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declining to adopt, sua sponte, the 1988 Revision despite Texas courts' lasting commitment to the RESTATEMENT for choice-of-law issues
Summary of this case from Curl v. Greenlee Textron, Inc.Opinion
Civil Action No. 3:01-CV-2185-D
January 5, 2004
MEMORANDUM OPINION AND ORDER
Defendants' motion for summary judgment presents a choice-of-law question that requires the court to decide whether Texas would apply its own statute of limitations to Plaintiff's' legal malpractice and related claims or would follow the Restatement (Second) of Conflict of Laws and, under the Restatement factors, apply California's statute of limitations. The court holds that Texas would apply its own statute of limitations as a matter of procedure and that, under Texas law, defendants are not entitled to summary judgment.
I
Plaintiff's Robert E. Woolley and Minnesota Hotel Company, Inc., f/k/a Robert E. Woolley, Inc. (collectively, "Woolley"), sue defendants Clifford Chance Rogers Wells, L.L.P. and Rogers and Wells, L.L.P. (collectively, "Rogers Wells") alleging claims for negligence/legal malpractice, breach of fiduciary duty, breach of contract, and unjust enrichment. Woolley was a general partner in limited partnerships that developed hotels. The limited partners had the right in certain instances to exercise put options that allowed them to sell their units back to Woolley. In 1989 certain limited partners brought a class action against Woolley in California federal court that involved the put options. Ultimately, six class actions were filed (collectively, the "Kiefer Litigation"). Woolley retained Rogers Wells to represent him. A partner in the firm's Los Angeles office prepared stipulations of settlement to resolve the lawsuits. Woolley alleges that, despite instructions that no settlement include his personal liability to purchase tendered units-instead, he would only commit his partnership interests in satisfaction of the put options-Rogers Wells negligently prepared stipulations of settlement that included a faulty "best efforts" clause. He maintains that the "best efforts" clause was sufficiently ambiguous that it enabled certain of the class action Plaintiff's to assert in two subsequent state court suits that he was personally obligated to purchase limited partnership units for cash. One, the Ackerman Suit, was filed in 1995; the other, the Allen Suit, was filed 1996.
Defendants have filed their summary judgment motion under the name "Clifford Chance US LLP" ("Clifford Chance"), contending that Clifford Chance is the successor to Rogers Wells and is formerly known as Clifford Chance Rogers Wells, LLP and Rogers and Wells, LLP. Because Woolley complains of legal services provided by a partner of Rogers Wells, the court for clarity will refer to defendants collectively as "Rogers Wells."
This attorney left the firm in 1993, and Rogers Wells closed its Los Angeles office in 1997 and merged with Clifford Chance in 2000.
In response to the Ackerman and Allen Suits, Woolley filed in the Kiefer Litigation a motion to enforce settlement. He requested that the court interpret the stipulations of settlement to preclude the Plaintiff's from recovering against his personal assets. The court denied the motion based on the "best efforts" clause in the stipulations of settlement. Woolley appealed to the Ninth Circuit, which affirmed the district court in January 2000. He then settled the Allen and Ackerman Suits on March 7, 2001, and he filed the instant lawsuit in Texas state court on September 27, 2001. Woolley sues Rogers Wells to recover the amounts he paid to settle the Allen and Ackerman Suits and the litigation costs he incurred in those lawsuits and in the Kiefer Litigation.
Rogers Wells removed the case on October 31, 2001.
Rogers Wells moves for summary judgment, contending that Woolley's action is barred by limitations under Texas or California law. Woolley maintains that the action is not time-barred because Texas law applies and, under this state's law, his claims did not accrue, or the limitations period was tolled, until a date within two years of September 27, 2001, the date he filed suit.
Rogers Wells earlier moved to stay this case pending arbitration, contending that Woolley had agreed in the parties' representation agreement to binding arbitration of all claims arising from the agreement. The court disagreed, holding that the arbitration clause applied only to disputes about attorney's fees that Rogers Wells charged for representing Woolley, which are not at issue in the present litigation. See Woolley v. Clifford Chance Rogers Wells, L.L.P., 2002 WL 531549, at *4 (N.D. Tex. Apr. 5, 2002) (Fitzwater, J.). Rogers Wells appealed, and the Fifth Circuit affirmed. See Woolley v. Chance, 51 Fed. Appx. 930, 2002 WL 31415323 (5th Cir. Oct 16, 2002) (per curiam) (unpublished table decision). The case was statistically closed and inactive during the pendency of the appeal.
II
The initial question presented by Rogers Wells' motion is whether the Texas or California statute of limitations applies. Although Rogers Wells contends that Woolley's lawsuit is time-barred under both states' statutes of limitations, the answer is material to this decision because Woolley conceded at oral argument that, if the California statute of limitations applies, all his causes of action are time-barred.
Rogers Wells maintains that the court should follow the Fifth Circuit's decision in Streber v. Hunter, 221 F.3d 701, 719 (5th Cir. 2000)(" Streber II'), and apply the most significant relationship test of the Restatement § 145 to determine which state's statute of limitations controls. In Streber II the panel did not address at length its reasons for applying this test, presumably because "[t]he district court considered this [issue] thoroughly in a published opinion" and the panel "agree[d] with its fine analysis." Id. (citing Streber v. Hunter, 14 F. Supp.2d 978, 984 (W.D. Tex. 1998) (" Streber"). Rogers Wells contends the panel relied on Restatement § 145-which addresses which state's substantive law applies-to predict that Texas would adopt Restatement § 142-which concerns which state's statute of limitations applies.
In this memorandum opinion and order, all references to the "Restatement" are to the Restatement (Second) of Conflict of Laws.
Woolley maintains that Streber II is not binding on the question whether Texas would adopt the most significant relationship test with respect to limitations. He posits that a careful reading of Streber II and of the district court's opinion in Streber I reveals that the parties did not raise the procedural-substantive distinction, it appears to have been assumed in Streber II that the most significant relationship test of Restatement § 145 should be applied, and the panel did not directly decide the question whether Texas would adopt the most significant relationship test in deciding which state's statute of limitations applied. He therefore invokes the Fifth Circuit rule for assessing circuit precedent that, "[w]here an opinion fails to address a question squarely, [the Fifth Circuit] will not treat it as binding precedent." Thomas v. Tex. Dep't of Crim. Justice, 297 F.3d 361, 370 (5th Cir. 2002).
The court agrees with Woolley that there is no clear indication in Streber II or in the district court's analysis in Streber I that the parties squarely presented either court with the question, or that either court directly decided, whether Texas would apply Restatement § 142 or would apply Texas procedural law to determine which state's statute of limitations controls. Accordingly, Streber II does not bind this court on the question presented in this case.
III
Rogers Wells also contends that if Streber II is not binding, this court should follow Streber and predict under Erie that Texas will apply the most significant relationship test of Restatement § 142. It maintains that under this test, California's statute of limitations would apply."The general rule is that a federal court applies the choice-of-law rules of the state in which it sits." United States ex rel. Varco Pruden Bldgs.v. Reid Gary Strickland Co., 161 F.3d 915, 919 (5th Cir. 1998). The Fifth Circuit has held that Texas applies its own statute of limitations, regardless what substantive law applies. See, e.g., Cox v. McDonnell-Douglas Corp., 665 F.2d 566, 571 (5th Cir. 1982); Long Island Trust Co.v. Dicker, 659 F.2d 641, 645 (5th Cir. Unit A Oct. 1981); Ellis v. Great Southwestern Corp., 646 F.2d 1099, 1111 (5th Cir. Unit A June 1981). This court is bound by the Fifth Circuit's interpretation of state law "absent a subsequent state court decision or statutory amendment that render[s] [the Fifth Circuit's] prior decision clearly wrong." Batts v. Tow-Motor Forklift Co., 66 F.3d 743, 747 (5th Cir. 1996) (Fitzwater, J.).
This court has concluded that "[f]or procedural matters, such as statutes of limitations, Texas, generally speaking, applies the law of the forum state." Porter v. Charter Med. Corp., 957 F. Supp. 1427, 1432 n. 2 (N.D.Tex. 1997)(McBryde, J .); see also Adams v. Gates Learjet Corp., 711 F. Supp. 1377, 1379 (N.D. Tex. 1989) (Mahon, J.).
The court concludes that the Fifth Circuit's current interpretation of Texas law is not clearly wrong. Texas applies the forum's law for procedural issues, see Penny v. Powell, 347 S.W.2d 601, 602 (Tex. 1961), and statutes of limitation are considered procedural, see Baker and Hughes, Inc.v. Keco R D, Inc., 12 S.W.3d 1, 4 (Tex. 1999); Franco v. Allstate Ins. Co., 505 S.W.2d 789, 793 (Tex. 1974); California v. Copus, 158 Tex. 196, 309 S.W.2d 227, 230 (1958). Several Texas appellate courts have considered which state's statutes of limitation should apply, and they have uniformly held that statutes of limitation are procedural and therefore Texas law controls. See Hill v. Perel, 923 S.W.2d 636, 639 (Tex.App. 1995, no writ); Hollander v. Capon, 853 S.W.2d 723, 727 (Tex.App. 1993, writ denied); Los Angeles Airways, Inc. v. Lummis, 603 S.W.2d 246, 248 (Tex.App. 1980); cf. Intevep, S.A. Research Tech. Support Establishment v. Sena, 41 S.W.3d 391, 394 (Tex.App. 2001, no pet.) (finding exception to Texas' application of its own statutes of limitation where Venezuelan statute creating cause of action contained its own statute of limitations). This court must "defer to intermediate state appellate court decisions `unless convinced by other persuasive data that the highest court of the state would decide otherwise.'" Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 558 (5th Cir. 2002) (quoting First Nat'l Bank of Durant v. Trans Terra Corp. Int'l, 142 F.3d 802, 809 (5th Cir. 1998); see also Associated Int'l Ins. Co. v. Blythe, 286 F.3d 780, 783 (5th Cir. 2002) ("In the absence of Texas Supreme Court guidance, this court defers to the holdings of lower Texas appellate courts."). The Texas Supreme Court was asked in Monsanto Co. v. Boustany, 73 S.W.3d 225, 233 (Tex. 2002), to adopt Restatement § 142 with respect to statute of limitations choice-of-law questions, but it declined to consider whether to do so. Absent a clear indication that the Texas Supreme Court would decide the issue differently than have the Texas intermediate courts, this court must conclude that those courts have correctly decided the Texas law and, in turn, that the Fifth Circuit's interpretation of Texas law (i.e., that which predates Streber II) is also correct.
In a series of decisions handed down since it rejected lex loci delicti in Gutierrez v. Collins, 583 S.W.2d 312 (Tex. 1979), the Texas Supreme Court has incrementally adopted provisions of the Restatement to decide substantive issues. See, e.g., Hughes Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 207 (Tex. 2000) (criticizing court of appeals for not applying specific Restatement section that would have furthered principles of Restatement § 6). In Gutierrez the court held that "in the future all conflicts cases sounding in tort will be governed by the `most significant relationship' test as enunciated in Sections 6 and 145 of the RESTATEMENT (SECOND) OF CONFLICTS." Gutierrez, 583 S.W.2d at 318. In Robertson v. Estate of McKnight, 609 S.W.2d 534, 536 (Tex. 1980), the court adopted Restatement § 169 with respect to intra-family immunity. In Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984), the court reaffirmed its disapproval of "mechanistic decision making," held that "ease of administration alone is a wholly inadequate reason for retention of an unjust rule," and adopted Restatement § 145 for use in contracts cases. Duncan held that "in all choice of law cases, except those contract cases in which the parties have agreed to a valid choice-of-law clause, the law of the state with the most significant relationship to the particular substantive issue will be applied to resolve that issue." Id. The court's opinion in Hughes traces its path of adopting the Restatement:
The Court has often applied more specific sections of the Restatement to address particular choice of law issues. See, e.g., Purcell v. Bellinger, 940 S.W.2d 599, 601 (Tex. 1997) (applying section 93 to evaluate the res judicata effect of an out-of-state judgment); Ford Motor Co. v. Leggat, 904 S.W.2d 643, 647 (Tex. 1995) (applying section 139 to determine whether another state's attorney-client privilege should apply in a Texas court case); Maxus Exploration Co. v. Moran Bros., Inc., 817 S.W.2d 50, 53-54 (Tex. 1991) (invoking section 196 to determine the law governing contracts for personal services); DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677-78 (Tex. 1990) (adopting section 187 for evaluating the enforceability of contractual choice of law clauses).Hughes, 18 S.W.3d at 206 n. 2. In Ford the court indicated that what the law once had considered procedural could be re-characterized as substantive. See Ford, 904 S.W.2d at 646 ("The reality is more complicated" because "testimonial privileges used to be considered procedural, but the trend is to regard them as substantive."). Id. It analyzed the attorney-client privilege issue under Restatement § 139 (1988). Id. at 647. Hughes extended the use of the Restatement in choice-of-law questions. It adopted Restatement § 184 (1971) to determine immunity from a tort suit when an employee is covered by workers' compensation, and it criticized the court of appeals for not applying a specific Restatement section that would have furthered the principles of Restatement § 6. Hughes, 18 S.W.3d at 207. The court continued its adoption of the Restatement in Torrington Co. v. Stutzman, 46 S.W.3d 829, 849 n. 17 (Tex. 2000) (citing § 17), and Schein v. Stromboe, 102 S.W.3d 675, 696 (Tex. 2002) (interpreting Restatement § 188 (1971)). Although these decisions suggest that the Texas Supreme Court may ultimately adopt Restatement § 142's most significant relationship test in deciding which state's statute of limitations applies, this court is unable to predict that it would do so here.
Citing a similar trend in Iowa law, the Eighth Circuit recently made an Erie guess that Iowa will adopt Restatement § 142 when selecting which state's law of limitations applies. See Washburn v. Soper, 319 F.3d 338, 342 (8th Cir. 2003) (predicting Iowa will adopt Restatement § 142 with respect to statute of limitations because Iowa "has repeatedly turned to the Restatement in analyzing choice of law issues").
Texas law currently distinguishes between choice of substantive law — reflecting a trend toward adopting sections of the Restatement — and procedural law — applying the law of the forum. Compare Duncan, 665 S.W.2d at 421 ("[T]he law of the state with the most significant relationship to the particular substantive issue will be applied to resolve that issue.") with Penny, 347 S.W.2d at 602 ("[M]atters of procedure are governed by the law of the forum.") and Baker and Hughes, 12 S.W.3d at 4 (holding that limitations is a matter of procedure). Moreover, in Computer Associates International v. Altai, Inc., 918 S.W.2d 453 (Tex. 1996), the Texas Supreme Court commented on the substance-procedural distinction when it applied New Jersey's choice of limitations. It noted that applying the forum's own limitations law, regardless whether the substantive issue was decided under forum law, is the "prevalent rule."
It appears that only in Copus has the Texas Supreme Court recited the substance-procedural distinction in the context of choice-of-law for statute of limitations. See Copus, 309 S.W.2d at 230-31.
Thus, New Jersey's choice of law rules determine which state's statute of limitations applies[.] New Jersey has abandoned the prevalent rule that the statute of limitations is a procedural matter, therefore the forum state's statute of limitations is applicable, regardless of which state's substantive law applies.Id. at 460 n. 3.
Accordingly, there is no clear indication that the Texas Supreme Court would come to a different conclusion from the one reached by Texas intermediate courts. The court therefore holds that Texas procedural law controls and that it must decide Rogers Wells' motion under the Texas statute of limitations.
IV
The court now decides whether, under the Texas statute of limitations, Woolley's claims are time-barred.
A
Under Texas law, claims for legal malpractice are subject to the two year statute of limitations prescribed in Tex. Civ. Prac. Rem. Code Ann. § 16.003 (Vernon 2003). See Apex Towing v. Tolin, 41 S.W.3d 118, 120 (Tex. 2001). Limitations commences when the claim accrues, id., that is, when the plaintiff suffers a legal injury, Murphy v. Campbell, 964 S.W.2d 265, 270 (Tex. 1997). A plaintiff suffers a legal injury when facts come into existence that authorize him to seek a judicial remedy. See Apex Towing., 41 S.W.3d at 120. Legal malpractice claims founded upon allegedly faulty advice accrue when the advice is taken. Murphy, 964 S.W.2d at 270.
B
Under § 16.003 most claims are barred two years after accrual, regardless whether the plaintiff has discovered the injury or the extent of his damages. S. V. v. R. V., 933 S.W.2d 1, 4 (Tex. 1996); State Farm Life Ins. Co. v. Swift, 129 F.3d 792, 795 (5th Cir. 1997). Texas applies the discovery rule to legal malpractice actions. "We have further determined that the discovery rule applies to legal-malpractice cases, so that in such cases, limitations does not begin to run until the client discovers or should have discovered through the exercise of reasonable care and diligence the facts establishing the elements of a cause of action." Apex Towing, 41 S.W.3d at 120-21. This rule applies "based in part on the special relationship between attorney and client and on the difficulty posed for a client in determining whether or when malpractice may have occurred." Id. at 121. Under Texas law,
[a] defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense. Thus, the defendant must (1) conclusively prove when the cause of action accrued, and (2) negate the discovery rule, if it applies and has been pleaded or otherwise raised, by proving as a matter of law that there is no genuine issue of material fact about when the plaintiff discovered, or in the exercise of reasonable diligence should have discovered the nature of its injury. If the movant establishes that the statute of limitations bars the action, the nonmovant must then adduce summary judgment proof raising a fact issue in avoidance of the statute of limitations.KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999) (footnotes omitted).
Rogers Wells has met its burden of demonstrating that the discovery rule is insufficient of itself to avoid the defense of limitations. The summary judgment evidence would only permit a reasonable jury to find that, at least as of the initiation of the Ackerman Suit in January 1995, an opposing party took a formal position that might have alerted Woolley to the injury caused by Rogers Wells' alleged malpractice. Because January 1995 precedes by more than two years the date that Woolley filed suit, the discovery rule is insufficient to avoid the preclusive effect of limitations.
In Murphy the Texas Supreme Court held that where accountant malpractice created liability for unpaid taxes, discovery took place no later than when the Internal Revenue Service issued a deficiency notice. It was at this point that the government took a final formal position in opposition to the party's interests. This was sufficient to put the party on notice that there was a concrete and specific risk to his interests, which should, in turn, have alerted him to the injury caused by the alleged malpractice. Murphy, 964 S.W.2d at 272. Although Murphy involved a claim for accountant, rather than attorney, malpractice, its reasoning guides the determination of when Woolley should have discovered his injury.
C
Although Woolley cannot avoid summary judgment solely based on the discovery rule, Texas also follows in legal malpractice actions the so-called Hughes tolling rule, which is derived from Hughes v. Mahaney Higgins, 821 S.W.2d 154 (Tex. 1991). Under the Hughes tolling rule, "when an attorney commits malpractice in the prosecution or defense of a claim that results in litigation, the statute of limitations on the malpractice claim against the attorney is tolled until all appeals on the underlying claim are exhausted." Hughes, 821 S.W.2d at 157; see also Apex Towing, 41 S.W.3d at 121. In the present case, Wolley settled the Allen and Ackerman Suits in March 2001 and filed this lawsuit on September 27, 2001, within two years of the settlements.
Assuming arguendo that the limitations period commenced when the motion to enforce settlement was finally resolved in January 2000 by the Ninth Circuit's affirmance of the district court's decision in the Kiefer Litigation, Woolley filed suit in September 2001, within two years thereafter.
"A party moving for summary judgment on the basis of limitations must conclusively establish the bar of limitations. If the nonmovant asserts that a tolling provision applies, the movant must conclusively negate the tolling provision's application to show his or her entitlement to summary judgment." Thompson v. Pate, 69 S.W.3d 743, 746-747 (Tex.App. 2002, no pet.) (citing Jennings v. Burgess, 917 S.W.2d 790, 793 (Tex. 1996); Zale Corp. v. Rosenbaum, 520 S.W.2d 889, 891 (Tex. 1975) (per curiam); Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 518 n. 2 (Tex. 1988)). Accordingly, as the summary judgment movant, Rogers Wells must conclusively negate the tolling provision's application.
Rogers Wells opposes Woolley's reliance on Hughes tolling, essentially presenting two arguments: first, Woolley's malpractice claim did not arise out of the prosecution and defense of a claim resulting in litigation, and second, tolling is limited in time to the pendency of an underlying claim only, and that the underlying claim in this case ended in 1990, when the parties signed the settlement agreement.
1
Rogers Wells maintains that the Hughes tolling rule does not apply to its drafting of a settlement agreement because it is not in prosecution or defense of a claim. It contends that the malpractice at issue in this case is transactional and thus outside the scope of Hughes. See Ds. Rep. Br. at 10 ("It follows from the logic of Murphy that alleged attorney-malpractice claims based on transactional work will not be tolled under Hughes." (quoting The Vacek Group, Inc. v. Clark, 95 S.W.3d 439, 444 (Tex.App. 2002, no pet.)). Rogers Wells contrasts drafting a settlement agreement with failing to assert a defense, failing to prepare adequately for trial, or mishandling settlement negotiations. It posits that the latter are in the prosecution or defense of a claim while the former is transactional.
The court disagrees. Vacek, the principal case on which Rogers Wells relies for this argument, discusses transactional work. In Vacek an attorney drafted an agreement on behalf of all parties in a "corporate divorce." Vacek, 95 S.W.3d at 441. The agreement provided that "Crawford was to transfer his shares of [Vacek-Crawford, Inc.] to Sam [Vacek] and Donna [Vacek] in exchange for [Vacek-Crawford, Inc.'s] funding Crawford's simplified employee pension plan." Id. The agreement did not shield Vacek-Crawford, Inc. from any potential claims of Crawford against the company. Crawford later sued and obtained a judgment against Vacek-Crawford, Inc. The company then brought a legal malpractice suit against the attorney who drafted the agreement. The court held that the Hughes tolling rule did not apply because the attorney "did not draft the Agreement in the prosecution or defense of a claim that results in litigation." Id. at 447. In analyzing the jurisprudence of the Hughes tolling rule, the Vacek court held:
Based on these definitions, a distinction can be made, in the context of the Hughes tolling rule, between malpractice claims arising from the litigation of a client's previously existing claim and a malpractice claim arising from an attorney's negligence in executing a business transaction. In the first instance, when a malpractice claim is based on an attorney's error in prosecuting or defending a client's claim, that claim existed before and independent of the attorney's involvement. This is the type of "underlying claim" that merits the protection afforded by Hughes, because "inconsistent litigation postures" must be taken to resolve both disputes. In the second instance, when a malpractice claim is based on an error in transacting business of some kind, the client's claim does not exist before or independent of the attorney's involvement. Rather, the reverse is true. The alleged malpractice itself becomes the "underlying claim" to the subsequent litigation that it caused.Id. at 445-46 (citation omitted). The court noted that "[t]he rationale behind the Hughes tolling rule suggests that Hughes does not apply when an attorney allegedly commits malpractice by negligently drafting documents that are not connected with any existing litigation at the time of their creation." Id. at 447 (emphasis added). The court was concerned with including in the Hughes tolling doctrine work that lacked a connection to existing litigation, such as "transacting business of some kind." Id. at 496. It was not distinguishing between transactional work and litigation, as those terms are commonly understood (transactional work consists of drafting agreements, whereas litigation is composed of motion practice and trials). Accordingly, even if drafting a settlement agreement is in some sense "transactional," and most transactional work is not in prosecution or defense of a claim that results in litigation, Vacek does not address "transactional" work connected with existing litigation, such as the settlement agreement at issue in this case.
One Texas court of appeals has noted that Gulf Coast Investment Corp. v. Brown, 821 S.W.2d 159 (Tex. 1991) (per curiam), applied the Hughes tolling rule to transactional malpractice. See Brents v. Haynes Boone, 53 S.W.3d 911, 915 (Tex.App. 2001, pet. denied).
Moreover, Rogers Wells has not adequately demonstrated why the Hughes tolling rule should not apply. In Hughes a lawyer who represented clients who sought to adopt a child prepared an affidavit of relinquishment of parental rights, to be signed by the child's biological mother. Hughes, 821 S.W.2d at 155. The affidavit was defective. Id. Although no litigation was then ongoing, the affidavit became an issue in the suit to terminate the biological mother's parental rights and in a subsequent suit by the biological mother for a writ of habeas corpus. Id. The biological mother lost in the trial court but prevailed on appeal. After the appellate court ruled in favor of the biological mother, the clients sued their attorney for, inter alia, negligence in preparing the affidavit. Id. at 156. The attorney moved for summary judgment, asserting that the two-year statute of limitations barred his former clients' suit. Id. The Texas Supreme Court held that "the statute of limitations was tolled until all of the Hugheses' appeals in the termination action were exhausted." Id. It reasoned that tolling was required because the viability of the clients' lawsuit against the attorney depended on the outcome of the litigation involving the biological mother. Id. at 157. In the present case, Rogers Wells prepared a settlement agreement to resolve pending litigation. It did so while providing legal services in the context of the defense of a claim that was then in litigation.
Rogers Wells maintains that Hughes is distinguishable from the instant case because, "[a]lthough the malpractice itself occurred prior to litigation, it occurred in the prosecution of a claim that was intended to and in fact did result in litigation." Ds. Rep. Br. at 12. In other words, because the prosecution of a claim for termination of the biological mother's parental rights required the attorney to secure the mother's affidavit relinquishing her rights, preparation of the defective affidavit occurred in the prosecution of the claim. Id. The court disagrees with Rogers Wells' attempt to distinguish Hughes on this basis. Rogers Wells prepared a settlement agreement to resolve pending litigation.
Accordingly, Rogers Wells has failed to meet its burden of conclusively negating the application of the Hughes tolling rule based on the argument that the drafting in question was not in prosecution or defense of a claim.
2
Rogers Wells next contends that, even if the Hughes tolling rule applies, tolling is limited in time to the pendency of the underlying claim, which it defines as the Kiefer Litigation that ended in 1990, when the parties signed the settlement agreement. See Ds. Rep. Br. at 15. Rogers Wells maintains that Hughes tolling does not apply to subsequent litigation; underlying litigation as used in Hughes does not include postjudgment enforcement actions; even if a postjudgment enforcement action is part of underlying litigation, the limitations expired before two years had lapsed after discovery of the malpractice and the postjudgment enforcement action cannot revive a claim; and the underlying policy of statutes of limitation will be abrogated should the tolling doctrine apply in the present case.
a
Rogers Wells maintains that Hughes tolling does not apply, as here, where the motion filed in the Kiefer Litigation was filed after the suit was settled. "[T]he statute of limitations on a malpractice claim . . . is tolled until all appeals on the underlying claim are exhausted or the litigation is otherwise finally concluded." Apex Towing, 41 S.W.3d at 119. Rogers Wells contends the underlying Kiefer Litigation was concluded in 1990 and that Hughes tolling does not apply to subsequent litigation.
Gulf Coast Investment Corp. v. Brown, 821 S.W.2d 159 (Tex. 1991) (per curiam), illustrates why this argument is misplaced. Gulf Coast involved a non-judicial foreclosure sale that was invalid due to improper notice. Id. at 160. The owners of the property sued the investment company that hired the attorney responsible for the improper sale. Id. Judgment was rendered against the investment company, and it later entered into a settlement agreement with the property owner. Id. The investment company sued the attorney more than two years after sale. The attorney raised the defense of limitations. Id. The Texas Supreme Court rejected the attorney's argument, holding that it saw "no reason why the tolling rule announced by this court in Hughes and Aduddell [v. Parkhill, 821 S.W.2d 158 (Tex. 1991),] should not apply when the attorney's malpractice results, not in an appeal on the underlying claim, but in a wrongful foreclosure action by a third-party against the client." Id.
Moreover, Hughes also refutes such a strict reading. Hughes involved the allegedly negligent preparation of an affidavit of relinquishment of parental rights that was drafted the day before a suit was filed to terminate a biological mother's parental rights. Hughes, 821 S.W.2d at 155. Because of the defective affidavit, the adoptive parents lost the termination case. The court held that "the statue of limitations was tolled until all of the Hugheses' appeals in the termination action were exhausted," id. at 156, even though the litigation was not initiated until after the affidavit was prepared, id.
Rogers Wells also cites two unpublished decisions of Texas courts of appeals in support of its argument that Hughes tolling does not apply to subsequent litigation. See Ds. Rep. Br. at 18-19. These unpublished decisions are not precedential. Even if they were, they are inapposite.
Manning v. Jenkins Gilchrist, P.C., 2001 WL 925738 (Tex.App. 2001, no pet.), involved a settlement agreement that ended a claim for sexual harassment. The settlement contained a provision that obligated Manning, an employee/codefendant, to pay a settlement amount to Glaser, the alleged victim. Manning knew he was obligated to pay the settlement, but his attorney, who also represented his employer, told him the employer would pay. Id. at *4. When the employer did not, Glaser sued Manning. Id. Manning then sued the attorney who had represented him in the sexual harassment suit and the employer. The attorney raised the statute of limitations. The court rejected Manning's argument that "the statute of limitations is tolled until all actions resulting from the attorney's malpractice are concluded." Id. at *5. Instead, the court held that "Glaser's subsequent enforcement action in federal court and her suit against Manning . . . are distinct actions based upon different conduct committed by Manning. . . . Glaser's subsequent actions against Manning . . . resulted from Manning's admitted breach of the settlement agreement." Id. at *5.
Manning is distinguishable in two important respects. First, it was undisputed that the settlement agreement obligated Manning to pay Glaser, whereas Woolley disputes that the settlement agreement in the Kiefer Litigation obligated him to pay the settlement from personal assets. This distinction is significant because Manning was not forced to take "inherently inconsistent litigation postures in the [enforcement] case and the malpractice case." Id. at *4 (citing Apex Towing, 41 S.W.3d at 121). Woolley, by contrast, would have been required to take inconsistent litigation positions in the Ackerman and Allen Suits (that the settlement agreement did not obligate him to pay from his personal assets) and a malpractice action (that the settlement agreement did obligate him to pay from his personal assets). Second, "the viability of [Manning's] malpractice action [did not] depend[ ] on the outcome of the [enforcement] litigation," id. (citing Apex Towing, 41 S.W.3d at 121), whereas Woolley's malpractice action did depend on the construction of the settlement agreement (in the Ackerman and Allen Suits). These are significant distinctions because Hughes tolling is based, inter alia, on the policy of not forcing a client to adopt inherently inconsistent litigation postures and allowing a client to wait to file a malpractice action until the viability is established through an adverse ruling in the underlying litigation. See Hughes, 821 S.W.2d at 156-57.
Smith v. Cutrer Jefferson, 2002 WL 87485 (Tex.App. 2002, no pet.), as Rogers Wells recognizes, is also "factually distinguishable from our case[.]" Ds. Rep. Br. at 19. Rogers Wells quotes Smith's conclusion that "it [is] clear that limitations should be tolled only until appeals have been exhausted in the particular lawsuit in which the attorney allegedly committed malpractice." Id. (emphasis omitted) (quoting Smith, 2002 WL 87485, at *3). Smith held "that the Hughes tolling rule does not apply to a second lawsuit that violates the doctrine of res judicata and that relitigates the merits of the prior lawsuit in which the lawyer allegedly committed malpractice." Smith, 2002 WL 87485, at *3. Woolley is not seeking to relitigate the merits of a prior lawsuit or violating the doctrine of res judicata. Moreover, this specific holding is much narrower than prohibiting tolling during any subsequent litigation and is therefore distinguishable.
b
As a separate basis for tolling, Woolley maintains that the Kiefer Litigation was still ongoing because of a postjudgment enforcement action that he filed in the federal district court in which those cases had been litigated. The court need not address this argument because it holds that Rogers Wells has failed to demonstrate that the Ackerman and Allen Suits did not toll limitations.c
Rogers Wells contends the statute of limitations expired before the Ackerman Suit was filed because two years had lapsed between the settlement and its filing. This argument is without merit because of the discovery rule. Before the Ackerman Suit, Woolley did not discover, and should not have reasonably discovered, the alleged malpractice in the Kiefer Litigation. The Ackerman Suit was settled in 2001, less than a year before Woolley filed the present action. Therefore, the court need not address Rogers Wells' argument that tolling cannot revive a claim that expires.d
Rogers Wells maintains that applying the tolling doctrine in the present case will undermine the underlying policy of statutes of limitation. It is correct that statutes of limitation balance "the competing concerns of the need to bar stale claims and avoid prejudice to defendants yet preserve a reasonable opportunity for Plaintiff's to pursue legitimate claims." Apex Towing, 41 S.W.3d at 122. Rogers Wells asserts that "the putative lawyer defendant must have the ability to know when limitations begins to run and when a claim has become time-barred," and that allowing tolling in this case would not balance competing concerns because "there is simply no way to know when, if ever, it becomes impossible for subsequent litigation relating to prior litigation to be filed." Ds. Rep. Br. at 20. The court disagrees with Rogers Wells' policy arguments.
Texas has concluded that a client should not be forced to take inherently conflicting positions in an underlying lawsuit and in a malpractice case when the client's attorney committed legal malpractice in the defense of a claim that results in litigation. See Hughes, 821 S.W.2d at 156. It is therefore appropriate to toll the limitations period for the malpractice action until all appeals of the underlying claim are exhausted. See id. at 157.
Moreover, it must be presumed that Texas knows how to end the potential indeterminancy of which Rogers Wells complains. For example, Texas has imposed a ten-year statute of repose with respect to architects, engineers, interior designers, and landscape artists for, inter alia, personal injury claims. See Tex. Civ. Prac. Rem. Code § 16.008 (Vernon 2004); Childs v. Haussecker, 974 S.W.2d 31, 50 (Tex. 1998) (Hecht, J., dissenting) (noting that statutes of repose, such as § 16.008, are effective in dealing with eventualities such as decades of scientific research that could defer accrual of cause of action).
Moreover, there are other mechanisms besides statutes of limitations that can cabin malpractice actions. In the present case, the potential indeterminancy arises from the settlement agreement under which Woolley had until 1993 to sell or refinance hotels or become obligated to purchase tendered units. The hotels had not been sold by 1993. It was at this time that the dispute between Woolley and the class action Plaintiff's who brought the Kiefer Litigation arose. Woolley maintained that he had only committed his partnership interests to satisfy the put options. The class action Plaintiff's asserted that he was personally liable because, inter alia, of the best efforts clause. Rogers Wells essentially complains of a period of approximately three years that was truly "indeterminate." It was fewer than two years after the dispute that the class action Plaintiff's sued Woolley alleging that he had breached the settlement agreement. The Ackerman and Allen Suits were subject to their own statutes of limitation. In due course, these cases were settled (they could have been decided on the merits). When the suits were concluded, Rogers Wells was subject to a malpractice action for two additional years. It is true that, within the confines of reasonable outer bounds, the length of litigation can be treated literally as "indeterminate." But Rogers Wells has failed to cite any authority for the proposition that such indeterminancy makes it inappropriate to toll a statute of limitations.
Rogers Wells' argument about indeterminancy is in large part one about the discovery rule. The major period of indeterminancy is the time between the act of alleged malpractice (drafting and advising the client concerning the settlement agreement) and the client's discovery of the malpractice (when the Ackerman Suit was filed). Once malpractice is discovered, the statute of limitations begins and it will end, although it will be tolled during appeals. It is clear in Texas that the discovery rule applies to legal malpractice claims "based in part on the special relationship between attorney and client and on the difficulty posed for a client in determining whether or when malpractice may have occurred." Apex Towing, 41 S.W.3d at 121; see also Burns v. Thomas, 786 S.W.2d 266, 266 (Tex. 1990); Willis v. Maverick, 760 S.W.2d 642, 645-47 (Tex. 1988).
Accordingly Rogers Wells' arguments based on policy considerations do not persuade the court to hold that Woolley's suit is time-barred.
3
This case is apt for application of Hughes tolling. Texas law intends that clients who may be the victims of legal malpractice not be forced to take inconsistent litigation positions. Moreover, when the viability of a malpractice claim depends on the outcome of the underlying case, the limitations period is tolled pending the outcome, including all appeals. Hughes, 821 S.W.2d at 157; Apex Towing, 41 S.W.3d at 121. Texas includes within the scope of this rule other forms of subsequent litigation that bear on whether the client has a viable claim. Gulf Coast, 821 S.W.2d at 160. These principles are advanced by tolling the limitations period in the present case until the Ackerman and Allen suits were resolved.
Woolley hired Rogers Wells to draft a settlement agreement in the Kiefer Litigation. Woolley did not know about the alleged malpractice committed in the Kiefer Litigation until the Ackerman suit was filed in 1995. Through the pendency of the Ackerman and Allen Suits, Woolley maintained that the settlement agreement in the Kiefer Litigation did not obligate him to use his personal assets as part of the settlement. In defending the Ackerman and Allen Suits, Woolley asked the federal court that retained jurisdiction over the Kiefer litigation to construe the agreement as precluding personal liability. He maintained that posture until the Ninth Circuit affirmed the district court's decision rejecting Woolley's argument and Woolley in turn settled the Ackerman and Allen Suits on March 7, 2001. To establish, before that time that Rogers Wells was liable for malpractice, he would have had to take inconsistent litigation positions. He would be required to maintain in the Ackerman and Allen Suits that the agreement did not obligate him personally, and in a legal malpractice suit against Rogers Wells, he would necessarily have alleged that the agreement did obligate him.
A reasonable trier of fact could find that Woolley did not file a postjudgment motion in the Kiefer Litigation simply to revive a stale malpractice claim but instead did so as a reliable and efficient way to secure a ruling that he was not personally liable under the settlement agreement and that the Ackerman and Allen Suits therefore lacked merit. When that argument was rejected, he no longer was in danger of taking inconsistent litigation postures, and the viability of his malpractice action was established. He then sued Rogers Wells.
* * *
The court concludes that the Texas statute of limitations applies to this case and that Woolley's claims are not barred by limitations. Accordingly, Rogers Wells' motion for summary judgment based on limitations is denied.