Summary
interpreting Rule 1.08 as “stating that an attorney must obtain written consent prior to entering a business transaction with a client”
Summary of this case from In re PaceOpinion
No. 01-05-00445-CV
Opinion issued June 15, 2006.
On Appeal from the 268th District Court, Fort Bend County, Texas, Trial Court Cause No. 04-CV-136678.
Panel consists of Justices KEYES, ALCALA, and BLAND.
MEMORANDUM OPINION
Appellant, Cleveland Johnson, appeals from a no-evidence summary judgment rendered in favor of appellee, Charlie Williams. Johnson's suit sought to quiet title and alleged causes of action for fraud and breach of fiduciary duty. Johnson also petitioned for declaratory relief. In two issues on appeal, Johnson contends that the trial court erred by: (1) granting Williams' no-evidence motion for summary judgment despite Johnson's bringing forth more than a scintilla of probative evidence on each of his causes of action and (2) declining to consider Johnson's request for declaratory relief.
We reverse and remand the cause.
BACKGROUND
In 1998, Johnson acquired a home in Missouri City, Texas. Through his purchase of the home, Johnson became a mortgagor owing monthly payments to Midland Mortgage. In the summer of 2002, Johnson fell behind in his mortgage payments, and Midland Mortgage posted his home for foreclosure sale. Subsequently, Johnson was contacted by various individuals, including Pamela Bolton, who represented that they could aid Johnson in preventing the foreclosure sale of his home. Bolton met with Johnson in late August to discuss the pending foreclosure sale of Johnson's home. On or about August 28, 2002, Bolton presented a sales contract to Johnson whereby Bolton would acquire Johnson's home in exchange for a payment of $15,000. Johnson claims that Bolton told him he would be able to regain the home if he made monthly payments to her for one year. He requested three days to consider the terms of Bolton's offer and contacted Williams, an attorney he knew socially, for assistance in reviewing the contract. Williams agreed to assist Johnson, and the two met at Williams' law office on or about August 28, 2002 to discuss Bolton's offer.
Johnson and Williams present divergent versions of what transpired at their meeting. Williams, who contends that the meeting occurred on or about August 28, avers that Johnson explained to him that Bolton's offer was unduly stringent. Johnson, according to Williams, stated that he would lose his home if he agreed to Bolton's proposal; rejecting her proposal, however, would result in a foreclosure sale. Williams contends that after Johnson explained his predicament, Johnson proposed an alternative — he would sell his home to Williams if Williams would allow him to continue living in the home for $500 a month in rent. Williams agreed to Johnson's offer, and Johnson signed a warranty deed — which, according to Williams, occurred the day after he and Johnson initially met — conveying the property to Williams for "ten dollars and other good and valuable consideration." After the deed was signed, Williams: (1) sent Midland Mortgage an escrow funds check in the amount of $11,252.01; (2) paid Midland $795.00 in attorneys' fees; (3) paid $3,100 in delinquent homeowner's association dues; and (4) agreed to let Johnson continue living in the home for a monthly rent of $500. Williams denies that he entered into an attorney-client relationship with Johnson before their meeting, at the meeting, or anytime thereafter.
Johnson's recounting of the meeting conflicts sharply with Williams' version. According to an affidavit offered by Johnson in response to Williams' no-evidence motion for summary judgment, when Johnson entered Williams' office, Williams was on the telephone with Midland Mortgage discussing the pending foreclosure of Johnson's home. The representative from Midland asked to speak with Johnson in order to confirm that Williams was his attorney. Johnson took the telephone and informed the representative that Williams was representing him in the foreclosure matter. While Johnson was on the telephone, Williams presented him with some unidentified papers, which Johnson signed. After the telephone call was completed, Williams briefly reviewed Bolton's offer and told Johnson that he would lose his house forever if he signed the contract. Williams then represented that he could stop Midland from foreclosing and enable Johnson to keep his home in exchange for a fee. Despite an inquiry from Johnson, Williams refused to say what his fee would be, although he did suggest that it would be relatively modest.
Subsequently, Williams refused to provide Johnson with any documentation regarding the amount of money Williams paid to Midland or to enter into a written agreement with Johnson detailing how Johnson was to repay Williams for any payments Williams made on his behalf. According to Johnson, Williams informed him that documentation was not needed and indicated that Johnson should simply trust him. Williams further informed Johnson that he should not discuss the matter with anyone else. Johnson then wrote Williams a check for $1,500, which Johnson believed to be the first step toward repaying Williams for the money Williams loaned him in order to prevent the foreclosure. Johnson subsequently made eight monthly payments of $500 to Williams, payments he also describes as "repayments of the loan" he received from Williams. Johnson maintains that he never intended to convey his property to Williams, and he contends that an attorney-client relationship existed between Williams and himself. Johnson further maintains that the only papers he signed were those Williams placed before him during his visit to Williams' office. He contends that his meeting with Williams occurred on August 29 and that he did not return the following day for the purpose of signing the warranty deed. The deed was acknowledged on August 29.
On July 3, 2003, Williams sent Johnson a letter indicating that he would need to take possession of the house due to unpaid property taxes and homeowner's association dues. Williams sent Johnson another letter eight days later stating, "I need possession of the premises on or before August 15, 2003." A third letter, sent on August 13, stated that the Fort Bend county tax assessor was threatening to foreclose on the property. The letter added, "I don't see how you expect to live there free and I pay all the bills. You promised to pay me $500 per month, but the last payment from you was in April 2003."
On March 4, 2004, Williams filed a forcible entry and detainer suit seeking to take possession of the premises. After a hearing, a judgment for possession was rendered in Williams' favor. Johnson then filed an in forma pauperis appeal, and, on June 11, 2004, brought suit against Williams seeking to quiet title and obtain declaratory relief, and alleging fraud and breach of fiduciary duty. Williams moved for a no-evidence summary judgment on December 8, 2004, and Johnson responded on December 21, 2004. Johnson's response included his own affidavit describing his meetings with Bolton and Williams and a letter sent by Williams to Midland Mortgage stating, "I have been retained to represent Mr. Johnson in the foreclosure sale of his property." Williams' no-evidence summary judgment was granted on January 14, 2005. After his motion for new trial was denied, Johnson timely filed his notice of appeal.
In addition, on July 15, 2004, Johnson filed a notice of lis pendens, contending that he was the sole owner of the property and had been fraudulently induced into conveying it to Williams.
DISCUSSION
Standard of Review
A no-evidence summary judgment is essentially a directed verdict granted before trial, to which we apply a legal-sufficiency standard of review. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750-51 (Tex. 2003); Jackson v. Fiesta Mart, Inc., 979 S.W.2d 68, 70 (Tex.App.-Austin 1998, no pet.). In general, a party seeking a no-evidence summary judgment must assert that no evidence exists as to one or more of the essential elements of the nonmovant's claims on which it would have the burden of proof at trial. Holmstrom v. Lee, 26 S.W.3d 526, 530 (Tex.App.-Austin 2000, no pet.). Once the movant specifies the elements on which there is no evidence, the burden shifts to the nonmovant to raise a fact issue on the challenged elements. Tex. R. Civ. P. 166a(i). "A no-evidence summary judgment will be sustained when (a) there is a complete absence of evidence of a vital fact, (b) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a scintilla, or (d) the evidence conclusively establishes the opposite of a vital fact." King Ranch, 118 S.W.3d at 751 (quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)) We view the evidence in the light most favorable to the non-movant, disregarding all contrary evidence and inferences. Id. (citing Merrell Dow Pharms., 953 S.W.2d at 711).
A no-evidence summary judgment is improperly granted if the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact. King Ranch, 118 S.W.3d at 751. When the evidence supporting a finding rises to a level that would enable reasonable, fair-minded persons to differ in their conclusions, more than a scintilla of evidence exists. See Merrell Dow Pharms., 953 S.W.2d at 711. A defendant who moves for summary judgment need negate only one element of the plaintiff's cause of action. See Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970).
Do Genuine Issues of Material Fact Exist Regarding Johnson's Suit to Quiet Title and Claims for Fraud and Breach of Fiduciary Duty ?
In his first issue on appeal, Johnson contends that the trial court erred in granting Williams' no-evidence motion for summary judgment because genuine issues of material fact exist regarding his causes of action. In support of his position, Johnson cites his sworn affidavit describing his meetings with Bolton and Williams.
To constitute valid summary judgment evidence, an affidavit must do more than offer mere legal conclusions or subjective opinions. See Randall v. Dallas Power Light Co., 752 S.W.2d 4, 5 (Tex. 1988); Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984). An affidavit avoids being conclusory when it provides a factual bases for its underlying legal conclusions. See Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex.App.-Houston [1st] 1997, no writ). Here, as a preliminary matter, we note that Johnson's affidavit does not offer mere legal conclusions or subjective opinions. Rather it provides a description of the facts surrounding his meetings with Bolton and Williams.
1. Suit to Quiet Title
In his first cause of action, Johnson sought to quiet title to the property in question. "The principal issue in a suit to quiet title is as to the existence of a cloud [on the title] that equity will remove." Bell v. Ott, 606 S.W.2d 942, 952 (Tex.Civ.App.-Waco 1980, writ ref'd n.r.e.); see also Wright v. Matthews, 26 S.W.3d 575, 578 (Tex.App.-Beaumont 2000, pet. denied). A suit to quiet title "`enable[s] the holder of the feeblest equity right to remove from his way to legal title any unlawful hindrance having the appearance of a better right'" to the property. Bell, 606 S.W.2d at 952 (quoting Thompson v. Locke, 66 Tex. 383, 1 S.W. 112, 115 (Tex. 1886)). In a suit to quiet title, the plaintiff must show ownership of the disputed property and that the alleged adverse claim is a cloud on the title that equity will remove. See Fricks v. Hancock, 45 S.W.3d 322, 327 (Tex.App.-Corpus Christi 2001, no pet.); Aransas Props., Inc. v. Brashear, 410 S.W.2d 934, 940 (Tex.Civ.App.-Corpus Christi 1967, writ ref'd n.r.e.). "Any deed, contract, judgment or other instrument not void on its face that purports to convey an interest in or make any charge upon the land of a true owner, the invalidity of which would require proof, is a cloud upon the legal title of the owner." Best Inv. Co. v. Parkhill, 429 S.W.2d 531, 534 (Tex.Civ.App.-Corpus Christi 1968, writ dism'd w.o.j.).
In his no-evidence motion for summary judgment, Williams contended that Johnson had produced no evidence of a cloud on his purported title to the property that equity would remove. We disagree. In his affidavit, Johnson states that (1) he purchased the property in question in 1988 and (2) he never intended to transfer title to Williams. Conversely, Williams proffers the general warranty deed he claims was executed on or about August 29 as proof that he holds a fee simple interest in the property. The general warranty deed serving as the basis of Williams' claim is not void on its face and purports to convey an interest in the property to Williams. See Parkhill, 429 S.W.2d at 534. The existence of Williams' deed, competing with Johnson's, provides more than a scintilla of evidence that a cloud exists on Johnson's claim to title.
Johnson's original petition includes a copy of a special warranty deed, dating to 1988, that conveys the property to Johnson.
Typically, a signed and acknowledged deed creates a presumption that "the grantor intended to convey the land according to the terms of the deed." Thornton v. Rains, 299 S.W.2d 287, 288 (Tex. 1957). This presumption may be rebutted, however, by contrary evidence showing "fraud, accident, or mistake." Id. Notably, "[t]he question of whether an instrument written as a deed is actually a deed or is in fact a mortgage is a question of fact." Johnson v. Cherry, 726 S.W.2d 4, 6 (Tex. 1987). Here, Johnson maintains in his affidavit that (1) Williams represented to him that he would be able to keep his home, (2) he believed that Williams was loaning him money to prevent foreclosure by Midland, and (3) he never intended to convey his home to Williams by general warranty deed. Such facts, if true, provide more than a scintilla of evidence that the deed relied on by Williams may be invalid due to fraud. In short, Johnson presented enough evidence for his suit to quiet title to survive Williams' no-evidence motion for summary judgment.
2. Suit for Fraud
In his second cause of action, Johnson alleges that Williams engaged in common law and statutory fraud. To recover for common law fraud, Johnson must prove that (1) Williams made a material representation; (2) the representation was made with knowledge of its falsity or made recklessly without any knowledge of the truth and as a positive assertion; (3) Williams made the representation with the intention that it should be acted on by Johnson; and (4) Johnson acted in reliance on the misrepresentation and thereby suffered injury. T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992); Texas Capital Sec., Inc. v. Sandefer, 58 S.W.3d 760, 771 (Tex.App.-Houston [1st] 2001, pet. denied).
In his no-evidence motion for summary judgment, Williams contended that Johnson had produced no evidence for any of the elements requisite to a claim for common law fraud. Hence, to defeat the motion, Johnson was required to raise a genuine issue of material fact as to each element of common law fraud. See Tex. R. Civ. P. 166a(i). We conclude that he has done so.
First, Johnson's affidavit contains a factual assertion that Williams represented to him that he could stop the foreclosure sale of Johnson's home while allowing Johnson to remain as the home's owner. This statement constitutes a material representation. See Custom Leasing, Inc. v. Texas Bank Trust Co., 516 S.W.2d 138, 142 (Tex. 1974) (stating that fact is material if it would likely affect conduct of reasonable person concerning transaction in question). Second, Johnson's affidavit states that Williams refused to inform him how much it would cost to stop the foreclosure or to provide him with any documentation regarding the terms of their arrangement. A specific factual allegation of such evasiveness, particularly when carried out by a licensed attorney, raises more than a scintilla of evidence that Williams knew his representations to Johnson were false. Third, Johnson's affidavit asserts that Williams: (1) stated that Bolton's offer was unfavorable; (2) indicated that he would not charge much to prevent the foreclosure sale of Johnson's home; (3) stated that Johnson could trust him (which Johnson indicates he did because Williams was an attorney) and that he could not provide such a deal for everyone; and (4) represented that Johnson would be able to keep his home. Such statements, if true, provide more than a scintilla of evidence that Williams intended for Johnson to rely on his representations. Finally, Johnson's affidavit indicates that he relied on Williams' representations in entering their agreement and that he believe Williams was providing him a loan that would be repaid in monthly installments. As a result of his reliance on Williams material representations, Johnson suffered the injury of losing his home. Thus, viewing the evidence in the light most favorable to Johnson, the nonmovant, we conclude that the facts presented in his affidavit raise more than a scintilla of evidence regarding each element of common law fraud challenged by Williams.
A misrepresentation may occur when one has a duty to disclose material facts and fails to do so. See Miller v. Kennedy Minshew, P.C., 142 S.W.3d 325, 345 (Tex.App.-Fort Worth 2003, pet. denied). According to the Texas State Bar Rules, any attorney who enters into a business transaction with a client must disclose all terms of the transaction "in a manner which can be reasonably understood by the client." Tex. Disciplinary R. Prof'l Conduct § 1.08, reprinted in Tex. Gov't Code Ann. tit. 2, subtit. G app. A (Vernon 2005). As discussed below, Johnson presented more than a scintilla of evidence suggesting that he maintained an attorney-client relationship with Williams when they agreed to the transaction in question.
A person commits statutory fraud in the course of a real estate transaction if (1) he makes a false representation of a past or existing material fact, (2) for the purpose of inducing a person to enter into a contract, and (3) the person relies on the misrepresentation in entering the contract and suffers an injury as a result. Tex. Bus. Com. Code Ann. § 27.01(a)(1) (Vernon 2004); see also SMB Partners, Ltd. v. Osloub, 4 S.W.3d 368, 372 (Tex.App.-Houston [1st] 1999, no pet.). In his no-evidence motion for summary judgment, Williams contended that Johnson failed to produce any evidence showing that he was harmed after being induced by false representations to enter into a contract with Williams. We disagree.
As noted, Johnson's affidavit provides more than a scintilla of evidence showing that: (1) Williams made a false representation regarding his intent to save Johnson's home; (2) Williams made the representation to induce Johnson into entering a contract with him; and (3) Johnson relied on the representation in entering the contract, but nevertheless lost his home. Thus, viewing the evidence in the light most favorable to Johnson, the nonmovant, we conclude that the facts presented in his affidavit raise more than a scintilla of evidence regarding each element of statutory fraud challenged by Williams.
3. Suit for Breach of Fiduciary Duty
In his third cause of action, Johnson alleges that Williams breached his fiduciary duty to Johnson arising from their attorney-client relationship. To prove a claim for breach of fiduciary duty, a plaintiff must show (1) the existence of a fiduciary relationship, (2) a breach of duty by the fiduciary, and (3) damage to the plaintiff or a benefit to the fiduciary as a result of the breach. See Burrow v. Arce, 997 S.W.2d 229, 237 (Tex. 1999). In his motion for summary judgment, Williams contended that Johnson had failed to produce any evidence showing the existence of a fiduciary relationship or a breach of any fiduciary duty. We disagree.
In certain formal relationships, including the attorney-client relationship, fiduciary duties arise as a matter of law. See Insurance Co. of North Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). According to the Restatement of the Law Governing Lawyers:
A relationship of client and lawyer arises when:
(1) a person manifests to a lawyer the person's intent that the lawyer provide legal services for the person; and either:
(a) the lawyer manifests to the person consent to do so; or
(b) the lawyer fails to manifest lack of consent to do so, and the lawyer knows or reasonably should know that the person reasonably relies on the lawyer to provide the services.
Restatement (Third) of the Law Governing Lawyers § 14 (2000); see also Mellon Serv. Co. v. Touche Ross Co., 17 S.W.3d 432, 437 (Tex.App.-Houston [1st] 2000, no pet.) (stating attorney-client relationship is contractual). Here, Johnson's response to Williams' no-evidence motion for summary judgment included a copy of a letter sent by Williams to Midland Mortgage stating, "Please be advised that I have been retained to represent Mr. Johnson in the foreclosure sale of his property." The letter, dated August 29, 2002, is printed on letterhead bearing the name of Williams' law firm and is signed by Williams. We conclude that this letter suffices to raise more than a scintilla of evidence showing that an attorney-client relationship existed between Williams and Johnson.
Williams contends that the letter is not proper summary judgment evidence because it constitutes hearsay and is not properly authenticated and therefore would be inadmissible at trial. See Fricks, 45 S.W.3d at 325 ("The standards for determining the admissibility of evidence in a summary judgment proceeding are the same as those applied in a regular trial."). Williams, however, failed to object below to the admissibility of the letter. Consequently, we conclude that he cannot challenge the propriety of its admissibility on appeal. See Tex.R.App.P. 33.1(a)(1)(A).
Attorneys owe a number of fiduciary duties to their clients, including a duty to fully disclose all material facts, a duty to refrain from self-dealing, and a duty of "most abundant good faith, requiring absolute . . . candor, openness, and honesty and the absence of any concealment or deception." Deutsch v. Hoover, Bax Slovacek, L.L.P., 97 S.W.3d 179, 196-97 (Tex.App.-Houston [14th] 2002, no pet.) (quotation omitted); see also Tex. Disciplinary R. Prof'l Conduct 1.08 (stating that a lawyer shall not enter into a business transaction with a client unless the terms of the transaction are fair and fully disclosed, the client is given an opportunity to seek the advice of independent counsel, and the client consents in writing).
Johnson's affidavit provides more than a scintilla of evidence that Williams breached the fiduciary duties he owed Johnson and that the breach resulted in a benefit to Williams. Specifically, Johnson's affidavit indicates that Williams refused to disclose the terms of their arrangement and instead advised Johnson to trust him. The affidavit also indicates, albeit somewhat indirectly, that Johnson did not consent in writing to his agreement with Williams despite the evidence that they had entered into a business transaction while in an attorney-client relationship. See Tex. Disciplinary R. Prof'l Conduct 1.08 (stating that an attorney must obtain written consent prior to entering a business transaction with a client). As a result of these alleged breaches, Williams benefitted by obtaining a general warranty deed to Johnson's home. Thus, we conclude that more than a scintilla of evidence exists showing that (1) Williams and Johnson entered an attorney-client relationship and (2) Williams breached fiduciary duties owed to Johnson as a result of that relationship to Williams' benefit and to Johnson's detriment.
In sum, we find that Johnson brought forth more than a scintilla of probative evidence to raise a genuine issue of material fact regarding the elements of each of his causes of action challenged by Williams' no-evidence motion for summary judgment. Consequently, we sustain Johnson's first issue on appeal as to his suit to quiet title and causes of action for fraud and breach of fiduciary duty.
Johnson's Request for Declaratory Relief
In his first amended petition, Johnson sought a declaratory judgment contending that "the warranty deed given to [Williams] was not a conveyance of property but rather a security interest in the property." In his second issue on appeal, Johnson contends that the trial court erred by declining to consider his request for declaratory relief because Williams' no-evidence motion for summary judgment did not ask the court to dispose of Johnson's petition for a declaratory judgment.
In its order on Williams' motion for summary judgment, the trial court stated that its decision to dispose of Johnson's claims for quiet title, fraud, and breach of fiduciary duty "preclude[d] the need . . . to consider [Johnson's] request for declaratory judgment." Declaratory relief is available only when a justiciable controversy exists concerning the rights or status of respective parties. See Texas Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). Had we affirmed the trial court's order as to Johnson's claims for quiet title, fraud, and breach of fiduciary duty, it would be necessary to consider whether a justiciable controversy remained. However, because we have sustained Johnson's first issue on appeal, it is clear that a justiciable controversy exists regarding the respective rights of Johnson and Williams relative to the deed executed on August 29, 2002. Thus, on remand, the trial court should consider Johnson's request for declaratory relief. It is therefore unnecessary to discuss the substance of Johnson's second issue on appeal. See Tex.R.App.P. 47.1.
CONCLUSION
We reverse the order of the trial court granting Williams' no-evidence motion for summary judgment and remand the cause to the trial court.