favor of the defendantlawyer, on the grounds that he had no duty to Dutton’s client,Patricia Covington, the representative of the estate, whenanother person had previously retained Dugas andmisrepresented that she would become the representative ofthe estate, and Covington did not retain him until afterlimitations had run; stating that “[a]n attorney owes a legalduty only to his client and not the third parties that theattorney’s actions may have damaged. . . . We conclude thatthe privity requirements of Barcelo apply and that the trialcourt did not err in concluding that Patricia was not Dugas[’s]client prior to August 2, 2002.”; and holding that Belt v.Oppenheimer, Blend, Harrison & Tate, Inc., 192 S.W.3d 780(Tex. 2006), did not apply because Dugas never representedthe decedent); O’Donnell v. Smith, 2004 WL 2877330, at *2(Tex. App. — San Antonio 2004), vacated, 197 S.W. 3d 394(Tex. 2006) (affirming a summary judgment in favor of thedefendant lawyers, in a suit brought by the executor of anestate for alleged conduct by the law firm during itsrepresentation of the decedent; stating that “[a]n attorneyowes a duty of care . . . only to his client, and not to otherparties or entities that may have been harmed by the

attorney’s negligent misrepresentation.… This has beenmaintained as a ‘bright-line’ privity rule in legal malpracticecases.… Without privity, the necessary element of dutycannot be established as a matter of law.” (citations omitted)).

The Texas Supreme Court lowered the privity barsomewhat in Belt v. Oppenheimer, Blend, Harrison & Tate,Inc., 192 S.W.3d 780 (Tex. 2006). In Belt, the TexasSupreme Court held that an estate’s representative may bringa malpractice suit against lawyers who provide negligentestate planning for a decedent, thereby causing financial lossto the estate. The court concluded that a legal malpracticeclaim in the estate-planning context survives a deceasedclient.

[I]n accordance with the long-standing, common-law principle that actions for damage to propertysurvive the death of the injured party, we holdthat legal malpractice claims alleging pureeconomic loss survive in favor of a deceasedclient’s estate, because such claims arenecessarily limited to recovery for propertydamage.

* * *

Even though an estate may suffer significantdamages after a client’s death, this does notpreclude survival of an estate-planningmalpractice claim. While the primary damages atissue here — increased tax liability — did notoccur until after the decedent’s death, thelawyer’s alleged negligence occurred while thedecedent was alive.… If the decedent haddiscovered this injury prior to his death, he couldhave brought suit against his estate planners torecover the fees paid to them.… In addition, thedecedent could have recovered the costs incurredin restructuring his estate to minimize tax liability.

192 S.W.3d at 785-86.

More recently, in Smith v. O’Donnell, 288 S.W.3d 417, 419(Tex. 2009), the Texas Supreme Court returned to thequestion of when an executor may sue a decedent’s attorneysfor malpractice. Smith addressed the issue outside the estate-planning context. The lawyers had represented CorwinDenney when his wife died and he served as independentadministrator of her estate. Allegedly the lawyers erred indetermining whether certain property was separate orcommunity property, with the result that a testamentary trustestablished by the wife was underfunded. Denny’s childrenwere residuary beneficiaries of the trust, and when Dennydied, they sued the executor of the estate for damages fromthe underfunding. The executor settled the case for over $12

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million, and then sued the lawyers. The supreme court heldthat "the executor should not be prevented from bringing thedecedent’s survival of claims on behalf of the estate,” andaffirmed the court of appeals’s decision overturning thesummary judgment that the trial court had granted in favor ofthe lawyers.

In Goeth v. Craig, Terrill & Hale, L.L.P., 2005 WL850349 (Tex. App. — Austin 2005, no pet.), the court ofappeals affirmed summary judgment in favor of thedefendant lawyers because all of the individual plaintiffs’asserted damages arose only from injuries to a corporation:

An attorney malpractice action in Texas is basedon negligence and requires proof of fourelements: the existence of a duty, the breach ofthat duty, that the breach was a proximate causeof damages, and that the plaintiff wasdamaged.… Privity, which refers to thecontractual connection or relationship existingbetween attorney and client, is directly related tothe existence of duty and is therefore necessaryfor a plaintiff to have standing to bring a legalmalpractice claim.

* * *

Texas does not recognize a cause of action forlegal malpractice asserted by a party not in privitywith the offending attorney. The rationale behindthe privity rule is that such a requirement“ensures that attorneys may in all cases zealouslyrepresent their clients without the threat of suitfrom third parties compromising thatrepresentation.” [quoting Barcelo] … Implicitwithin the privity requirement is that the privitymust exist with respect to the subject of thealleged malpractice.

In analyzing privity in this case, we begin withthe proposition that a corporation is a legal entityseparate and apart from the persons whocompose it, making the corporation distinct fromits stockholders, officers, and director.… Thus, acause of action against one who has injured thecorporation belongs to the corporation and not tothe shareholders.… This is true even where thewrong has depreciated the value of theshareholder’s investment in the corporation,impaired or destroyed its business, or otherwiseharmed the shareholder.…

The concept of a corporation as a separate legalentity coincides with the privity doctrine .…

Generally, rendering legal services to acorporation does not, by itself, create privitybetween the attorney and the corporation’sinvestors, its officers and directors, or itsshareholders.…

These principles do not, however, prohibit astockholder from recovering damages for wrongsdone to him individually “where the wrongdoerviolates a duty arising from contract or otherwise,and owing directly by him to the stockholder.” Torecover individually, a stockholder must prove apersonal cause of action and personal injury.… To overcome the privity barrier … , the Goethsmust show that their alleged damages resultedfrom a breach of duty owed to the Goethsindividually.

The Goeths cannot satisfy this requirement. Inthis case, appellees acknowledge that they wereretained by both the Goeths and by Tips [thecorporation], but all of the Goeths’ asserteddamages arise only from direct injuries to Tips .… If damages such as loss in value of stock in Tipsor an entry of judgment against Tips resultedfrom any breach by counsel, it was necessarily abreach of a duty owed to Tips. Appellees weresuccessful in having all individual claims againstthe Goeths dismissed and thus no claims can ariseout of that aspect of the representation.… Weconclude that the Goeths lack of standing to suefor injuries to Tips precludes their ability tooverturn the summary judgment.

2005 WL 850349, at *5-6.

In Arlitt v. Paterson, 995 S.W. 2d 713 (Tex. App.—SanAntonio 1999, pet. denied), the court of appeals followedBarcelo, but recognized that it did not apply to a joint-clientsituation. William Arlitt had died, leaving a 1983 will draftedby lawyer Paterson and a 1985 codicil drafted by lawyerMaverick. The 1985 codicil substantially disinherited one ofArlitt’s daughters, Kristine, who opposed the application toprobate. After four years of the contest litigation, thedecedent’s wife, Mrs. Arlitt, individually and as the personalrepresentative of his Estate, and three children (collectively,“the Arlitts”) sued Paterson and Maverick. The Arlitts allegedthat Mr. and Mrs. Arlitt, “on behalf of themselves, and also onbehalf of their children (and as their children’s agents),”sought and received legal estate planning services from theattorneys, who were negligent. The Arlitts asserted claims for

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negligent misrepresentation, negligent undertaking, grossnegligence, and breach of express and implied contract. Thetrial court granted summary judgment, which the court ofappeals affirmed in part and reversed in part.

The court of appeals first concluded that a privity barexisted for the claims of the Arlitt children. The onlysummary judgment evidence suggesting that the attorneysrepresented the children was Mrs. Arlitt’s statement that sheand her husband were acting on behalf of their children and astheir agents in consulting with the attorneys. That assertion,the court of appeals held, was “conclusory and thus notcompetent summary judgment evidence.” Id. at 720. Becausethe summary judgment record did not contain any competentevidence suggesting Mr. and Mrs. Arlitt acted as theirchildren’s agents or that the attorneys otherwise representedthe children, the court held that the children’s legalmalpractice claims must fail. Id.

On Mrs. Arlitt’s claim as the personal representative ofMr. Arlitt’s estate, the court held that the only injuries to theestate alleged by Mrs. Arlitt arose after he died. Because thesummary judgment evidence showed that the attorneys didnot represent Mrs. Arlitt as personal representative, thoseclaims failed as well.

Finally, the court turned to Mrs. Arlitt’s claims in herindividual capacity. She had presented summary judgmentevidence that the attorneys had represented both her and herhusband. Barcelo, the court held, did not bar her claims. “Byits terms, Barcelo precludes a legal malpractice claim only byan unrepresented beneficiary …. The Barcelo rule thus doesnot deny a cause of action to one of two joint clients.” Id. at720-21 (court’s emphasis). Thus, the court of appealsreversed the summary judgment on her individual claims.

Similarly, in Querner v. Rindfuss, 966 S.W. 2d 661(Tex. App. — San Antonio 1998, pet. denied), the court ofappeals reversed in part a summary judgment rendered infavor of an attorney who had represented an executrix anddiscussed the limits of Barcelo.

Although an attorney hired by an executorgenerally represents the executor and not thebeneficiary, an attorney for an executor mayundertake to perform legal services as an attorneyfor one or more beneficiaries …. An attorney-client relationship may develop between theattorney retained by the executor and thebeneficiaries either expressly or impliedly.

966 S.W. 2d at 667 (citations omitted).

See also Guest v. Cochran, 993 S.W. 2d 397, 406 (Tex. App.— Houston [14th Dist.] 1999, no pet.) (following Barcelo).

In several other settings as well, Texas courts have adhered tothe privity requirement. See, e.g., Safeway Managing Gen’lAgency Inc. v. Clark & Gamble, 985 S.W. 2d 166, 168 (Tex.App. — San Antonio 1998, no pet.) (holding that “noattorney-client relationship exists between an insurancecarrier and the attorney it hires to defend one of the carrier’sinsureds”); Draper v. Garcia, 793 S.W. 2d 296 (Tex. App. —Houston [14th Dist.] 1990, no writ) (holding that an insurer’srecording agent lacked privity with the insured’s lawyer);Martin v. Trevino, 578 S.W. 2d 763 (Tex. Civ. App. —Corpus Christi 1978, writ ref’d n.r.e.) (holding that a doctorwho prevailed in a medical-malpractice suit lacked privity tosue the plaintiff’s lawyers for negligence); Morris v. Bailey,398 S.W. 2d 946, 947 (Tex. Civ. App. — Austin 1966, writref’d n.r.e.) (holding an assistant attorney general could not besued “for willfully and consistently trying to involve theappellant in indefinite litigation, for allegedly seeking delay inlitigation and for allegedly causing the attorney general ofTexas to appear in many cases involving the appellant”).

In Banc One Capital Partners Corp. v. Kneipper, 67 F.3d 1187 (5th Cir. 1995), the court of appeals rejected theplaintiffs’ argument that the defendant lawyers had enteredinto a “limited” attorney-client relationship with the investorsby agreeing to represent them for the purpose of “issuing anopinion letter in connection with the … securities offering.”The court recognized the general rule that “[u]nder Texas law,there is no attorney-client relationship absent a showing ofprivity of contract, and an attorney owes no professional dutyto a third party or nonclient .… The attorney-clientrelationship is viewed as a contractual relationship in whichthe attorney agrees to render professional services on behalfof the client.” Id. at 1198. The court also specificallyconsidered language in the opinion letter stating that “[t]hisopinion is furnished by us, as counsel for the company, toyou, solely for your benefit, and we are not hereby assumingany professional relationship to any other personwhatsoever.” Id. at 1199. The court concluded that thelanguage “[a]lthough unartfully drafted, … does not manifestan intent to create an attorney-client relationship.” Id.

In Chapman Children’s Trust v. Porter & Hedges,L.L.P., 32 S.W. 3d 429 (Tex. App.—Houston [14th Dist.]2000, pet. denied), the court of appeals affirmed a summaryjudgment for defendant lawyers in a suit brought by parties toa settlement agreement. In an underlying suit, the trusts hadsued a guarantor on a note and settled that case by having theguarantor agree to pay the trusts the “net proceeds” obtainedfrom a separate suit (after deducting attorney’s fees, costs andlitigation expenses) that the guarantor had against Motorola.The trusts objected to certain litigation expenses that theguarantor’s lawyers deducted, and they eventually sued thelawyers. In affirming summary judgment for the defendantlawyers, the court of appeals pointed out the lack of privity,stating that “persons who are not in privity with an attorney

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cannot sue the attorney for legal malpractice .… Because it isundisputed that the Trusts were not represented by [thedefendant lawyers], any claim that the Trusts were damagedby [the lawyers’] negligence, if any, during the course of thefirm’s representation of [the guarantor] fails as a matter oflaw.” Id. at 442 (citing Barcelo).

See also Swank v. Cunningham, 258 S.W.3d 647 (Tex.App.—Eastland 2008, pet. denied) (affirming summaryjudgments in favor of several defendant lawyers; holding thatthe plaintiffs lacked standing to assert claims on behalf of acorporate entity; also that some of the defendant lawyers hadnot represented the allegedly injured entity and thus no privityexisted to permit either a malpractice claim or a breach offiduciary duty claim; and stating that “Texas does notrecognize a cause of action for legal malpractice asserted bya party not in privity with the offending attorney.”); Dutton v.Clay Dugas & Assoc., P.C., 2008 WL 2369149 (Tex.App.—Beaumont 2008, no pet.) (affirming summaryjudgment for a lawyer who had filed a healthcare liabilityclaim that was dismissed on statute of limitations grounds,and holding that when the statute of limitations had runbefore the executrix of the estate retained him, the lawyer hadno duty to an estate because it was not a legal entity and couldnot sue or be sued; and stating that “[a]n attorney owes a legalduty only to his client and not to third parties that theattorney’s actions may have damaged.… A decedent’s estateis not a legal entity and as a result, may not sue or be sued.”);Malone v. Abraham, Watkins, Nichols & Friend, 2004 WL1120005, at *5 (Tex. App. — Houston [1st Dist.] 2004, nopet.) (“An attorney owes a duty only to those in privity withhim…. An attorney, therefore, owes a duty of care only to hisclient, not to third parties…. Only a person with whom theattorney has privity has standing to sue for malpractice….Intermediate courts of this state have applied this principal topreclude recovery under both tort and third-party beneficiarytheories…. For purposes of a claim for professionalnegligence, ‘privity’ means the contractual connection orrelationship that exists between the attorney and theclient….”); Scherrer v. Haynes & Boone, L.L.P., 2002 WL188825 (Tex. App. — Houston [1st Dist.] 2002, no pet.)(holding that absence of privity barred a breach of fiduciaryduty claim by shareholder against lawyers who hadrepresented closely held corporations in an earlier suit againstthe plaintiff’s fellow shareholders and the corporations’boards); McDermott v. Nelsen, 2001 WL 423287, at *3 (Tex.App. — Houston [1st Dist.] 2001, no pet.) (“Generally, Texascourts follow the common-law rule that limits an attorney’sduty of care, and thus liability, to the attorney’s clients…. Alegal malpractice claim therefore derives from the attorney-client relationship, and a plaintiff has no cause of action forlegal malpractice in the absence of an attorney-clientrelationship.”); Gamboa v. Shaw, 956 S.W. 2d 662 (Tex.App. — San Antonio 1997, no pet.) (affirming dismissal on

privity grounds of a suit against a lawyer who had representeda corporation and majority shareholders of corporation, andwhom a trial court had disqualified from the dualrepresentation based on the conflict of interest, when aminority shareholder later sued the lawyer for breach offiduciary duty and other claims); Burnap v. Linnartz, 914S.W. 2d 142, 148 (Tex. App. — San Antonio 1995, writdenied) (“Absent fraud or collusion, an attorney owes a dutyonly to those parties in privity of contract with the attorney…. Thus a nonclient generally has no cause of action againstan attorney for negligent performance of legal work.”);Zuniga v. Groce, Locke & Hebdon, 878 S.W. 2d 313, 315(Tex. App. — San Antonio 1994, writ ref’d) (“Ordinarily anonclient cannot sue a lawyer for malpractice because there isno privity of contract.”); Parker v. Carnahan, 772 S.W. 2d151, 156 (Tex. App. — Texarkana 1989, writ denied)(“Except for matters involving fraud or dangerous conductconstituting a breach of duty owed to the general public,Texas courts have generally recognized that a nonclient hasno cause of action against an attorney for negligentperformance of legal work. This is based upon a lack ofprivity between them.”); First Mun. Leasing Corp. v.Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W. 2d410, 413 (Tex. App. — Dallas 1983, writ ref’d n.r.e.) (statingthat “under present Texas law an attorney owes no duty to athird party in the absence of privity of a contract,” andholding that a nonclient could not rely upon an opinionletter); cf. In re Archer, 203 S.W.3d 16, 22 (Tex. App. — SanAntonio 2006, pet. denied) (affirming the trial court’sdismissal of the suit that included legal malpractice andbreach of fiduciary duty claims, when the plaintiff sought tobring the suit as a “derivative” action on behalf of her uncle’stemporary guardian, asserting that the guardian had failed orrefused to prosecute the lawsuit; and concluding that theplaintiff lacked both standing and capacity to bring the suit;and stating that “ a relative . . . should not (absent showingthat the guardian has a conflict of interest with the ward) beable to bring a lawsuit on the guardian’s behalf, therebycircumventing the bonded guardian who owes a fiduciaryduty to the ward”); Byrd v. Woodruff, 891 S.W. 2d 689 (Tex.App. — Dallas 1994, writ dism’d by agr.) (“The attorney-client relationship is a contractual relationship, whereby theattorney agrees to render professional services for theclient.”); Bryan & Amidei v. Law, 435 S.W. 2d 587, 593(Tex. Civ. App. — Fort Worth 1968, no writ) (“It is a generalrule that the duties of the attorney which arise from therelation of attorney and client are due from the attorney to hisclient only and not to third persons. The latter have notretained or employed the attorney, nor has he rendered anyservices for them, at their request or in their interest. Noprivity of contract exists between them and the attorney.”).

Privity is not a defense in the case of a lawyer’sindependent, intentional tort, such as fraud, directed against a

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third party. See, e.g. Likover v. Sunflower Terrace II Ltd. 696S.W. 2d 468 (Tex. App.—Houston [1st Dist.] 1985, no writ);Querner v. Rindfuss, 966 S.W. 2d 661, 670 (Tex. App.—SanAntonio 1998, pet. denied) (citing Likover; reversing asummary judgment the trial court had rendered in favor of adefendant lawyer; and finding that the summary judgmentevidence raised a material issue of fact concerning whetherthe lawyer had “engaged in fraud and converted the estate’sassets through a conspiracy with [the executrix]”); SafewayManaging Gen. Agency Inc. v. Clark & Gamble, 985 S.W. 2d166, 168-69 (Tex. App.—San Antonio 1998, no pet.)(holding that although “no attorney-client relationship existsbetween an insurance carrier and the attorney it hires todefend one of the carrier’s insureds,” the insurer could asserta claim for negligent and fraudulent misrepresentation claimbecause “[u]nder a negligent misrepresentation theory,liability is not based on professional duty; instead, liability isbased on an independent duty to avoid misstatementsintended to induce reliance .… Fraud is based on a similarduty .… Therefore, an attorney can be subject to a negligentmisrepresentation or fraud claim in a case in which theattorney is not subject to a professional malpractice claim.”).

In Likover a nonclient sued a lawyer for conspiracy todefraud. The court rejected the lawyer’s no-duty argument:“[The lawyer argues] that the district court erred in enteringjudgment against him because he was acting in the capacityof an attorney representing his client and, as a matter of law,owed no duty to nonclient third parties. An attorney has nogeneral duty to the opposing party, but he is liable to thirdparties when his conduct is fraudulent or malicious. He is notliable for breach of a duty to the third party, but he is liablefor fraud.” Id. at 472. See also Chapman Children’s Trust v.Porter & Hedges L.L.P., 32 S.W. 3d 429 (Tex.App.—Houston [14th Dist.] 2000, pet. denied) (recognizingthe holding in Likover, but finding it inapplicable on thefacts); Guest v. Cochran, 993 S.W. 2d 397, 407 (Tex.App.—Houston [14th Dist.] 1999, no pet.) (noting that aplaintiff “need not establish contractual privity with thedefendant in a DTPA claim”).

IV. WHEN DOES AN ATTORNEY-CLIENTRELATIONSHIP EXIST? The privity requirement assumes the existence of an

attorney-client relationship. Consequently, disputesconcerning whether such a relationship exists are common. An express contract is not necessary to create an attorney-client relationship, and the relationship may be inferred fromthe parties’ conduct.

The legal relationship of attorney and client ispurely contractual and results from the mutualagreement and understanding of the partiesconcerned, based upon the clear and expressagreement of the parties as to the nature of thework to be undertaken and the compensationagreed to be paid therefore .… The contract ofemployment may be implied by the conduct ofthe two parties .… All that is required is that theparties explicitly or by their conduct manifest anintention to create the attorney-client relationship.

Parker v. Carnahan, 772 S.W. 2d 151, 156 (Tex.App.—Texarkana 1989, writ denied); accord 1AveryPharmaceuticals, Inc. v. Haynes & Boone, L.L.P., 2009 WL279334, at *4 (Tex. App.—Fort Worth 2009, no pet.) (“Therelationship can be created by an express contract or it can beimplied from the actions of the parties.… In determiningwhether a contractual relationship can be implied, we use anobjective standard, looking at what the parties said and did,and we do not consider their unstated, subjective beliefs.…[T]he relationship can be implied from the parties’ conductindicating the intent to enter into such a relationship, or it canbe implied from the attorney’s gratuitous rendition ofprofessional services.”); 1Bergthold v. Winstead Sechrest &Minick, P.C., 2009 WL 226026, at *4-5 (Tex. App.—FortWorth 2009, no pet.); Hill v. Hunt, 2008 WL 4108120, at *3(N.D. Tex. 2008); In re McCormick, 2002 WL 31076557, at*2 (Tex. App.—Tyler 2002, orig. proceeding) (concluding, ina disqualification case, that a fact issue existed concerningwhether an attorney-client relationship had existed betweenthe movant and the lawyer, and stating that “[t]he relationshipmay be expressly created by contract, or it may be impliedfrom the actions of the parties”); Lemaire v. Davis, 79 S.W.3d 592, 600 (Tex. App.—Amarillo 2002, pet. denied)(approving a jury instruction that read as follows: “Anattorney-client relationship exists if the attorney has agreed,expressly or impliedly, to render legal services of a specifiedor general nature to the person claiming such relationship. Allthat is required to create an attorney-client relationship is thatthe parties, expressly or implicitly by their conduct manifestan intention to create the attorney-client relationship.”); cf.Bituminus Casualty Corp. v. Texas Window Specialities, Inc.,2006 WL 864277 (W.D. Tex. 2006) (holding that genuineissues of material fact existed concerning whether an attorney-client relationship was present, including evidence that the

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lawyers had provided personal as well as corporaterepresentation; that the individual had paid one-half of the feesfrom his personal funds; that a letter from a legal assistant forthe lawyers stated that she was looking “forward to workingwith each of you … as we work toward an expeditiousclosing of this matter”; and that an expert had opined that thelawyers reasonably should have known that the individualwas relying upon the lawyers to provide legal services in thetransactions in issue); Massey v. Royall, 2001 WL 1136025,at *3-4 (Tex. App. — Houston [14th Dist.] 2001, pet. denied)(concluding that summary judgment was not proper when thedefendant lawyer submitted an affidavit disclaiming that hehad not represented the daughter of a divorce client, but thatperson’s father had submitted a controverting affidavit statingthat “Royall represented me and the interests of my childrenAnn Massey and Courtney Massey through the trial of thedivorce case.”); E.F. Hutton & Co. Inc. v. Brown, 305 F.Supp.371, 387 (S.D. Tex. 1969) (“An attorney’s appearance in ajudicial or semi-judicial proceeding creates a presumption thatan attorney-client relationship exists between the attorney andthe person with whom he appears .… When the relationshipis also evidenced by the entry of a formal appearance by theattorney on behalf of the person with whom he appears, thepresumption becomes almost irrebuttable, for the entry of aformal appearance has quite properly been called ‘recordevidence of the highest character.’” (citations omitted)); Tex.Comm. on Professional Ethics, Op. 490 (1994) (“[E]venthough the bank’s lawyer does not provide legal advice to aloan applicant, the preparation of the loan document by thelawyer is itself a legal service for the applicant if the applicantis specifically billed for the service.”).

Perez v. Kirk & Carrigan, 822 S.W. 2d 261 (Tex.App.—Corpus Christi 1991, writ denied), is a good exampleof the issues that may arise concerning formation of anattorney-client relationship as implied by the parties’ conduct.The case arose from the Alton school bus accident in which21 children died. Perez drove a truck for Valley Coca-ColaBottling Co. When his truck’s brakes failed, he ran a stopsign and crashed into the bus. The day after the accident, Kirk& Carrigan, the lawyers hired by Valley Coca-Cola, tookPerez’s statement in the hospital. The lawyers later gave hisstatement to the Hidalgo County District Attorney’s Office,resulting in his indictment. At the criminal trial, Perez wasacquitted. Perez then sued Kirk & Carrigan, among others. The trial court granted summary judgment in favor of thelawyers, in part based upon the lawyers’ argument that they

represented only Valley Coca-Cola and not Perez and thus noattorney-client relationship existed. The court of appealsreversed. The court first noted that an agreement to form “anattorney-client relationship may be implied from the conductof the parties.” Id. at 265. The court found substantialevidence in the summary judgment record from which “toimply the creation of an attorney-client relationship at the timePerez gave his statement to Kirk & Carrigan.” Id. Perez andother witnesses testified that the lawyers said that theyrepresented Perez as well as Valley Coca-Cola and weregoing to help him and would keep his statement confidential.

Similarly, in Yaklin v. Glusing, Sharpe & Krueger, 875S.W. 2d 380 (Tex. App.—Corpus Christi 1994, no writ), thecourt of appeals reversed a summary judgment that the trialjudge had granted in favor of defendant lawyers. The trialcourt had concluded that no attorney-client relationshipexisted. The plaintiff alleged that a lawyer had mishandled therefinancing of a business, resulting in changing separateproperty to community property. The court of appealsconcluded that although the summary judgment recordestablished that the lawyer represented the bank involved inthe refinancing transaction, the record did “not necessarilynegate the possibility of [the lawyer] representing [theplaintiff] as well in the transaction.” 875 S.W. 2d at 384. Theplaintiff’s affidavits included evidence that the plaintiff hadused the lawyer as his personal lawyer on two previousoccasions; that the bank had asked him whom he wanted toprepare the paperwork and he picked this lawyer, identifyinghim as his lawyer; that he met with the lawyer and explainedwhat he wanted; and that he believed that the lawyer was hislawyer and the lawyer never suggested otherwise. Id. at 383.

However, “[i]n order to establish an attorney-clientrelationship, more is required than just some subjective feelingor belief that a particular lawyer is always one’s lawyer. Thissubjective statement of feeling does not and should not createin and of itself a material issue of fact pertaining to theestablishment of an attorney-client relationship.” O’Neill v.Roebuck, 1994 WL 103331 (Tex. App. — Beaumont 1994,no writ). Thus, in O’Neill, under fairly extreme facts, the courtof appeals had no difficulty in affirming a summary judgmentin favor of the defendant lawyer on the ground that noattorney-client relationship existed. The defendant lawyer hadrepresented the plaintiff at one time in connection with amotion to modify a divorce decree, and the plaintiff had hadtwo phone conversations with the lawyer near the time of thealleged negligence that resulted in a default order terminatingher managing conservatorship. Nonetheless, the courtconcluded that those contacts did not raise a fact issue.Between the initial representation and the calls, the plaintiffhas consulted seven lawyers in connection with custody andsupport issues, and retained three of them in various matters.

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http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_distctopinions&volume=305&edition=F.Supp.&page=371&id=125595_01







Moreover, in one conversation, the defendant lawyer hadquoted a specific fee to represent the plaintiff, but she did notagree to that amount and asked him to recommend anotherlawyer. Nonetheless, as the court characterized the facts, theplaintiff had improperly concluded that the defendant hadbecome her “perpetual lawyer.” Id. at *6.

In Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld,L.L.P., 105 S.W. 3d 244, 254 (Tex. App. — Houston [14thDist.] 2003, pet. denied), the court of appeals concluded thatthe decision of an arbitration panel was not in “manifestdisregard of the law” when the panel concluded that three lawfirms did not represent a corporation (Tanox) at the time theyjointly negotiated a fee agreement with the corporation. Tanoxargued that one of the law firms had billed for a small amountof time and work before Tanox and the firms signed the feeagreement, that one of the firms had pre-contract time recordsreferring to Tanox as a “client” rather than as a “prospectiveclient,” and that Tanox’s chief executive officer had testifiedthat she understood that at least one of the firms was acting asTanox’s attorney before they signed the agreement. The courtof appeals pointed out that the pre-contract billing was inerror, and that the CEO’s “subjective believe that [one of thelawyers] was her attorney is not relevant to this inquiry. Thedetermination of whether there is a meeting of the minds isbased solely on objective standards of what parties did andsaid, not their alleged subjective states of mind.” Id. at 254-55.Because a fact issue existed, the decision was one for thearbitrators, and was not grounds for reversal.

In Simpson v. James, 903 F.2d 372, 376 (5th Cir. 1990),the Fifth Circuit affirmed a $200,000 judgment in favor ofplaintiffs against defendant lawyers and found that theevidence was sufficient to support the jury’s finding that anattorney-client relationship existed. The court also noted thatthe existence of the relationship “does not depend upon thepayment of a fee.” Id. at 376. The case arose from the sale ofa corporation’s assets and the buyers’ default on the note. Thelawyers had represented both sides in the original sale and ina later restructuring when the buyers defaulted. The buyerlater went bankrupt, and the sellers sued the lawyers, whoargued that no attorney-client relationship existed. One of thelawyers testified that he never charged the plaintiffs for histime in connection with the loan restructuring, that he nevergave the sellers any advice, and that the sellers never askedhim to represent them against the buyers. According to theplaintiff sellers, for many years the defendant lawyers hadrepresented the sellers’ interests, personally and in connectionwith the present business, and did so in connection with thesale and the restructuring. The plaintiffs also asserted that oneof the lawyers had encouraged the sellers concerning thebuyers’ economic viability, and had said that the transactionwas a good deal. The lawyer also allegedly said that if aconflict arose, the lawyers would represent the sellers.

See also Span Enterprises v. Wood, 2008 WL 5102308,

at *3 (Tex. App. — Houston [1st dist.] 2008, no pet.) (notingthat “[u]nstated, subjective beliefs do not give rise to anattorney-client relationship by implication”); Smithart v.Sweeney, 2001 WL 804492 (Tex. App. — Dallas 2001, pet.denied) (holding that when a lawyer handling a wrongfuldeath claim mistakenly included nonclient beneficiaries asparties, but later corrected that error by deleting the referenceto them as parties, the lawyer did not thereby enter anattorney-client relationship with those nonclients); McConnellv. Ford & Ferraro, L.L.P., 2001 WL 755640, at *2-3 (Tex.App. — Dallas 2001, pet. denied); Castillo v. First CityBancorporation Inc., 43 F3D 953, 958 (5th Cir. 1994)(referring to allegations that a lawyer gave “advice andpersonal opinions” to the plaintiffs regarding a loantransaction and recognizing that “[s]uch consultation could insome circumstances create an attorney-client relationship andits attendant strict fiduciary duties,” but holding that when theplaintiffs acknowledged that the lawyer represented the lenderand when they had their own counsel, the lawyer’s “legaldiscussions with the [plaintiffs], did not create an attorney-client relationship giving rise to a fiduciary duty”); Hill v.Hunt, 2008 WL 4108120, at *3 (N.D. Tex. 2008) (stating that“[f]ailure to sign an engagement agreement” is not“dispositive” of the issue of whether an attorney-clientrelationship exists).

Attorney-client relationship not dependent on fee. Nordoes the existence of an attorney-client relationship dependupon payment of a fee. In Sotelo v. Stewart, 2008 WL2174425 (Tex. App. — El Paso 2008, pet. denied), the courtconcluded that providing gratuitous services may create anattorney-client relationship. The trial court had grantedjudgment for the defendant lawyer, but the court of appealsreversed and remanded. The underlying matter arose from anearnest money contract that Daniel Sotelo signed in 1991. His wife, Maria, did not sign the contract. After Danieldefaulted, the seller sued and obtained a judgment onDecember 5, 1994. Stewart was Daniel’s attorney from 1991to March 9, 1994, when Stewart withdrew. Maria’s name didnot appear in the suit until Stewart added it in the style of thecase on his motion for a continuance in February 1994. OnAugust 2001, the plaintiff in the suit obtained a writ ofexecution against Maria’s property, and later sold some of herproperty at a sheriff’s sale. Maria then sued Stewart, allegingthat he negligently joined her as a defendant in the breach ofcontract suit despite the absence of any claim against her. Stewart filed a motion for summary judgment based uponlack of duty and upon the statute of limitation, and the trialcourt granted the motion. On the duty issue, the court of

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appeals observed that when the existence of an attorney-clientrelationship is disputed, “the duty element becomes an issuefor the trier of fact.” Id. at *2. The court also noted that whilethe attorney-client relationship is “generally . . . created bycontract,” the relationship “can be implied based on theconduct of the parties” that indicates the intent to enter sucha relationship, including “from the attorney’s gratuitousrendition of professional services.” Id. While Maria testifiedby affidavit that she had never hired or spoken to Stewart, andwhile such evidence was “contrary to the formation of anattorney-client relationship,” the court concluded that the factthat Stewart had added her name to the documents filed in thesuit raised a fact issue on the existence of an implied attorney-client relationship. Thus, the summary judgment wasimproper on the no-duty ground. See also Hill v. Hunt, 2008WL 4108120, at *9 (N.D. Tex. 2008) (“Payment of fees is notdispositive of the issue of whether there is an attorney-clientrelationship.”); Prigmore v. Hardware Mut. Ins. Co., 225S.W. 2d 897, 899 (Tex. Civ. App. — Amarillo 1949, nowrit) (“The relation of attorney and client does notdepend upon the payment of a fee. Such may exist as aresult of rendering services gratuitously. A contract ofemployment may exist merely as a result of an offer orrequest made by the client and an acceptance of assentthereto by the attorney.”).

In Vinson & Elkins v. Moran, 946 S.W. 2d 381(Tex. App. — Houston [14th Dist.] 1997, writ dism’d byagrmt.), the court of appeals reversed a $35 millionjudgment in a legal malpractice case arising from theadministration of an estate. However, the court foundsufficient evidence to sustain a jury finding that anattorney-client relationship existed between certainbeneficiaries of the estate and the lawyers who also hadrepresented the executors. Vinson & Elkins hadperformed legal work on the W.T. Moran Estate, whichhad three executors, including First City National Bank(the Bank) and Pat Moran. The plaintiffs in the legalmalpractice suit alleged various conflict of interestviolations by V&E. When a suit by one executor againstthe other executors to stop a sale of certain estate assetssettled, the settlement included replacement of all theexecutors and a release by the beneficiaries of claimsagainst the executors. The beneficiaries, however, didnot release V&E, and two of them sued.

The trial judge had instructed the jury that the term“attorney-client relationship” meant “a relationship that exists

if an attorney or law firm has agreed, expressly or impliedly,to render legal services to the person claiming such arelationship exists.” Id. at 400-01. Although the court ofappeals recognized that the “privity barrier” would bar claimsby a beneficiary against lawyers for the executors, the courtheld that the lawyers also might have an attorney-clientrelationship with the beneficiary. “Generally, an attorneyhired by the executors or trustees to advise them inadministering the estate or the trust represents the executors ortrustees and not the beneficiaries …. It is conceivable,however, that the attorney for an executor or trustee couldundertake to perform legal services as attorney for one ormore beneficiaries …. If an attorney-client relationship wascreated, whether expressly or impliedly, then a duty would becreated directly in favor of the beneficiary, and the beneficiarywould have recourse against the attorney for damagesresulting from negligent representation.” Id. at 401-02. Theevidence cited by the court to support the jury’s finding thatan attorney-client relationship existed included the following:

• Poinsett, a beneficiary, attended beneficiarymeetings at which V&E “gave advice to thebeneficiaries,” including regarding taxes, taxconsequences and an alleged “liquidity crisis”facing the estate.

• Poinsett never hired a lawyer, and heconsidered V&E to represent his interests andthe other beneficiaries. No one at V&E evertold him the firm did not represent him or hisinterests.

• Ann Moran, another beneficiary, testified thatV&E indicated during the estateadministration that V&E represented the“Moran interests” and “the Moran family, theMoran Estate, the Moran Estate family, [and]Moran Estate interests,” and “passedthemselves off” as representing the family,which included “this whole extensive groupof people and our businesses.” No one toldher that the firm did not represent her or theother beneficiaries.

• Ann Moran also testified that the beneficiariesreceived mailings directly from V&E and hadcontact with them and discussed estate issueswith them at formal meetings of thebeneficiaries. V&E lawyers told her that ifshe had any questions, she should call them,which she did. She also wrote one of them a“Dear Jay” letter, following up a phone

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conversation. She spoke to them about taxproblems and about the timing ofdistributions. She also learned that thebeneficiaries were “in effect, paying V&E’slegal fees,” which came from thebeneficiaries’ expected distributions on a prorata basis.

• Two expert witnesses for the plaintiffstestified that the evidence indicated thatV&E was representing the beneficiaries andthe executors.

Id. at 402-03.

Although concluding that the evidence was legally andfactually sufficient to support the jury’s finding, the court alsoheld that the trial court had erred in failing to provide the jurya proper instruction concerning whether V&E had “agreed”to render professional services for the plaintiffs. “Theattorney-client relationship is a contractual relationship inwhich an attorney ‘agrees’ to render professional services ….To establish the relationship, the parties must explicitly or bytheir conduct manifest an intention to create it …. In otherwords, an attorney-client relationship may be establishedeither expressly or impliedly from the conduct of the parties.”Id. at 407. The proper standard for determining if such anagreement exists, the court stated, is an “objective standar[d]of what the parties said and did and not to look to theirsubjective states of mind.” Id. at 405. V&E had requested aninstruction that “Agreed” meant “a meeting of the mindswhich must be determined from the ‘objectivemanifestations made by one party to another and not by thesubjective intent of any one party not manifested to theother.’” Id. at 405. The court of appeals held that the trialcourt erred in refusing that request and in giving a jury chargethat permitted the jury to base its decision, at least in part, onthe clients’ subjective belief, rather than on the objectivestandard. “An instruction that fails to limit the jury’sconsideration to objective indications showing a meeting ofthe minds, and that allows the jury to base its decision, evenin part, on a subjective belief is improper. It is not enough thatone party thinks he has made a contract; there must beobjective indications.” Id.

Class actions. In the class action setting in Smith v.McCleskey, Harriger, Brazill & Graf, L.L.P., 15 S.W. 3d 644(Tex. App. — Eastland 2000, no pet.), the court of appeals

rejected the defendant lawyers’ argument that they owed noduty to members of a class. Several members of a class ofroyalty owners involved in an earlier class action suit sued thelawyers on malpractice and other claims. The trial judgegranted summary judgment for the defendant lawyers.Quoting General Motors Corp. v. Bloyed, 916 S.W. 2d 949,959 (Tex. 1996), the court of appeals reversed, stating that“‘[b]oth class action jurisprudence generally … and Texaslaw specifically impose fiduciary duties on attorneys in theirrelationship with their clients.’ … We hold that [the lawyers]failed to prove as a matter of law that [they] owed no duty to[the plaintiffs].” 15 S.W. 3d at 647.

Scrivener. A few court decisions still purport to recognizethat in some instances a lawyer may serve as a “merescrivener,” and thus not enter into an attorney-clientrelationship. See In re Bivins, 162 S.W.3d 415, 419-20 (Tex.App. — Waco 2005, orig. proceeding) (stating that “[a]nattorney-client relationship is not created where a person hiresan attorney in a non-legal capacity. . . . Thus, an attorney-client relationship does not arise when a person hires anattorney to draft an instrument but does not seek theattorney’s advice with respect to that instrument. . . . In suchcases, the attorney is considered a ‘mere scrivener.’”; butconcluding that the party seeking disqualification hadpresented evidence supporting a finding that an attorney-clientrelationship existed); In re McDaniel, 2006 WL 408397 (Tex.App. — Waco 2006, orig. proceeding)( (following Bivins);but see Restatement (Third) of the Law Governing Lawyers§ 130 cmt. b (“Conflicted but unconsented representation ofmultiple clients, for example, of the buyer and seller ofproperty, is sometimes defended with the argument that thelawyer was performing the role of mere ‘scrivener’ or asimilarly mechanical role. The characterization is usuallyinappropriate. A lawyer must accept responsibility to givecustomary advice and customary range of legal services,unless the clients have given their informed consent to anarrower range of the lawyer’s responsibilities.”).

V. WHEN DOES THE DUTY END? “When an attorney-client relationship is established, the

relation generally terminates once the purpose of theemployment is completed, absent a contrary agreement.”Simpson v. James, 903 F.2d 372, 376 (5th Cir. 1990); accordHill v. Hunt, 2008 WL 4108120, at *3 (N.D. Tex. 2008)..

Byrd v. Woodruff, 891 S.W. 2d 689 (Tex. App. —Dallas 1994, writ dism’d by agr.) involved a claim by aplaintiff who sued her former attorneys and former guardianad litem, asserting that they had failed to protect her in thesettlement of two suits. The attorneys asserted that the duty torepresent the plaintiff had ended when they obtainedjudgments in the underlying suits. Based on the summaryjudgment record, the court of appeals concluded that a fact

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issue existed. The court pointed to evidence showing that theattorneys had continued to act for the plaintiff even after theentry of the judgments, including preparing documentsrelating to trust property, providing checks from theattorneys’ trust account and drafting motions for the release ofsettlement proceeds. Id. at 707.

Note, however, that a lawyer continues to have duties,including fiduciary duties, to former clients, including theduties to protect confidential information, to surrender papers and property, and to avoid impermissible conflicts of interest.See, e.g., Rules 1.05(b) (1), (3) (limiting disclosure or use ofinformation of former clients); 1.09 (former-client conflicts ofinterest; 1.14 (duties concerning safekeeping of property);1.15(d) (duties on termination of representation, includingtaking “reasonably practicable” steps to protect the client’sinterest, such as giving reasonable notice to the client,allowing time to employ another lawyer, surrendering clientpapers and property, and refunding unearned advancepayments); Restatement (Third) of the Law GoverningLawyers §§ 33, 50 cmt. c (stating that “a lawyer still owescertain duties to a former client,” such as to surrender clientpapers and property, protect client confidences, and avoidcertain conflicts of interest).

For example, in Sealed Party v. Sealed Party, 2006 WL1207732 (S.D. Tex. 2006), a lawyer’s former client sued thelawyer for having disclosed confidential information, and thecourt concluded that the lawyer had breached his fiduciaryduty by making the disclosure. The court noted that “[i]n theabsence of an agreement to the contrary, or specialcircumstances, an attorney-client relationship generallyterminates upon the completion of the purpose of theemployment.” Id. at *6. Nonetheless, the court found thatcertain fiduciary obligations existed after the relationship: “Although . . . the typical fiduciary relationship andaccordingly most fiduciary duties, end when the attorney-client relationship terminates, a fiduciary, including anattorney, may have narrow but defined continuing fiduciaryobligations to the former client. . . . [A] fiduciary’s duty topreserve confidential information survives the termination ofthe fiduciary relationship.” Id.; cf. Lively v. Henderson, 2007WL 3342031, at *4 (Tex. App. — Houston [14th Dist.] 2007,pet. filed) (holding that no evidence existed of a continuingattorney-client relationship after the initial project concluded,and thus the former client could not pursue a fiduciary dutyclaim relating to later events).

VI. NEGLIGENT MISREPRESENTATION. In McCamish, Martin, Brown & Loeffler v. F.E. Appling

Interests, 991 S.W. 2d 787 (Tex. 1999), the Texas SupremeCourt held that lawyers may be liable to nonclients fornegligent misrepresentations in accordance with §552 of theRestatement (Second) of Torts. Several previous lower courtdecisions had rejected application of §552 to Texas lawyers.

See, e.g., First Municipal Leasing Corp. v. Blankenship, Potts,Aikman, Hagin & Stewart, 648 S.W. 2d 410 (Tex. App. —Dallas 1983, writ ref’d n.r.e.); Marshall v. Quinn-L Equities,Inc., 704 F.Supp. 1384 (N.D. Tex. 1988).

McCamish involved an action by a borrower against asaving association’s attorneys for negligent misrepresentation.The borrower had settled a lender liability case allegedlybased in part on the attorneys’ representation that thesettlement agreement complied with 12 U.S.C. §1823(e) (1),which generally provided certain requirements for anagreement to be enforceable against FSLIC. The borrowerhad refused to sign the agreement unless the lawyers “wouldaffirm that the agreement did, in fact, comply with thestatute.” 991 S.W. 2d at 789. The settlement agreementcontained the following language:

[B]oth Victoria [the lender] and its counselrepresent to Plaintiffs that (a) this agreement is inwriting; (b) it is being executed by both Victoriaand Plaintiffs contemporaneously with theacquisition of these assets by Victoria; (c) that theAgreement has been approved by the Board ofDirectors … and that such approval is reflected inthe minutes of said board … ; and (d) that a copyof this Agreement shall be … maintained as anofficial record of Victoria; all in accordance with12 USC §1823(e).

At the time the lender’s board approved the settlementagreement, the board lacked authority to settle because of avoluntary supervision agreement previously entered into withthe Texas Savings and Loan Department. Later, after thelender was declared insolvent and FSLIC was appointed as itsreceiver, a federal court held that the settlement agreementwas not binding on FSLIC. The borrower sued the law firmalleging that it had negligently misrepresented that thelender’s board had approved the settlement agreement. Thetrial court granted summary judgment on themisrepresentation claim on the sole ground that the law firmowed no duty to the borrower. The court of appeals reversed,holding that even absent privity a lawyer owes a duty to athird party to avoid negligent misrepresentation. The TexasSupreme Court affirmed the court of appeals’s decision.

The Supreme Court held that attorneys may be sued fornegligent misrepresentation even in the absence of privitybetween the attorney and the plaintiff. In applying the tort ofnegligent misrepresentation, the court followed the elementsstated in §552 of the Restatement (Second) of Torts and inFederal Land Bank Ass’n v. Sloane, 825 S.W. 2d 439, 442(Tex. 1991) (applying §552 to define the scope of a lender’sduty to avoid negligent misrepresentations to prospectiveborrowers). In pertinent part, §552(1) of the Restatementprovides as follows:

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One who, in the course of his business,profession or employment, or in any transactionin which he has a pecuniary interest, suppliesfalse information for the guidance of others intheir business transactions, is subject to liabilityfor pecuniary loss caused to them by theirjustifiable reliance upon the information, if hefails to exercise reasonable care or competence inobtaining or communicating the information.

The Court noted that other Texas decisions had applied the§552 cause of action against various other professionals,including auditors, physicians, real-estate brokers, securitiesplacement agents, accountants, surveyors, title insurers andaccountants. 991 S.W. 2d at 791.

The Supreme Court also cited in support of its decision§73 of Tentative Draft No. 8 of the Restatement of the LawGoverning Lawyers. (§73 corresponds to §51 in the finalRestatement.) That provision states that a lawyer owes a dutyof care to a nonclient when the following conditions are met:

When and to the extent that: (a) a lawyer …invites the nonclient to rely on the lawyer’sopinion or provision of other legal services, andthe nonclient so relies, and (b) the nonclient is not,under applicable tort law, too remote from thelawyer to be entitled to protection.

The Supreme Court stated that a negligent misrepresentationclaim is “not equivalent to a legal malpractice claim.” Id. at792. The Court explained that negligent misrepresentationdoes not depend upon “the breach of duty a professional oweshis or her clients or others in privity, but on an independentduty to the nonclient based on the professional’s manifestawareness of the nonclient’s reliance on the misrepresentationand the professional’s intention that the nonclient so rely ….Therefore, an attorney can be subject to a negligentmisrepresentation claim in a case in which she is not subjectto a legal malpractice claim.” Id. Section 552 creates a duty“to avoid negligent misrepresentation irrespective of privity.”Id.

The Supreme Court noted that other jurisdictions hadapplied section 552 in a variety of lawyer liability contexts,including: opinion letters; warranty deeds; title certificates;offering statements; offering memoranda; placementmemoranda; and annual reports. Id. at 793.

The Court rejected the arguments that application of thetort of negligent misrepresentation to attorneys would createa conflict of duties and would threaten the attorney-clientprivilege. The Court noted that a typical negligentmisrepresentation case involves one party to a transaction

receiving and relying on an evaluation, such as an opinionletter, prepared by another party’s attorney. Before anattorney may ethically provide such an evaluation, the Courtstated, the attorney must confirm that no conflict of interestexists in providing the opinion, and the attorney must consultwith the client regarding “the implications of the evaluation,particularly the lawyer’s responsibilities to third persons andthe duty to disseminate the findings.” Id. at 793. The courtalso stated that Texas Disciplinary Rule of ProfessionalConduct 2.02 provides safeguards against a lawyer’sexposure to conflicting duties and ensures that the clientmakes the ultimate decision of whether to provide theevaluation.

The Court further noted that §552(2) of the Restatementof Torts limits a lawyer’s exposure for negligentmisrepresentation to a loss suffered:

(a) by the person or one of a limited groupof persons for whose benefit andguidance [one] intends to supply theinformation or knows that the recipientintends to supply it; and (b) throughreliance upon it in a transaction that[one] intends the information toinfluence or knows that the recipient sointends or in a substantially similartransaction.

Id. at 794. Thus, the court said, this formulation limitsliability to situations in which the attorney who provides theinformation “is aware of the nonclient and intends that thenonclient rely on the information.” Id. The lawyer musttransfer information “to a known party for a known purpose.”Id.

The Court also identified two methods by which anattorney can “avoid or minimize” the risk of liability to anonclient: (1) by setting forth “limitations as to whom therepresentation is directed and who should rely on it,” or (2) byproviding “disclaimers as to the scope and accuracy of thefactual investigation or assumptions forming the basis of therepresentation or the representation itself.” Id.

The Court emphasized the importance of the justifiablereliance element in limiting an attorney’s exposure fornegligent misrepresentation. In determining whether relianceis justifiable, a court must consider the “nature of therelationship between the attorney, client, and nonclient.” Id.Generally, reliance is not justified “when the representationtakes place in an adversarial context,” such as litigation orarbitration or even some business transactions. Id.

In Mitchell v. Chapman, 10 S.W. 3d 810 (Tex. App. —Dallas 2000, pet. denied), cert. denied, 121 S. Ct. 1097(2001), the court of appeals affirmed a summary judgment infavor of a defendant lawyer sued by a former adverse party in

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two earlier suits. The adverse party had alleged that thelawyer had wrongfully withheld an underwriting file indiscovery in those earlier cases. The court specificallyrejected a negligent misrepresentation theory for threereasons. First, in the earlier cases the relationship between thedefendant lawyer and the plaintiff had been adverse. Second,the lawyer did not provide “false information for the guidanceof [the adverse party] in a business transaction.” 10 S.W. 3dat 812. Third, the adverse party did not fit “within the narrowclass of potential claimants listed under section 552(2).” Id.

See also 1Avery Pharmaceuticals, Inc. v. Haynes &Boone, L.L.P., 2009 WL 279334, at *12-13 (Tex. App.– Fort Worth 2009, no pet.) (affirming summaryjudgment in favor of the defendant lawyers, and statingthe elements of a negligent misrepresentation claim);Alexander v. Malek, 2008 WL 597652 (Tex. App.—Houston[1st Dist.] 2008, no pet.) (affirming summary judgment infavor of the defendant lawyer on fraud andmisrepresentation claims when Alexander, a pro se plaintiff inthe underlying personal injury case, had lost a bench trial andalleged that the defendant lawyer, who had defended theunderlying case, had made misrepresentations to herconcerning the effect of waiving the right to a jury; stating that“[h]ere, Alexander fails to raise a fact issue as to the elementof reliance. Malek had no attorney-client relationship withAlexander. Quite the opposite, they were adversaries in theunderlying suit. An attorney can be liable to a non-party formisrepresentation, despite an absence of privity, but only inlimited circumstances. . . . Reliance is generally not justifiedwhen the representation takes place in an adversarialcontext.”; and rejecting Alexander’s argument that her pro sestatus should prevent application of the general rule thatreliance is not justified in an adversarial context, stating that“[p]ro se litigants . . . are held to the same standard as licensedattorneys”); Dixon Financial Servs., Ltd. v. Greenberg,Peden, Siegmyer & Oshman, P.C., 2008 WL 746548 (Tex.App. — Houston [1st Dist.] 2008, pet. denied) (concludingthat a negligent misrepresentation claim failed as a matter oflaw because it “did not allege that appellees, through Chang,conveyed a legal opinion or evaluation to Fidelity Transferregarding the Hyperdynamics stock; rather, it alleged thatappellees contacted Fidelity Transfer and asserted anownership interest in Hyperdynamics’s stock based on thearbitration award. Unlike the representations in McCamish,the ones in issue here were objective, non-evaluative claimswith respect to the stock”; that reliance was unjustifiedbecause “[g]enerally, . . . a third party’s reliance on anattorney’s representation is not justified when therepresentation takes place in an adversarial context”); Kastnerv. Jenkens & Gilchrist, P.C., 231 S.W.3d 571 (Tex. App.— Dallas 2007, no pet.) (affirming grant of summaryjudgment in favor of the defendant lawyers on a

negligent misrepresentation claim, and stating that noevidence showed that the lawyers were aware of thepurported reliance by the plaintiff, and that the lawyers’representation of a partnership did not constituterepresentation of the individual partners and thus did not“in and of itself . . . justify reliance,” that the “meretransmission of a partnership agreement from an attorneyto a non-client cannot reasonably be construed as a legalopinion on the validity of the agreement or propriety ofinvestment in the partnership,” and that while in the fraudcontext “a misrepresentation may consist of theconcealment or nondisclosure of a material fact whenthere is duty to disclose,” negligent misrepresentationrequires “a misstatement of existing fact”); Wright v.Sydow, 2004 WL 3153293, at *14-16 (Tex. App. —Houston [14th Dist.] 2004, pet. denied) (holding that thetrial court had erred in granting summary judgment on anegligent misrepresentation claim when the lawyers hadargued only that the plaintiff was not their client andtherefore not in privity with them, and that the negligentmisrepresentation claim was merely a “thinly disguisedlegal malpractice claim,” and stating that those positionswere “not viable in light of McCamish,” and that “afterMcCamish, a … claim for negligent misrepresentationwill not fail simply by showing that [the defendantlawyer] did not represent the claimant or that theclaimant and the attorney were not in privity; underMcCamish, a third party non-client can bring a negligentmisrepresentation claim.”); In re Precept Business Servs.,Inc., 2004 WL 2074169, at *8-9 (Bankr. N.D. Tex. 2004)(granting summary judgment in favor of the defendant lawfirm, and stating that “[w]hether or not Jackson Walker hadthat duty [to disclose certain facts], any non-disclosure is nota basis for a negligent misrepresentation claim”); McMahanv. Greenwood, 108 S.W. 3d 467, 496 (Tex. App. —Houston [14th Dist.] 2003, pet. denied) (citing andfollowing McCamish, and holding that when the plaintiffalleged that the defendant lawyer had made falsestatements concerning stock ownership to the plaintiff,the plaintiff presented sufficient evidence to defeat asummary judgment motion based on the issue ofjustifiable reliance); Lesikar v. Rappeport, 33 S.W. 3d282, 320 (Tex. App. — Texarkana 2000, pet. denied)(holding that under McCamish and §552(2) justifiablereliance did not exist when the statements made were ina litigation setting); Arlitt v. Paterson, 995 S.W. 2d 713

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(Tex. App. — San Antonio 1999, pet. denied) (decidedbefore the supreme court’s opinion in McCamish, butafter the court of appeals’s opinion, and holding thatprivity was unnecessary to establish a duty not tonegligently misrepresent).

VII. EQUITABLE SUBROGATION. In American Centennial Ins. Co. v. Canal Ins.

Co., 843 S.W. 2d 480 (Tex. 1992), the Texas SupremeCourt recognized an equitable-subrogation exception tothe privity rule. The court held that an excess insurancecarrier has an equitable subrogation cause of actionagainst the trial counsel who represented the insured. Inthis case, a defective-tire blowout on a rental car resultedin a suit against General Rent-a-Car International Inc.,which had insurance from three companies. CanalInsurance Co. was the primary carrier, providingcoverage to $100,000; First State Insurance Co. providedcoverage from $100,000 to $1 million; and AmericanCentennial Insurance Co. provided covered from $1million to $4 million. Canal investigated and defended,hiring an outside firm. Trial counsel’s allegedmishandling of the litigation compelled the insurers tosettle for $3.7 million. The two excess carriers, FirstState and American Centennial sued Canal and the firmhandling the defense and two members of the firm fornegligence, gross negligence, breach of duty of goodfaith and fair dealing, and violations of the DTPA andArt. 21.21 of the Insurance Code. The trial court grantedsummary judgment, holding that the statute of limitationsbarred all claims and that the primary insurer and itscounsel owed no duties to the excess carriers.

The supreme court reversed, holding that “the excesscarrier may bring an equitable subrogation action against boththe primary insurer and defense counsel.” 843 S.W. 2d at482. The court noted that with respect to the cause of actionagainst the lawyer, this holding differed from the general rulethat “attorneys are not ordinarily liable for damages to anonclient because privity is absent.” Id. at 484. The court,however, identified the basis of the general privityrequirement as an understandable reluctance to “permit amalpractice action by a nonclient because of the potentialinterference with the duties an attorney owes to the client,”and the court concluded that that concern was not present inthis context. Id. at 484-85. An insurance defense counsel,although paid by the insurance company, “owes the insuredthe same type of unqualified loyalty as if he had beenoriginally employed by the insured.” Id. at 484 (quotingEmployers Casualty Co. v. Tilley, 496 S.W. 2d 552, 558 (Tex.1973)). Thus, “[s]ubrogation permits the insurer only toenforce existing duties of defense counsel to the insured.” 843S.W. 2d at 484. Refusal to permit the excess carrier to enforce

the obligation of trial counsel to provide competentrepresentation “would burden the insurer with a loss causedby the attorney’s negligence while relieving the attorney fromthe consequences of legal malpractice. Such an inequitableresult should not arise simply because the insured hascontracted for excess coverage.” Id. at 485.

A concurring opinion by Justice Nathan Hecht, joinedby four other justices, stated that because the right ofsubrogation generally provides for indemnity and nothingmore,” an excess carrier may recover only the differencebetween what it was required to pay and what it would havepaid but for the primary carrier’s negligent handling of theaction, plus interest. It is not entitled to damages in its ownright or statutory or punitive damages.” Id. at 485. Thus,although the excess carriers had asserted claims based upongross negligence, breach of a duty of good faith and fairdealing, the DTPA and article 21.21 of the Insurance Code,the concurring opinion concluded that “the excess carrier islimited to an action for negligence …. “ Id. at 486.

In Keck, Mahin & Cate v. National Union Fire Ins. Co.of Pittsburgh, 20 S.W. 3d 692 (Tex. 2000), the TexasSupreme Court addressed burdens and defenses applicable inthe equitable subrogation setting. In the underlying suit, WolfPoint Shrimp Farm had sued Granada Food Corp., claimingdamages from Granada’s processing and marketing of WolfPoint’s shrimp. INA was Granada’s primary insurer andNational Union was the excess coverage insurer. Granada andINA hired Keck as insurance defense counsel. The casesettled during trial, after INA had tendered its $1 millionlimits to National and National paid a $7 million settlement.National then sued INA and Keck to recover the money itpaid to settle, alleging that INA and Keck had mishandledGranada’s defense, forcing National to settle.

Keck raised as a defense a release that Granada hadgiven it shortly before trial, and the supreme court held thatthe release could be a defense, but, based upon the languageof the release, not for claims that arose after the date of therelease. Moreover, the court concluded that fact issues existedconcerning the validity of the release and whether it was fairand reasonable. 20 S.W. 3d at 699.

The court next addressed the defense of Keck and INAthat National’s own negligence had caused it to pay too muchin settlement. The court held that as an excess carrier, Nationalhad no duty to participate in or contribute to Granada’sdefense before INA had tendered its policy limits during trial,and thus National’s alleged negligence before that point wasirrelevant; however, “[a]ny evidence that National interferedwith or controlled the defense before tender” could be relevantto the issue of comparative responsibility. Id. at 701.

On the causation issue, the supreme court explained atsome length what National would have to show to recoverany of the settlement:

To recoup any of its payment, National must prove

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that its $7 million settlement was excessive in theabstract, yet reasonable under these circumstancesbecause of the defense provided for Granada. If the valueof the case with a competent defense would have equaledor exceeded $7 million, then National suffered no harmregardless of whether INA or KMC mishandled theinsured’s defense. Even if National can prove that itssettlement was excessive, it must also prove that INA orKMC mishandled the defense and that a judgment forWolf Point in excess of the case’s true value would haveresulted from KMC’s malpractice. National’s entitlementto damages will thus depend on proof that the true valueof Wolf Point’s claim was less than $7 million but thatKMC’s malpractice inflated its value. Assuming suchproof, National may then recover as damages thedifference between the true and inflated value less anyamount saved by the settlement.

Id. at 703.

See also State Farm Mut. Automobile Ins. Co. v. Traver,980 S.W. 2d 625 (Tex. 1998) (holding that an “insurer is notvicariously liable for the malpractice of an independentattorney it selects to defend an insured”); Stonewall SurplusLines Ins. Co. v. Drabek, 835 S.W. 2d 708, 711 (Tex. App. —Corpus Christi 1992, writ denied) (holding that an excessinsurance carrier “subrogated to the insureds’ claim for legalmalpractice and negligence” against the lawyers hired by theprimary carrier to defend the underlying suit); Zuniga v.Groce, Locke & Hebdon, 878 S.W. 2d 313, 315 (Tex. App.— San Antonio 1994, writ ref’d. (recognizing that AmericanCentennial creates “an exception to [the privity] rule when anexcess insurance carrier is forced to pay a judgment becausethe primary carrier and its attorneys negligently allowed theinsured to suffer a judgment in excess of the primarycoverage”).

VIII. DUTY TO WARN. Texas courts have held that a lawyer may be

liable for failing to warn that the lawyer is notrepresenting a person if circumstances are such that thelawyer should reasonably expect that the person couldbelieve otherwise.

As the court in Burnap v. Linnartz, 914 S.W. 2d142, 148-49 (Tex. App. — San Antonio 1995, writ denied),stated this rule: “Even in the absence of an attorney-clientrelationship, an attorney may be held negligent for failing toadvise a party that he is not representing the party….Generally such negligence cannot be established in theabsence of evidence that the attorney knew the party hasassumed that he was representing them in a matter…. Ifcircumstances lead a party to believe that they are representedby an attorney, however, the attorney may be held negligent

for failing to advise that party of the attorney’s non-representation.”

In Burnap, the court of appeals held that a factissue existed concerning “whether the attorneys werenegligent in failing to advise Willard Burnap that they did notrepresent him.” Id. at 150. Evidence the court cited included:Burnap’s testimony that the lawyers had represented hisinterest, had prepared numerous documents for his signature,had never told him they did not represent his personalinterests, and had never informed him that his interests mightbe adverse to the interests of others in the various transactions;Burnap’s son’s testimony that he had retained the lawyers toprovide legal services for other business entities with whichhe and his father were involved; and the affidavit of an expertwitness who opined that the defendant lawyers hadrepresented Burnap individually, and that the lawyers hadcreated a situation in which Burnap was entitled to reasonablybelieve that the lawyers would protect his individual interests.

In Randoph v. Resolution Trust Corp., 995 F.2d 611 (5thCir. 1993), investors in a bank sued a law firm alleging,among other things, that the firm and a lender had inducedthem to enter a loan transaction without disclosing potentialregulatory problems that would arise in the stock transactionsfor which the investors borrowed the funds. The Fifth Circuitreversed a summary judgment that the trial court had grantedin favor of the lawyers. The trial court had concluded that noattorney-client relationship existed between the investors andthe lawyers, but the Fifth Circuit concluded that the summaryjudgment record raised the issue whether the law firm wasnegligent in failing to advise the investors that the firm did notrepresent them. “An attorney may be held negligent when hefails to advise a party that he is not representing that party,when circumstances lead the party to believe that the attorneyis representing him.” Id. at 615. The summary judgmentevidence supporting that theory included the following: theinvestors had instructed a co-investor who hired the firm toarrange for their legal representation in connection with thebank purchase; none of the investors had other legalrepresentation in connection with the transaction; when thelender made the loans, some of the proceeds designated forthe investors were paid to the firm for legal fees; the firmrequested and obtained conflict of interest waivers from someof the investors; and the firm prepared option agreements toallow some of the investors to purchase part of a co-investor’sstock. Id. at 616. The court concluded that potential liabilityexisted despite the general rule that “only one in privity ofcontract with an attorney may maintain a legal malpracticeaction against him.” Id.

Parker v. Carnahan, 772 S.W. 2d 151 (Tex. App. —Texarkana 1989, writ denied), arose from a lawyer’s adviceconcerning a tax issue. The plaintiff’s husband had failed tofile federal income tax returns. The criminal defense lawyerwho represented the husband in the resulting prosecution had

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the husband and the plaintiff file the missing returns. Becausethe return prepared was in the form on “married filingjointly,” when the husband and wife ultimately divorced andthe husband failed to pay the taxes as required by the divorcedecree, the wife remained liable for $100,000. She then suedthe lawyers involved in the tax matter. The trial court grantedsummary judgment, but the court of appeals reversed. Thecourt first analyzed whether the summary judgment evidenceraised a fact issue concerning whether an attorney-clientrelationship existed. The plaintiff had testified that she wasnever told that the lawyers were not representing her, but thather only relevant encounter with the lawyers was on theoccasion when she went to one of the lawyers’ offices to signthe tax returns. She testified that she understood that the taxreturns were necessary so that the IRS and the judge in herhusband’s case would take a more favorable view of his case.Under these facts, the court concluded that no attorney-clientrelationship existed, though the court emphasized that usuallythe relationship is easy to demonstrate:

The relationship of attorney and client is usuallynot a difficult matter for the client to establish, butthe duty owed by the attorney to the client is oftenan issue contested at trial…. The legal relationshipof attorney and client is purely contractual andresults from the mutual agreement andunderstanding of parties concerned, based uponthe clear and express agreement of the parties asto the nature of the work to be undertaken and thecompensation to be paid therefore…. The contractof employment may be implied by the conduct ofthe two parties…. All that is required is that theparties explicitly or by their conduct manifest anintention to create the attorney-client relationship.

Id. at 156 (citations omitted). The court concluded that themere fact that the communications and the signing of thereturns occurred in the lawyer’s office did not establish therelationship, and the filing of the returns was a matter“incidental to the representation” of the husband. Id. Thus, thecourt held, no relationship existed and none could be inferred.On the duty to warn theory, however, the court found that afact issue existed that precluded summary judgment.

Except for matters involving fraud or dangerousconduct constituting a breach of duty owed to thegeneral public, Texas courts have generallyrecognized that a non-client has no cause of actionagainst an attorney for negligent performance oflegal work. This is based upon the lack of privitybetween them…. The general rule is that in theabsence of evidence that the attorney knew thatthe parties had assumed that he was representing

them in a matter, the attorney had no affirmativeduty to inform the person that he was not theirattorney…. On the other hand, an attorney can beheld negligent where he fails to advise a party thathe is not representing them on a case where thecircumstances lead the party to believe that theattorney is representing him…. This duty to soadvise would arise if the factfinder determinedthat the attorneys were aware or should have beenaware that the conduct would have led areasonable person to believe that she was beingrepresented by the attorneys.

Id. at 156-57. Accordingly, the court reversed the summaryjudgment and remanded the case.

In Kotzur v. Kelly, 791 S.W. 2d 254 (Tex. App. —Corpus Christi 1990, no writ), the court of appeals followedthe Parker rationale, and concluded that a fact issue existedprecluding summary judgment. The underlying suit arosefrom a real estate transaction. The plaintiffs bought propertyfrom their father, and alleged that lawyer Kelly representedboth them and their father at the closing and failed to informthem of the existence of a lien that ultimately resulted in theirhaving to pay one of their father’s debts. The lawyer testifiedthat he had not felt that he was dealing with two differentparties, and that he knew that the plaintiffs did not have aseparate lawyer. He also admitted that he prepared all of thedocuments and did so on a “family-type basis.” Additionally,he prepared a closing statement that charged the plaintiffs forattorney’s fees. The plaintiffs also testified that they felt thelawyer was representing them and that he never indicateddifferently. Under these facts, the court found that the case fitunder both the implied-relationship theory and the duty towarn doctrine. “An attorney-client relationship may beimplied from the conduct of the parties…. Further, anattorney may be held negligent when he fails to advise a partythat he is not representing them on a case when thecircumstances lead the party to believe that the attorney isrepresenting them.” Id. at 257-58.

In SMWNPF Holdings, Inc. v. Devore, 165 F. 3d 360(5th Cir. 1999), the purchaser of a hotel sued the lawyers whoprepared documents relating to the transaction afterdiscovering that the agreement required the purchaser totransfer the property to another party. The purchaser sued theattorneys when it lost title to the hotel. The purchaser claimedthat it signed the documents by mistake, thinking that it wassigning a different version of the agreement that did notrequire the transfer. In its suit against the attorneys, thepurchaser claimed first that the attorneys had represented itand had committed malpractice by allowing the purchaser’srepresentative to sign the wrong version of the agreement.Alternatively, the purchaser claimed that the attorneys

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negligently failed to disclose that they were not serving ascounsel for the purchaser. The attorneys denied that they hadacted as the purchaser’s attorneys. They contended that theywere simply performing services for the purchaser toaccomplish the closing — specifically, that they werenegotiating the contracts and preliminary drafts of theconveyance documents on behalf of the assignor. Theattorneys claimed that all other work performed was “purelyof an administrative nature.” Id. at 363.

The court of appeals affirmed the trial court’s summaryjudgment against the purchaser. On the purchaser’s failure-to-warn claim, the courts relied on a letter from the attorneysstating that they represented one of the other parties to thetransaction. The court affirmed summary judgment in the faceof other evidence in the case that included:

• A statement by one of the attorneys thathe could represent the purchaser in theclosing of the transaction;

• A letter from the other attorney to thepurchaser requesting “generalinstructions on how you wish our office toproceed with this matter”;

• Another letter stating that the attorneysinferred from the purchaser’s earlier letterchastising them for the quality of theirlegal services that “Holdings [thepurchaser] desires our office and theemployees of Larken [a limited partner ofthe party who transferred to the purchaseran assignment of its right to purchase thehotel] to continue to handle the pre-closing matters in the ordinary course”;

• The attorneys prepared the closingdocuments, including a corporateresolution for the purchaser to accept theassignment and a certificate attesting tothe purchaser’s officers;

• A communication from one of theattorneys to the purchaser’srepresentative requesting the signedassignment.

Id. Notwithstanding that evidence, the trial court concludedthat the attorneys did not have an affirmative duty to informthe purchaser that they did not represent it, and that the pre-closing letter stating that they represented the assignor servedas notice that they were not representing the purchaser. Id. at364, n.10. The trial court also concluded that there wasnothing in the record that could lead a reasonable trier of factto conclude that the purchaser was represented by thedefendant attorneys, and that the attorneys had no reason tothink that the purchaser believed them to be its counsel for the

transaction. Id. at 366. The court of appeals agreed that thetrial court’s decision was supported by the “unequivocalcorrespondence” from the attorneys indicating that theyrepresented the assignor. Id.

See also Bergthold v. Winstead Sechrest & Minick, P.C.,2009 WL 226026, at *5, 8 (Tex. App. – Fort Worth 2009, nopet.) (stating that “[e]ven in the absence of an attorney-clientrelationship, an attorney may be liable for negligently failingto advise a party that he is not representing the party. . . . Generally, such negligence cannot be established in theabsence of evidence that the attorney knew that the party hadassumed that he was representing the party in a matter. . . . Ifcircumstances lead a party to believe that it is represented byan attorney, however, the attorney may be held negligent forfailing to advise that party of the attorney’s non-representation. . . . The question is whether the attorney wasaware or should have been aware that his conduct would haveled a reasonable person to believe that the attorney wasrepresenting that person.”; and concluding that the summaryjudgment evidence conclusively negated any duty by thelawyer to inform the plaintiff that the lawyer did not representthe plaintiff in the underlying matter, and stating that “[s]ucha duty may arise when circumstances lead a reasonableperson to believe they are represented by the attorney.”);O’Neill v. Roebuck, 1994 WL 103331 (Tex. App. —Beaumont March 31, 1994, no writ) (affirming summaryjudgment for the defendant lawyer, and concluding that theplaintiff could not successfully rely on Parker because shemerely had concluded unilaterally that the lawyer was her“perpetual attorney”); see also Restatement §14 (providingthat an attorney-client relationship can exist when “a personmanifests to a lawyer the person’s intent that the lawyerprovide legal services for the person” and “the lawyer fails tomanifest lack of consent to do so, and the lawyer knows orreasonably should know that the person reasonably relies onthe lawyer to provide the services”); ABA Comm. on Ethicsand Prof. Resp., Formal Op. 97-407 (“The Committeepreviously has stated that, as a general matter, a client-lawyerrelationship can ‘come into being as a result of reasonableexpectations [of the client] and a failure of the lawyer todispel these expectations.’ ABA Formal Opinion 95-390 at8.”).

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a lawyer s duties owed to clients, prospective clients, and nonclients · 2013-10-17 · a...

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