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holding attorney immune from liability to non-client for fraud based on the attorney's signing of a verification in support of a petition for a temporary restraining order and his communications with opposing counsel allegedly overstating the amount of stock that was subject to an arbitration award
Summary of this case from JJJJ Walker, LLC v. YollickOpinion
No. 01-06-00696-CV
Opinion issued March 20, 2008.
On Appeal from the 215th Judicial District Court Harris County, Texas, Trial Court Cause No. 2001-06263A.
Panel consists of Justices TAFT, HANKS, and HIGLEY.
MEMORANDUM OPINION ON REHEARING
Appellants, Dixon Financial Services, Ltd. and Hyperdynamics Corporation, have filed a motion for en banc reconsideration of our opinion. We withdraw our opinion of November 15, 2007 and substitute this opinion in its stead. Our disposition and judgment remain unchanged. Because we grant rehearing and issue a new opinion, appellants' motion for en banc reconsideration of our prior opinion is moot. See Brookshire Brothers, Inc. v. Smith, 176 S.W.3d 30, 40 (Tex.App.-Houston [1st Dist.] 2004, pet. denied) (supp. op.); Butler v. State, 6 S.W.3d 636, 637 n. 1 (Tex.App.-Houston [1st Dist.] 1999, pet. ref'd).
The trial court granted summary judgment against appellants, Dixon Financial Services, Ltd. ("Dixon Financial") and Hyperdynamics Corporation ("Hyperdynamics"), in favor of appellees, Greenberg, Peden, Siegmyer Oshman, P.C. ("Greenberg Peden"), Gerald Siegmyer ("Siegmyer"), Ron Bearden, and R.F. Bearden Associates, Inc. (collectively, "Bearden"). The trial court then severed appellants' claims against appellees into a separate cause making the earlier interlocutory summary judgment final and appealable. In two issues, appellants contend that the trial court erred by granting summary judgment in appellees' favor and by granting the severance.
We affirm.
Background
On September 9, 1999, Bearden, Erin Oil Corporation, and Bill Knollenberg, principal of Erin Oil (collectively "Erin Oil"), obtained an arbitration award against Michael Watts, a securities broker, and Texas Capital Securities, the securities brokerage firm for whom Watts worked. As part of the award, Bearden and Erin Oil were awarded, jointly and severally, "140,000 shares of common stock and 200,000 warrants in Hyperdynamics." In the arbitration proceeding, Greenberg Peden represented Bearden, and the law firm of Johnson, Burnett, Chang ("Johnson Burnett") represented Erin Oil.
On January 6, 2000, Johnson Burnett attorney James Chang sent a letter to notify Hyperdynamics's transfer agent, Fidelity Transfer Company, of the arbitration award against Watts and Texas Capital Securities. Specifically, Chang wrote, in relevant part,
[T]he purpose of this letter is to notify you in writing of such an arbitration award and to demand that Fidelity Transfer Company immediately cease and desist from transferring, conveying, or otherwise delivering on the books of [Hyperdynamics] any shares of common stock or other securities of [Hyperdynamics] that are legally or beneficially owned, held, or in the name or custody of Texas Capital and/or Watts or any of their respective affiliates or that are deposited in any accounts maintained or managed by Texas Capital and/or Watts or any of their respective affiliates.
On January 12, 2000, Chang sent another letter to Fidelity Transfer informing Fidelity, "We have recently learned that some of [the] securities of [Hyperdynamics] that our client is entitled to in accordance with the [arbitration award] are held or deposited in an account in the name of Island Communications Investments, Ltd." Chang continued,
[T]he purpose of this letter is to demand in writing that Fidelity Transfer Company immediately cease and desist from transferring, conveying, or otherwise delivering on the books of [Hyperdynamics] any shares of common stock or other securities of [Hyperdynamics] that are legally or beneficially owned, held, or in the name or custody of Island Communications Investments, Ltd.
Also on January 12, 2000, Bearden and Erin Oil filed a verified petition (hereafter referenced as "the Watts litigation") seeking confirmation of the arbitration award and requesting injunctive relief "in aid thereof" against Texas Capital, Michael Watts, and Hyperdynamics. Greenberg Peden attorney Gerald Siegmyer signed the petition on behalf of Bearden, and Chang, who represented Erin Oil, signed the petition's verification.
The petition included the following allegations in support of injunctive relief:
[Bearden and Erin Oil] are the owners of certain brokerage accounts at Texas Capital. The account numbers are 954666, 954682, and 062145. Watts was the broker assigned to the accounts. The accounts are supposed to contain 143,000 shares of HyperDynamics common stock, and Warrants to purchase 200,000 additional shares of common stock. . . .
. . . .
Watts has already admitted that, without authority to do so, he caused some securities in the accounts to be sold and used to pay his personal attorney. Hence, Watts and Texas Capital have already absconded with some securities that should have been available to satisfy the [arbitration award] and may very well do so again, if they have not already liquidated the accounts.
. . . .
HyperDynamics is a publically traded corporation whose president, chief executive officer, chief financial officer and principal individual shareholder is Kent Watts, the brother of [Michael] Watts. [Michael] Watts is listed in HyperDynamics' [most recent] 10-K Report . . . as a "consultant" to the company. . . .
At the arbitration hearing, the uncontested evidence showed that:
a.Watts had stated that he had removed shares of HyperDynamics stock from [Bearden and Erin Oil's] accounts and sold them to pay his personal legal fees.
b.Watts controlled at least two offshore Cayman Island trusts which maintained brokerage accounts at Texas Capital and for which Watts held trading authorization. The accounts were denominated as Island Communications Investments, Ltd. accounts, and were numbered 954681 and 954836. Watts transferred other shares from [Bearden and Erin Oil's] accounts into the Island Communications' accounts and stated that he would transfer shares and warrants of HyperDynamics into [Bearden and Erin Oil's] accounts; and
c.After Texas Capital ceased doing business, the records of the Island Communications accounts controlled by Watts had been removed from Texas Capital's file cabinet where they had been stored. Watts had access to the file cabinet.
[Bearden and Erin Oil] now cannot locate their accounts, or the shares or warrants of HyperDynamics that are supposed to be in the accounts. Watts has openly represented to others that whatever assets he has are located offshore and could never be reached by his creditors. It is reasonable to suspect that Watts and/or Texas Capital may cause any assets otherwise subject to execution in Texas to be moved offshore to hide, delay or defraud [Bearden and Erin Oil]. [Bearden and Erin Oil] have reason to believe that the Island Communications accounts contain some 574,100 shares HyperDynamics stock.
Bearden and Erin Oil then alleged that "[t]here is nothing to stop Watts and Texas Capital from absconding with securities before [Bearden and Erin Oil] are able to carry out and execute the [arbitration award]. . . ." (Emphasis in original.) To support their request for a temporary restraining order, Bearden and Erin Oil asserted that "Defendants should be prevented from transferring, conveying, assigning, selling or otherwise disposing of any securities of Hyperdynamics in which Texas Capital, Watts, Island Communications, or [Bearden and Erin Oil] hold a legal or beneficial interest. . . ."
On January 13, 2000, the trial court in the Watts litigation signed a temporary restraining order, requiring that the defendants in that litigation and their "agents, representatives and persons acting in concert with any or all of them" to
desist and refrain from directly or indirectly transferring, conveying, assigning, selling, buying, disposing of, or otherwise delivering any securities of HyperDynamics to any other party or parties that are legally or beneficially owned by, or in the name of, Island Communications, Watts and/or Texas Capital and that they be restrained from transferring any securities out of the accounts that are or were previously account nos. 954666, 954682, 062145, 954681 and 954836.
By letter dated January 13, 2000, Chang forwarded to Fidelity Transfer a copy of the temporary restraining order. Chang informed Fidelity Transfer that Watts, Texas Capital, and Hyperdynamics "are enjoined and prohibited from directly or indirectly transferring or otherwise delivering securities of [Hyperdynamics] that are owned, held, or in the name or custody of Texas Capital Securities, Inc., Michael E. Watts, and/or Island Communications Investment, Ltd. " (Emphasis in original.) Chang pointed out as follows: "Please note that the TRO is specific in scope and is not intended to prohibit the transfer, sale, and delivery of any of the securities of [Hyperdynamics] by any other brokers, clearing agents, buyers, or sellers."
On January 21, 2000, the trial court then signed an "Order Continuing Temporary Restraining Order," which contained the same restraints as described in the original temporary restraining order except that Hyperdynamics was no longer subject to those restrictions. Hyperdynamics was, however, restrained from
(1) permitting Michael Watts to exercise any warrant of HyperDynamics, (2) knowingly allow[ing] Michael Watts to transfer any warrant of HyperDynamics to a third-party who intends to exercise it, (3) knowingly allowing Michael Watts to sell transfer, pledge, assign, whether for value or not, (i) any share of HyperDynamics owned by him of which it has actual knowledge, or (ii) any shares which are registered in Michael Watts' name, or in the name of Island Communications and where the attempted conveyance is being made from Texas Capital Scurities account nos. 954666, 95468, 062145, 9546881, and 954836.
Bearden and Erin Oil entered into a settlement agreement with Hyperdynamics in the Watts litigation on February 4, 2000. Bearden and Erin Oil agreed to dismiss Hyperdynamics from the suit, and Hyperdynamics agreed that it would not allow Michael Watts "to sell, transfer, assign or exercise any warrant or option to purchase any securities of HyperDynamics."
On February 7, 2000, Chang e-mailed Fidelity Transfer requesting that it provide him with information regarding the Hyperdynamics stock. In this regard, Chang inquired,
[D]o you have and can you give me any account information regarding the shares of [Hyperdynamics] held in the name of Island Communications Investments, Ltd.? We would like account information with regard to the following account numbers which were initially established with Texas Capital [and owned by Bearden and Erin Oil] . . .
Chang listed the Texas Capital account numbers and then inquired, "[A]re any shares of Hyperdynamics issued in the name of Island Communications traceable to the foregoing account numbers?" A handwritten notation on the hard copy of the e-mail indicated that Fidelity Transfer could not provide the requested account information.
On February 9, 2000, Chang spoke with Fidelity Transfer's attorney. The attorney informed Chang that Kent Watts, principal of Hyperdynamics, had requested that 575,500 shares of Hyperdynamics stock, evidenced by certificate numbers 1229, 1230, 1231, and 1232, and being held in Island Communications's name, be transferred to Dixon Financial. In a memo to the file, Chang noted that he had informed Fidelity Transfer's attorney that "there were adverse claimants to those shares held in the name of Island and that [Hyperdynamics] may be prohibited from transferring any shares in the name of Island."
On February 2, 2001, Dixon Financial filed the instant suit against Hyperdynamics, Fidelity Transfer, Greenberg Peden, Siegmyer, Bearden, Erin Oil, Knollenberg, James Chang, Johnson Burnett, and two other partners of Johnson Burnett. Dixon Financial alleged that it had owned "a significant number" of shares of Hyperdynamics stock of which "certain shares" were "restricted shares" that "could not be sold until the restriction expired on January 25, 2000." Dixon Financial alleged that it had requested Hyperdynamics to "issue unrestricted share certificates when the restriction expired" and that Hyperdynamics had instructed Fidelity Transfer "to cancel the restrictions" on the shares, "certificate nos. 1229, 1230, 1231, and 1232 (representing 574,5000 shares) and issue unrestricted certificates."
Dixon Financial alleged that it had intended "to sell these unrestricted shares immediately" and that it was prevented from doing so by the named defendants. Dixon Financial asserted that Bearden, Erin Oil, and their respective attorneys, particularly, Chang, Johnson Burnett, Siegmyer, and Greenberg Peden, acting as co-conspirators, prevented Hyperdynamics from transferring timely the unrestricted shares to Dixon Financial. According to Dixon Financial, "[t]he conspiratorial conduct was performed in a[n] effort to gain possession of Hyperdynamics stock which they could use to pay the arbitration award [against Watts and Texas Capital] to the damage of Dixon."
Dixon Financial asserted that Chang and his co-conspirators had falsely claimed and misrepresented that Dixon Financial's stock shares held in the name of Island Communications were subject to the arbitration award obtained by Bearden and Erin Oil. Specifically, Dixon Financial alleged that Chang had misrepresented to Fidelity on January 6, 2000 that "the 574,500 shares of stock of Hyperdynamics held in the name of Island Communications was in fact property of Chang and Siegmyer's clients and the subject of an arbitration award." Dixon Financial further alleged that, based on the misrepresentation, Fidelity Transfer had "placed a `hold' on the 574,500 shares of Hyperdynamics stock" owned by Dixon Financial thereby preventing Dixon Financial "from exercising any ownership rights to the stock, including its ability to sell the stock at a time when the stock was trading large volume at a higher price."
Dixon Financial also claimed that "[t]he defendants intentionally and knowingly misrepresented facts to the court in order to obtain the Temporary Restraining Order" on January 12, 2000. Dixon Financial asserted that the restraining order was "sought and obtained" by "using a false and perjurious affidavit signed by Chang." Specifically, Dixon Financial contended that Chang "committed aggravated perjury when he falsely swore he possessed personal knowledge" of the facts stated in the application on which the temporary restraining order was obtained.
Dixon Financial further alleged that Chang, "with the knowledge and consent of his co-conspirators [including Bearden, Greenberg Peden, and Siegmyer], intentionally and knowingly on numerous times contacted Fidelity [Transfer] . . . and wrongfully advised the transfer agent" that the temporary restraining order "prohibited Fidelity [Transfer] from converting the restricted shares and issuing the unrestricted shares to Dixon [Financial]" and that "the unrestricted shares which were to be issued to Dixon [Financial] were the same shares referenced in the Arbitration Award and the Temporary Restraining Order."
Based on these factual allegations, Dixon Financial asserted causes of action against Bearden, Greenberg Peden, Siegmyer, Erin Oil, Chang, and Johnson Burnett for conversion, abuse of process, tortious interference, and fraud. Dixon Financial claimed that the defendants were jointly and severally liable based on theories of conspiracy, agency, and concert of action.
Dixon Financial further alleged that, when Fidelity Transfer finally transferred the stock to it, the stock "had dropped from a high in January 2000 of $7.75 per share when Dixon Financial was entitled to receive the shares to less than $2.00 resulting in a loss [to Dixon Financial] in excess of $3,000,000."
Hyperdynamics also filed a cross-claim against Bearden, Greenberg Peden, Siegmyer, Erin Oil, Chang, and Johnson Burnett alleging claims for negligent misrepresentation, tortious interference, abuse of process, malicious prosecution of a civil suit, and contribution. Like Dixon Financial's claims, Hyperdynamics's cross-claims were premised on allegations that Chang had misrepresented to the trial court and to Fidelity Transfer the extent to which the arbitration award applied to Hyperdynamics's stock held in the name of Island Communications.
Hyperdynamics also asserted a cross-claim for breach of contract. Hyperdynamics asserted that the defendants breached the February 4, 2000 settlement agreement between it, Erin Oil, and Bearden. Hyperdynamics claimed that, contrary to the terms of the settlement agreement, the defendants continued to interfere with the transfer of its stock to Dixon Financial after the settlement agreement was signed.
Greenberg Peden and Siegmyer filed motions for summary judgment asserting that Dixon Financial had no cause of action against them, as a matter of law, for conduct undertaken in the representation of a client. The attorneys based the motions for summary judgment on Dixon Financial's pleadings. The motions were not supported by summary judgment evidence. Dixon Financial responded by offering evidence to demonstrate that the attorneys engaged in "illegal" conduct outside the protections of the claimed privilege. Concomitantly, Bearden filed a motion for summary judgment contending that, as a matter of law, it could not be liable for the conduct of its attorneys.
Appellants sought to hold Bearden liable based on the conduct of its attorneys. It appears accepted by the parties that, if summary judgment was properly granted in favor of Greenberg Peden and Siegmyer based on the attorneys' claim of qualified privilege, then summary judgment was also proper in favor of Bearden.
Greenberg Peden, Siegmyer, Chang, and Johnson Burnett also filed a joint motion for summary judgment against Hyperdynamics. Among the grounds asserted in the joint motion for summary judgment was a no-evidence challenge that Hyperdynamics could present no evidence of damages, an essential element for each of its cross-claims.
The trial court granted the motions for summary judgment. After the trial court severed Dixon Financial's and Hyperdynamics's claims against Greenberg Peden, Siegmyer, and Bearden, this appeal followed.
Summary Judgment
In their second issue, appellants contend that the trial court erred by granting summary judgment in favor of Greenberg Peden, Siegmyer, and Bearden based on the summary judgment ground that Greenberg Peden was immune from liability because the complained-of conduct was undertaken in the representation of a client. Appellants generally recognize the existence of such qualified privilege, but contend that the summary judgment record demonstrates that the conduct alleged in support of their tort claims was outside the scope of this privilege. We first determine whether Greenberg Peden properly obtained summary judgment on appellants' tort claims based on this privilege.
A. Applicable Summary Judgment Standard
As movants for summary judgment, Greenberg Peden had to negate the existence of genuine issues of material fact and establish their right to judgment as a matter of law. Gibbs v. Gen. Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970); Higbie Roth Const. Co. v. Houston Shell Concrete, 1 S.W.3d 808, 811 (Tex.App.-Houston [1st Dist.] 1999, pet. denied). A defendant can prevail by summary judgment by establishing that the law does not recognize the cause of action for which the plaintiff seeks to recover. Peeler v. Hughes Luce, 909 S.W.2d 494, 497-98 (Tex. 1995); Higbie Roth Const., 1 S.W.3d at 811. Thus, as in this case, a movant may file a summary judgment motion that, instead of proving or disproving facts, shows the non-movant has no viable cause of action based on the non-movant's pleadings. Id.
Generally, summary judgment should not be granted on the basis that a pleading fails to state a cause of action, unless the deficiency is first attacked through a special exception. In re B.I.V., 870 S.W.2d 12, 13 (Tex. 1994); Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983). If a pleading deficiency is the type that cannot becured by an amendment, a special exception is unnecessary and a summary judgment based on the pleading's failure to state a cause of action is permitted. Friesenhahn v. Ryan, 960 S.W.2d 656, 658 (Tex. 1998). A non-movant, who fails to complain in the trial court that its alleged deficient pleading should have first been challenged by special exception, waives on appeal its challenge to the use of the summary judgment procedure. Higbie Roth Const. Co. v. Houston Shell Concrete, 1 S.W.3d 808, 811 (Tex.App.-Houston [1st Dist.] 1999, pet. denied).
To determine whether a cause of action exists under the circumstances pleaded, the court must assume that all of the facts alleged by the non-movant are true and indulge all reasonable inferences in the light most favorable to the non-movant. Id. at 811-12. Though it must construe the non-movant's pleadings broadly and indulge all inferences in its favor in reviewing the summary judgment, a court is not required to accept, as true, any legal conclusions stated in the pleadings. Id. at 812.
B. Legal Principles Governing an Attorney's Immunity from Suit
The public has an interest in "loyal, faithful and aggressive representation by the legal profession." Bradt v. West, 892 S.W.2d 56, 71 (Tex.App.-Houston [1st Dist.] 1994, writ denied). Texas law authorizes attorneys to "practice their profession, to advise their clients, and to interpose any defense or supposed defense, without making themselves liable for damages." Kruegel v. Murphy, 126 S.W. 343, 345 (Tex.Civ.App.-Dallas 1910, writ ref'd); see Renfroe v. Jones Assoc., 947 S.W.2d 285, 287 (Tex.App.-Fort Worth 1997, writ denied). The purpose behind this well-established rule is to allow an attorney to fulfill his duty and zealously represent his clients without subjecting himself to the threat of liability. See Bradt, 892 S.W.2d at 71. An attorney who could be held liable for statements made or actions taken in the course of representing his client would be forced constantly to balance his own potential exposure against his client's best interest. Alpert v. Crain, Caton James, P.C., 178 S.W.3d 398, 405 (Tex.App.-Houston [1st Dist.] 2005, pet. denied). Such a result would act as a severe and crippling deterrent to the ends of justice because a litigant might be denied a full development of his rights. See Bradt, 892 S.W.2d at 71. To promote zealous representation, courts have held that an attorney has "qualified immunity" from civil liability, with respect to nonclients, for actions taken in connection with representing a client in litigation. Alpert, 178 S.W.3d at 405.
This qualified immunity generally applies even if conduct is wrongful in the context of the underlying lawsuit. Id. For example, a third party has no independent right of recovery against an attorney for filing motions in a lawsuit, even if frivolous or without merit, although such conduct is sanctionable or contemptible as enforced by the statutory or inherent powers of the court. Id. (citing West, 892 S.W.2d at 72). Courts have refused to acknowledge an independent cause of action in such instances "because making motions is conduct an attorney engages in as part of the discharge of his duties in representing a party in a lawsuit." Id. (citing West, 892 S.W.2d at 72). If an attorney's conduct violates his professional responsibility, the remedy is public, not private. Renfroe, 947 S.W.2d at 287.
This rule of qualified immunity focuses on the type of conduct in which the attorney engages rather than on whether the conduct was meritorious in the context of the underlying lawsuit. Id. at 288. "[I]t is the kind — not the nature — of conduct that is controlling." Taco Bell Corp. v. Cracken, 939 F. Supp. 528, 532-33 (N.D. Tex. 1996) (emphasis in original). Thus, an attorney cannot be held liable to a third party for conduct that requires "the office, professional training, skill, and authority of an attorney." Miller v. Stonehenge/Fasa-Texas, JDC, L.P., 993 F. Supp. 461, 464 (N.D. Tex. 1998) (citing Taco Bell, 939 F. Supp. at 532). "Incorrect, meritless, and even frivolous conduct is not actionable if it satisfies this standard." Id.
An attorney's protection from liability is not boundless. An attorney can be held liable by a third-party for actions that are not part of the discharge of his duties to his client. See Bradt, 892 S.W.2d at 72. That is, the law does not provide absolute immunity for every tort committed by a lawyer that may be tangentially related to his professional role or which may occur during litigation. See id.; Miller, 993 F. Supp. at 464. By way of extreme example, an attorney who assaults the opposing party or lawyer during trial could be held liable for action. See Bradt, 892 S.W.2d at 72.
In addition, a cause of action may exist against an attorney who knowingly commits a fraudulent act outside the scope of his legal representation of the client. Alpert, 178 S.W.3d 406 (citing Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex.App.-Houston [1st Dist.] 1985, no writ)). If a lawyer participates independently in fraudulent activities, his action is "foreign to the duties of an attorney." Id. (citing Likover, 696 S.W.2d at 472 (quoting Poole v. Houston T.C. Ry. Co., 58 Tex. 134, 137 (1882)). Moreover, attorneys may also be liable to nonclients for negligent misrepresentation, under certain circumstances, despite the absence of a general negligence duty to nonclients. See McCamish, Martin, Brown Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791-94 (Tex. 1999).
C. Analysis of Immunity Claim
Appellants contend that summary judgment was improper because they alleged and showed, through their summary judgment evidence, that Greenberg Peden engaged in fraudulent conduct. Appellants' tort claims rest on the premise that, in an effort to satisfy their clients' arbitration award, Greenberg Peden, primarily through the conduct of alleged co-conspirator Chang, intentionally misrepresented the scope of the arbitration award to obtain the Hyperdynamics stock owned by Dixon Financial. The specific conduct cited by appellants is (1) Chang's signing of the verification in support of the petition for the temporary restraining order when Chang did not have personal knowledge of the facts stated in the petition and (2) the communications made by the attorneys, primarily by Chang, before and after the issuance of the temporary restraining order, to Fidelity Transfer, which appellants contend contained misrepresentations that all of the stock held in the name of Island Communications was subject to the arbitration award when, in fact, the attorneys knew only part of the stock was subject to the award.
To determine whether Chang's conduct (and therefore Greenberg Peden's) was privileged, we focus on whether the conduct concerned the discharge of Chang's duties to his client. See Bradt, 892 S.W.2d at 72. Here, the signing of the verification and the filing of the petition to obtain the temporary restraining order to secure his client's arbitration award was conduct in which an attorney engages to discharge his duties to his client. See id. at 72. As mentioned, the focus is on the kind-not the nature-of the attorney's conduct. Taco Bell Corp., 939 F. Supp. at 532-33. The signing and filing of an application for a temporary restraining order to aid in the recovery of monies owed to a client under an arbitration award is not conduct "foreign to the duties of an attorney" and is the kind of conduct protected from liability. See id; see also Renfroe, 947 S.W.2d at 288 (holding no cause of action against attorney for his participation in filing writ of garnishment with inaccurate facts); McCampbell v. KPMG Peat Marwick, 982 F. Supp. 445, 448 (N.D. Tex. 1997) (holding that plaintiff could not recover against attorney representing opposing party in previous suit based on attorney's allegedly false statements in affidavit and motion for new trial filed in that suit).
Similarly, the communications between Chang and Fidelity Transfer were acts taken and communications made to facilitate the rendition of legal services by Chang to his client. See Alpert, 178 S.W.3d at 408. Even when taken as true and construed broadly, Dixon Financial's petition alleges that the underlying purpose of the communications was for the attorneys to secure satisfaction of their clients' arbitration award. Again, such action is the kind of conduct in which an attorney engages when discharging his duties to his client. Whether the substance of the communications was incorrect or overstated does not change the kind of conduct in which Chang engaged. As attorneys representing parties given an arbitration award, Chang, his firm, and Greenberg Peden were entitled to advance their clients' positions and pursue satisfaction of the arbitration award without fear of personal liability. Characterizing an attorney's action in advancing his client's rights as fraudulent does not change the rule that an attorney cannot be held liable for discharging his duties to his client. See Lewis v. Am. Exploration Co., 4 F. Supp.2d 673, 679 (S.D. Tex. 1998) (citing Taco Bell, 939 F. Supp. 533). A plaintiff, such as Dixon Financial or Hyperdynamics, should not be allowed to "salvage an otherwise untenable claim merely by characterizing it as tortious." Miller, 993 F. Supp. at 464.
We recognize that this Court, in Likover v. Sunflower Terrace II, Ltd., upheld a jury's award against an attorney based on conspiracy to defraud. 696 S.W.2d 468, 473 (Tex.Civ.App.-Houston [1st Dist.] 1985, no writ). However, Likover, unlike our later decision in Bradt, involved allegations that an attorney assisted clients in fraudulent business schemes and did not involve conduct taken in the context of litigation or another adversarial proceeding. See Miller, 993 F. Supp. at 465 (noting, "One distinction is that Bradt and its progeny involve actions taken in the context of litigation, such as filing motions or making legal arguments. The other cases [including Likover] typically involve lawyers assisting their clients in perpetuating fraudulent business schemes.").
Here, the conduct cited by appellants occurred in an adversarial context. Specifically, the attorneys engaged in the complained-of conduct as part of post-arbitration proceedings, an adversarial process similar to litigation. Much of the cited conduct occurred as part of the initiation of, or subsequent to, the litigation filed to confirm and to recover the arbitration award. Thus, the attorneys' conduct alleged in this case is distinct from that in Likover.
Appellants contend that the trial court's decision to grant summary judgment on Hyperdynamics's negligent misrepresentation claim is contrary to the holding of McCamish, Martin, Brown Loeffler v. F.E. Appling Interests, 991 S.W.2d 787 (Tex. 1999). In McCamish, the supreme court held that, under certain limited circumstances, a nonclient may bring a Restatement of Torts section 552 negligent misrepresentation claim against an attorney. 991 S.W.2d 787, 793-795 (Tex. 1999). The McCamish court explained that, with respect to a section 552 suit between a nonclient and an attorney, "[a] typical negligent misrepresentation case involves one party to a transaction receiving and relying on an evaluation, such as an opinion letter, prepared by another party's attorney." Id. at 793. For example, in McCamish, a nonclient brought a section 552 claim against an attorney based on the attorney's representations indicating that a settlement agreement complied with a federal statute. Id. at 789-90.
Section 552 provides as follows:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
RESTATEMENT (SECOND) OF TORTS § 552(1) (1977).
Here, Hyperdynamics did not allege that appellees, through Chang, conveyed a legal opinion or evaluation to Fidelity Transfer regarding the Hyperdynamics stock; rather, it alleged that appellees contacted Fidelity Transfer and asserted an ownership interest in Hyperdynamics's stock based on the arbitration award. Unlike the representations mentioned in McCamish, the ones at issue here were objective, non-evaluative claims with respect to the stock.
The McCamish court also pointed out that the nature of the relationship between the attorney and the nonclient is significant when determining whether a nonclient may successfully bring a section 552 claim against an attorney. In this regard, the court wrote,
Generally, courts have acknowledged that a third party's reliance on an attorney's representation is not justified when the representation takes place in an adversarial context. This adversary concept reflects the notion that an attorney, hired by a client for the benefit and protection of the client's interests, must pursue those interests with undivided loyalty (within the confines of the Texas Disciplinary Rules of Professional Conduct), without the imposition of a conflicting duty to a nonclient whose interests are adverse to the client. Because not every situation is clearly defined as adversarial or nonadversarial, the characterization of the inter-party relationship should be guided, at least in part, by the extent to which the interests of the client and the third party are consistent with each other.
Id. at 794 (internal citations and quotations omitted). Here, Hyperdynamics's cross claim, asserting a section 552 claim, indicates that the interests of appellees and Fidelity Transfer were not consistent. The pleading alleges that appellees' representations interfered with Fidelity Transfer's duty to issue timely unrestricted stock certificates of Hyperdynamics stock to Dixon Financial, as directed. Based on Fidelity Transfer's alleged failure to issue the stock certificates timely, Hyperdynamics's cross claim reflects that it also sued Fidelity Transfer. Hence, the cross claim indicates that appellees' and Fidelity Transfer's interests were not aligned and can most accurately be characterized as adverse.
Hyperdynamics's cross claim further indicates that Fidelity Transfer's reliance on appellees' representations was not "justifiable," as required. See id. Hyperdynamics alleged in its cross claim that "Fidelity Transfer knew or should have known that the Dixon shares were certificated and could not have been shares in which [appellees] held an interest." Though it contends that Fidelity Transfer relied on appellees' representations regarding the stock, Hyperdynamics does not allege that the reliance was reasonable or justifiable; rather, its allegations indicate that Fidelity Transfer's reliance was not justifiable.
In sum, we disagree with appellants that an analysis under McCamish requires us to reverse the trial court's summary judgment with respect to Hyperdynamics's negligent misrepresentation claim. The subject representations in this case are not evaluative type representations like those described in McCamish. Moreover, given the allegations in Hyperdynamics's cross-claim, Fidelity Transfer did not justifiably rely on appellees' alleged misrepresentations.
Appellants also assert that immunity should not apply because Dixon Financial was not a party in the Watts litigation and "most of Hyperdynamics's claims are derivative of Dixon's." This argument has been considered and rejected by other courts. In Miller, the court wrote,
It seems to the Court that this is a distinction without a difference. The rationale for the rule insulating a lawyer from liability for conduct that requires "the office, professional training, skill, and authority of an attorney" is equally applicable to actions brought by third-parties who did not participate in the underlying litigation. The threat of liability from any source could potentially deter a lawyer from exercising independent professional judgment on behalf of her client.
993 F. Supp. at 464 at n. 2; see also Collin County v. Johnson, No. 05-99-00034-CV, 1999 WL 994039, at *4 (Tex.App.-Dallas Nov. 3, 1999, no pet.) (not designated for publication) (rejecting assertion that attorney's conduct was actionable because plaintiff was not party to underlying litigation). We agree with the reasoning in Miller. Whether a plaintiff who institutes the suit against an attorney was also a party in the underlying litigation is not a determinative factor in deciding whether the attorney's conduct is actionable.
Appellants also assert that the attorneys in this case cannot claim qualified immunity because they were not acting as attorneys when engaging in the subject conduct, but were participants in the Watts litigation. Appellants claim that the attorneys had an ownership interest in the Hyper dynamics stock. To support this contention, appellants point to a joint defense agreement between Erin Oil and Bearden. Appellants cite no legal authority in support of this contention and their reliance on the joint defense agreement is not fully articulated or self-evident. As such, we do not consider appellants' contention on this point.
Construing the pleadings and summary judgment evidence liberally in favor of appellants, the acts alleged by appellants constitute conduct undertaken by attorneys to assist a client in securing and recovering an arbitration award. Such conduct is the kind of conduct in which an attorney engages in discharging his duties to his client. Labeling the conduct as fraudulent does not automatically make it actionable and the attorneys liable for tort damages. We conclude that Greenberg Peden, Siegmyer, and Bearden were, as a matter of law, not liable for the conduct alleged in this case. Accordingly, we hold that the trial court properly granted summary judgment in favor of Greenberg Peden, Siegmyer, and Bearden against Dixon Financial and against Hyperdynamics with regard to its tort claims.
D. Hyperdynamics's Breach of Contract Claim
In the second issue, Hyperdynamics also challenges the trial court's summary judgment against it on its breach of contract cross-claim. In its opening brief, Hyperdynamics contends that "there can be no privilege to breach settlement agreements[,] and the trial court erred in implicitly holding that there was." In other words, Hyperdynamics contends that, even if viable, the attorney privilege discussed above does not act to preclude its breach of contract cross-claim.
The joint motion for summary judgment as to Hyperdynamics's cross-claims was both a traditional motion for summary judgment, based on the attorney privilege, and a no-evidence motion for summary judgment. The no-evidence motion for summary judgment asserted that "Hyperdynamics has offered no evidence of any actual damages suffered." (Emphasis in original.) The no-evidence motion for summary judgment asserted that "damages" was an essential element of each of Hyperdynamics's cross-claims, which necessarily included Hyperdynamics's breach of contract claim. Greenberg Peden and Bearden asserted that Hyperdynamics could produce no evidence that it suffered damages as a result of the alleged breach of contract because the damages claimed by Hyperdynamics for that cause of action were damages allegedly suffered by Dixon Financial, not Hyperdynamics.
When the trial court does not specify the basis for its summary judgment, as here, the appealing party must show it is error to base it on any ground asserted in the motion. Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 (Tex. 1995). If summary judgment may have been rendered, properly or improperly, on a ground not challenged, the judgment must be affirmed. Ellis v. Precision Engine Rebuilders, Inc., 68 S.W.3d 894, 898 (Tex.App.-Houston [1st Dist.] 2002, no pet.) (citing Holloway v. Starnes, 840 S.W.2d 14, 23 (Tex.App.-Dallas 1992, writ denied)).
In its opening brief, Hyperdynamics did not challenge this ground with respect to its breach of contract claim. Nonetheless, the summary judgment against Hyperdynamics on its breach of contract claim may have been granted, properly or improperly, on this unchallenged ground. See id. Because it does not negate the no-evidence ground with regard to damages, we hold that Hyperdynamics did not meet its appellate burden to show that the trial court erred in granting summary judgment on its breach of contract claim. See id.; see also Bynum v. Prudential Residential Servs., Ltd. P'shp, 129 S.W.3d 781, 795 (Tex.App.-Houston [1st Dist.] 2004, pet. denied) (following Ellis).
We need not address the summary judgment grounds relating to Hyperdynamics's breach of contract claim that are challenged by Hyperdynamics on appeal. See Ellis v. Precision Engine Rebuilders, Inc., 68 S.W.3d 894, 898 (Tex.App.-Houston [1st Dist.] 2002, no pet.).
We hold that the trial court properly granted summary judgment in favor of Greenberg Peden, Siegmyer, and Bearden on all of Dixon Financial's and Hyperdynamics's claims.
We overrule appellants' second issue.
Severance of Dixon Financial's and Bearden's Claims
In their first issue, Dixon Financial and Hyperdynamics contend that the trial court erred by severing their claims against Greenberg Peden, Siegmyer, and Bearden (referred to as "appellees" for purposes of this issue) from the remainder of the case.
As pointed out by appellees, Dixon Financial has waived its right to complain about the severance on appeal because it did not object to the severance in the trial court. Guerra v. Texas Dep't of Protective Regulatory Servs., 940 S.W.2d 295, 299 (Tex.App.-San Antonio 1997, no pet.); see TEX. R. APP. P. 33.1. For this reason, only the severance of Hyperdynamics's claims is at issue.
Rule 41 of the Texas Rules of Civil Procedure provides that "[a]ny claim against a party may be severed and proceeded with separately." TEX. R. CIV. P. 41. We will not reverse a trial court's order severing a claim unless the trial court abused its discretion. Guar. Fed. Sav. Bank v. Horseshoe Op. Co., 793 S.W.2d 652, 658 (Tex. 1990).
A claim is properly severable if (1) the controversy involves more than one cause of action, (2) the severed claim is one that would be the proper subject of a lawsuit if independently asserted, and (3) the severed claim is not so interwoven with the remaining action that they involve the same facts and issues. Id. The Supreme Court of Texas has explained that avoiding prejudice, doing justice, and increasing convenience are the controlling reasons to allow a severance. F.F.P. Operating Partners, L.P. v. Duenez, No. 02-0381, 2007 WL 1376357, at *11 (Tex. May 11, 2007).
Given that the severance of Dixon Financial's claims against appellees must remain undisturbed due to the lack of objection in the trial court, we cannot conclude that the trial court abused its discretion by severing Hyperdynamics's claims against appellees. The record shows that Hyperdynamics's claims are primarily derivative of, or closely aligned with, Dixon Financial's claims against appellees. Hyperdynamics's cross-claims against appellees are "interwoven with" Dixon Financial's claims against appellees, not with the remaining action. For this reason, severance of Hyperdynamics's cross-claims against appellees, along with Dixon Financial's claims, served to avoid prejudice, to do justice, and to increase convenience. See id. Thus, we cannot say that the trial court abused its discretion by severing Hyperdynamics's claims against appellees.
We overrule appellants' first issue.
Conclusion
We affirm the judgment of the trial court.