February 22, 2005
ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT
BEFORE THE COURT is Defendants' Motion for Summary Judgment (Docket No. 107), filed on January 18, 2005, as well as Plaintiffs' brief in opposition and a reply brief. Having carefully considered the written briefs and the evidence submitted and held a hearing, the Court finds that there are genuine issues of material fact and that Defendants are not entitled to judgment as a matter of law. Accordingly, the Defendants' Motion for Partial Summary Judgment (Docket No. 107) should be DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
This legal malpractice case arises out of an attorney-client relationship that previously existed between Plaintiffs and Defendants. Plaintiffs are developers and patent-holders of specialty fire fighting equipment and originally filed this cause in state court on May 28, 2003. (Docket No. 1, Ex. A) Defendants removed on the basis of federal question jurisdiction because the underlying issues require the application of federal patent law. ( Id. at 2)
Since it was filed in state court, Plaintiff's Original Petition was not made part of the docket before this Court; however, it was attached to Defendant's Notice of Removal (Docket No. 1), as Attachment A.
Plaintiffs are Air Measurement Technologies, Inc. ("Air Measurement") and North-South Corporation ("North-South") (collectively "companies") and Louis Herbert Stumberg, Jr., ( Id. at 4) Plaintiff Stumberg and his former partner, James Armstrong Fulton, developed a concept for a safety aid for firefighters and emergency personnel engaged in hazardous substance control. ( Id.) The concept, which Stumberg and Fulton developed into a workable product ("device"), was integrated into the emergency worker's self-contained breathing apparatus ("SCBA") and was designed to compute the wearer's remaining air time, measure the ambient temperature, and calculate the amount of time the user could remain in a fire or other hazardous environment. ( Id.) The device also contained an alarm that would sound if the user remained motionless for a certain period of time. ( Id.)
Mr. Fulton is deceased and not a party to this case.
Stumberg and Fulton formed the Plaintiff companies to develop, patent, license, and market this safety device and were successful in developing the technology and raising awareness of its capabilities among emergency management personnel. In fact, by 2000, the National Fire Protection Agency mandated the use of this technology by all firefighters in all new SCBA units. ( Id.)
Beginning in 1989, Plaintiffs engaged a patent attorney, Defendant Gary Hamilton, to represent Plaintiffs in securing patents for the device and the technology involved. ( Id. at 5) Hamilton undertook a number of related tasks, including preparing non-disclosure agreements and filing patent applications on the device. ( Id.) Hamilton filed patent applications with the U.S. Patent and Trademark Office ("PTO") on August 6, 1991 and the initial patent (U.S. Patent No. 5,157,378) ("the '378 patent") was issued on October 20, 1992. ( Id.) Hamilton also prepared and prosecuted patent applications that matured into four other patents, which were continuation or "child" patents of the '378 patent and took the '378 patent's priority date.
Competing firms soon began to manufacture, market, and distribute equipment that was used in ways that infringed Plaintiff's initial and subsequent patents. ( Id.) As a result, Plaintiffs initiated litigation against the alleged infringers, filing five patent infringement and royalty suits, which eventually settled between 2001 and 2003.
Air Measurement et al. v. Interspiro et al., SA:01-CA-0135 (dismissed Jan. 4, 2001); Air Measurement et al. v. Draeger Safety et al., SA:00-CA-0427 (dismissed Jan. 4, 2001); Air Measurement Tech. et al. v. Mine Safety Appliances et al., SA:00-CA-01562 (dismissed Mar. 27, 2003); Air Measurement Tech. et al. v. Bacou USA, Inc. et al., SA:01-CA-0507 (dismissed Apr. 21, 2003); Air Measurement Tech. et al. v. Scott Technologies, Inc., SA:01-CA-0774 (dismissed Apr. 11, 2003) Air Measurement Tech. et al. v. Int'l Safety Instruments, SA:02-CA-0455 (dismissed May 28, 2003) [collectively "infringement cases"].
The instant conflict arose over Defendant Hamilton's representation of Plaintiffs' interests in the pursuit of patent claims for the patented device. Plaintiffs allege that in the course of this representation, Defendant Hamilton failed to timely file the initial patent application and also failed to disclose certain facts regarding two other patents in the applications. ( Id. at 6). Plaintiffs claim that Defendants' handling of Plaintiffs' patents impaired the patent infringement suits brought in this Court by Plaintiffs against alleged infringers. (Docket No. 1, at 2). Plaintiffs contend that the infringement defendants were able to raise certain affirmative defenses which resulted in Plaintiffs being forced to settle their claims for less than their fair value.
Plaintiffs bring suit claiming negligence, malpractice, negligent misrepresentation, and breach of fiduciary duties ( Id. at 11-12) They bring this action against Hamilton and several law firms with which he was associated during the relevant time period. Specifically, Plaintiffs name Akin Gump Strauss Hauer Feld, LLP ("Akin Gump"), Matthews Branscomb, PC ("Matthews Branscomb"), and Hamilton Terrile, LLP ("Hamilton Terrile") as co-Defendants here. ( Id. at 2) Plaintiffs also contend that fees charged to them by the law firms were excessive and unconscionable, particularly in light of the allegedly reduced settlements in the infringement suits. ( Id. at 8)
On January 18, 2005, Defendants filed the instant motion for partial summary judgment, asserting two independent grounds for judgment on claims before the Court. (Docket No. 107, at 2) Plaintiffs responded on February 9, 2005, and Defendants replied.
Defendants first contend that since Defendant Hamilton ceased to be employed by Matthews Branscomb prior to the earliest event of professional negligence/malpractice alleged by Plaintiffs, Matthews Branscomb can be subject to no possible liability for Hamilton's allegedly negligent representation of Plaintiffs. Next, Defendants assert that the premise of Plaintiffs' principal negligence claim — "that Hamilton was professionally negligent because he failed to prepare and file Plaintiffs' patent applications at a time and in a manner which would have precluded the infringement defendants from falsely characterizing certain things as being the bases for invalid defenses" ( Id.) — is contrary to Texas law and good sense and thus cannot be the basis for a legal malpractice claim.
Plaintiffs respond, contending that Defendants seek to have the Court revisit rulings already entered in this matter and that the Court has effectively ruled on Defendants' second ground for summary judgment. Plaintiffs also argue that Matthews Branscomb is a proper Defendant, since it continued to be involved with the patent cases after Hamilton's resignation.
I. Summary Judgment Standard
Summary judgment is appropriate if, after adequate time for discovery, there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the non-moving party. The party seeking summary judgment carries the burden of initially demonstrating the absence of a genuine issue of material fact. This burden does not require the moving party to produce evidence showing the absence of a genuine issue for trial; instead, the moving party can satisfy its burden simply by pointing out to the district court that there is no evidence to support the non-moving party's case.
Celotex, 477 U.S. at 325.
Once the moving party has met its burden, the non-movant must "set forth specific facts showing that there is a genuine issue for trial." The non-moving party must also describe the precise manner in which the evidence he sets forth supports his claims. If the non-moving party fails to set forth specific facts to support an essential element of his claim and one on which that party will bear the burden of proof, then summary judgment is appropriate. Even if the non-movant brings forth evidence in support of his claim, summary judgment is nonetheless appropriate "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted."
See Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1996).
Celotex, 477 U.S. at 323.
Liberty Lobby, 477 U.S. at 249-50.
II. Liability of Defendant Matthews Branscomb
Defendant Matthews Branscomb is a law firm organized as a professional corporation and existing under Texas Revised Civil Statutes, article 1528e. As a result, Matthews Branscomb is subject to joint and several liability with each of its officers, employees, and agents for professional negligence committed while those officers, employees, and agents are in the course of their employment for the corporation. Defendants contend that George Hamilton's "course of employment" with Matthews Branscomb ceased as of the date of his resignation from the law firm, December 15, 1990, citing Hamilton's declaration testimony attached to their motion. (Docket No. 107, at 3) Thus, Defendants seek to show that there is no evidence to support a finding of liability against Matthews Branscomb.
Plf.'s Second Amended Comp. (Docket No. 52), at para. 6.
TEX. REV. STAT. ANN., art. 1528 § 16.
In order to establish legal malpractice, a plaintiff must have expert testimony regarding violations of the applicable standard of care. The evidence before the Court includes expert witness reports prepared by Plaintiffs' expert Alan H. Gordon and attached to Defendant's motion. (Docket No. 107, at 4, Exs. A, B) Defendants assert that Gordon's reports criticize only the actions of Gary Hamilton individually and "no other attorney employed by [Defendant law firms]." ( Id.) Implicitly, Defendants also argue that the expert reports also fail to criticize Defendant Matthews Branscomb directly.
Defendants cite to four opinions of Mr. Gordon which are critical of Hamilton and the way he represented Plaintiffs' interests in relation to their patents and patent applications. ( Id.) Specifically, Defendants cite Gordon's report stating that Hamilton (1) failed to cite certain prior art in the patent applications; (2) failed to claim the Plaintiffs' complete invention; (3) failed to file the initial application "by at least January 4, 1991"; and (4) was negligent in handling settlement matters in one of the underlying infringement cases: Air Measurement v. Draeger et al. (" Draeger"). Defendants interpret Gordon's expert report to state that January 4, 1991 is the earliest relevant date of alleged malpractice.
SA:00-CA-0427-RF (W.D. Tex.).
(Docket No. 107, at 6)
Defendants also state that the initial patent application was filed on August 6, 1991, close to nine months after Hamilton left Matthews Branscomb. Further, they assert that the Draeger case settled in the fall of 2000, roughly ten years after Hamilton left Matthews Branscomb. Defendants contend that none of these acts or omissions occurred or should have occurred while Hamilton was employed by Matthews Branscomb and that there can be no liability against Matthews Branscomb, since there is no expert testimony criticizing Hamilton's conduct while he was employed with the firm.
Plaintiffs respond, arguing that Defendants have over-simplified and misstated their theories of malpractice liability against Hamilton and the other Defendants. Plaintiffs assert that Matthews Branscomb continued to represent Plaintiffs and remained involved in the prosecution of their patents well past December 15, 1990, when Hamilton left the firm, and submit testimony from Plaintiff Stumberg in support. (Docket No. 120, at 5; Ex.1) Plaintiffs argue that, even if Matthews Branscomb could avoid liability for errors related to the January 4, 1991 date described in the expert report, "its [sic] remains liable for a string of subsequent errors that occurred on its watch." ( Id.)
Reviewing the expert evidence submitted in response to the motion, the Court finds that there is support for Plaintiffs' claims of liability against Defendant Matthews Branscomb. Initially, the Court notes that Plaintiffs' expert Alan Gordon refers to all Defendants collectively as "Hamilton." (Gordon's Report, at 4) Further, Plaintiffs' expert report identifies failures that pre-date Hamilton's December 15, 1990 resignation from Matthews Branscomb. Finally, the expert devotes a section of his report to Hamilton's failure to timely file the initial Stumberg patent application, an omission the expert found to occur between March 1990 and January 1991. ( Id. at 11-12) Thus, the majority of the relevant time period occurred while Hamilton was at Matthews Branscomb.
Plaintiffs also argue in opposition to Defendants' motion that Matthews Branscomb continued to represent Plaintiffs in relation to the patents at issue here well after Hamilton left the firm. In support, Plaintiffs submit evidence in the form of testimony, billing records, and correspondence that establishes that Matthews Branscomb continued to represent Plaintiffs after December 15, 1990. (Docket No. 120, at 6-7; Exs. 1, 4) In fact, Stumberg testified that he did not receive a notice of withdrawal from Matthews Branscomb until April 2003. ( Id. Ex. 1, at para. 7) The evidence also shows that, immediately after Hamilton left Matthews Branscomb, another attorney at the firm — Richard Smith — continued to work on the '378 patent, which is one of the patents at issue in this malpractice action. ( Id. at paras. 6, 8, 10-14, 16-19)
At the hearing on this matter, Plaintiffs also submitted a supplemental declaration of their expert Alan Gordon, in support of their contention that other attorneys at Matthews Branscomb — including Richard Smith — also committed allegedly negligent acts and omissions leading to their alleged damages. However, since the Court finds that this supplemental report was not properly before the Court as summary judgment evidence, the Court will consider only Mr. Gordon's initial and first supplemental expert reports, attached to Defendants' motion at tabs A and B.
While the lack of specificity evident in certain aspects of the expert's report — specifically, those aspects relating to which specific Defendant was responsible for various allegedly negligent acts and omissions — will need to be addressed at any trial on the merits, Plaintiffs have produced evidence in the form of expert testimony supporting their allegations of liability against Defendant Matthews Branscomb. As a result, they have met their burden to defeat summary judgment on the issue of Matthews Branscomb's liability and the Court will Deny Defendants' motion for summary judgment as it relates to this issue.
III. Whether Plaintiffs State a Claim of Legal Malpractice Against Defendant Matthews Branscomb Under Texas Law
A. Legal Malpractice Under Texas Law
An action against an attorney for malpractice is a claim based upon negligence. The elements of legal malpractice are the same as with any other negligence case: The plaintiff must prove a duty owed to him by the defendant, a breach of that duty, injury proximately caused by the breach and damages. The components of proximate cause are cause-in-fact and foreseeability. A lawyer licensed in Texas is held to the standard of care which would be exercised by a reasonably prudent attorney, based on the information the attorney has at the time. If an attorney can show that his malfeasance was not the cause of any damages to the client, summary judgment may be appropriate.
Dyer v. Shafer, Gilliand, Davis, McCollum Ashley, Inc., 779 S.W.2d 474, 477 (Tex.App.-El Paso 1989, writ denied).
Id. See also Peeler v. Hughes Luce, 909 S.W.2d 494, 496 (Tex. 1995).
Rodriguez v. Klein, 960 S.W.2d 179, 184 (Tex.App. — Corpus Christi 1997, no pet.).
Cosgrove v. Grimes, 774 S.W.2d 662, 664 (Tex. 1989).
See Schlager v. Clements, 939 S.W.2d 183, 186-89 (Tex.App.-Houston [14th Dist.] 1996, writ denied).
B. Whether Plaintiffs' Malpractice Claims Are Proper Under Texas Law
Defendants also raise a separate and independent ground for judgment on Plaintiffs' claims. Defendants argue that Plaintiffs' basic malpractice claim is simply not recognized or actionable under Texas law. (Docket No. 107, at 8) While this argument appears in Defendants' partial summary judgment motion, the Court finds that Defendants' argument is actually presented as a motion to dismiss, seeking dismissal of Plaintiffs' claims against all Defendants for failure to state a claim upon which relief can be granted. However, the Court will review Defendants' argument under the standard set forth above and consider evidence referred to by both sides in deciding whether summary judgment on Plaintiffs' malpractice claims is appropriate.
See FED. R. CIV. P. 12(b)(6). "The Plaintiffs' basic malpractice claim is simply not recognized or actionable under Texas law." (Docket No. 107, at 8) This is the quintessential argument under 12(b)(6).
Defendants characterize the essence of Plaintiffs' complaint as the assertion that Plaintiffs were forced to compromise their claims for less than the claims were worth because of the threat of losing the suits entirely because of certain defenses that were available to the infringement defendants. ( Id.) Defendants make reference to a number of Texas malpractice cases arguing that these cases preclude the type of liability Plaintiffs seek in this case. ( Id. at 11-15) They argue that the patents at issue — including the '378 patent and those later issued on Plaintiffs' device — were valid and enforceable as written by Hamilton.
By contrast, however, Defendants argue that any potential defenses which could have been asserted by the infringement defendants were invalid and no basis for an undervalued settlement by Plaintiffs. ( Id. at 9) Further, Defendants claim that Plaintiffs concede — or simply fail to claim — that these potential defenses were invalid or incorrect. ( Id. at 9-10) Defendants assert that Plaintiffs' interrogatory responses bear this contention out, and that Plaintiffs admit that potential defenses available to the infringement defendants were without merit. ( Id.) In light of these allegedly invalid defenses, Defendants argue that Plaintiffs have no basis in law to support their claims for legal malpractice against Defendants.
A careful review of the pleadings and the parties' arguments at the hearing reveals that Plaintiffs do not contend that the patents issued to them are invalid; rather, they state that the Patent Act itself provides that patents are presumed valid unless and until adjudicated otherwise by a court of law. Since no court has adjudicated them invalid, Plaintiffs agree with Defendants that the patents are valid. Their answers to Defendants' interrogatories bear this out. (Docket No. 107, Ex. D, at 2)
However, Plaintiffs disagree with Defendants as to the validity and enforceability of the potential defenses that could have been raised by the infringement defendants. As to these defenses, Plaintiffs contend — and have consistently maintained — that Defendants' alleged malpractice exposed their patents to "serious and substantial" defenses of invalidity and unenforceability. (Docket No. 120, at 13, Ex. 5). As Plaintiffs argue, a finding that the patents are presumed valid and enforceable is a different conclusion than the one Defendants urge in support of their motion, which is that Plaintiffs expected to prevail on the defenses raised in the infringement litigation because the infringement defendants' defenses were invalid or baseless. Plaintiffs maintain that they "decidedly expected not to prevail on one or more of the . . . defenses" which they allege would not have existed but for Defendants' alleged malpractice. (Docket No. 120, at 13)
Plaintiffs also cite evidence and testimony in the form of their Responses to Defendant Matthews Branscomb's Interrogatories (Ex. 5, Nos. 4, 6) and Stumberg's Declaration (Ex. 1, paras. 22-23) that supports their claim that they have consistently pleaded the potential validity of the defenses in the underlying infringement suits.
The Court finds that it has already addressed the issue Defendants raise in their instant motion. In ruling on Plaintiffs' motion to remand the cause back to Texas state court, the Court stated that
Plaintiffs do not concede the validity of their patent, but rather contend that Defendants' negligence has compromised such validity. Moreover, the negligence alleged in this case is Hamilton's failure to comply with certain statutory provisions of patent law, which would have secured Plaintiffs' patent rights. In order to prevail in this action, Plaintiffs must establish that their infringement claims were otherwise valid, but that Hamilton's negligence afforded the patent defendants certain defenses under patent law. (Docket No. 12, at 8.)
Thus, one of the key factual and legal issues in this case is the validity of the underlying infringement claims and, as a result, the defenses available to the infringement defendants about which the parties disagree. Defendants' arguments in support of this instant motion notwithstanding, the Court finds no evidence that Plaintiffs concede the invalidity of the infringement defenses created by the allegedly negligent representation of them by Defendants. Further, the Court's earlier statements on this point have made clear that this issue remains one that the parties must address at a trial on the merits. With their present motion, Defendants seem to ask the Court to reconsider this decision. However, the Court declines to abandon its earlier statement and finds no basis upon which to grant Defendants' motion for summary judgment on this issue.
Further, the Court finds that this approach is supported by the authorities cited in Defendants' motion and argued at the hearing on this matter. First, Defendants cite Dyer v. Shafer et al., a Texas appellate decision applying state malpractice standards. In that case, a Texas court of appeals upheld a trial court's grant of summary judgment for the Defendant law firm. Defendants cite the court of appeals's decision, which involved a detailed application of the corporate opportunity doctrine to the malpractice case, in support of their argument that they cannot be held liable for Hamilton's failure to draft Plaintiffs' patents so that they were "immune from attack." (Docket No. 107, at 11-12) However, the case does not provide Defendants' argument with the support they claim. Indeed, a fair read of the case undermines Defendants' arguments in support of their motion.
Dyer, 779 S.W.2d 474.
In Dyer, the Texas court of appeals found that the defendant attorneys did not violate a duty to their clients by failing to recognize a violation of the doctrine of corporate opportunity. The court found that, since it was not reasonable under the circumstances of the case for the defendant attorneys to have predicted a corporation's bankruptcy which provided part of the basis for the plaintiff's claims in that case, liability on the defendants' part was not appropriate. The court reached this conclusion by applying the foreseeability principle, which can be satisfied "by showing that the actor, as a person of ordinary intelligence, should have anticipated the danger to others by his negligent act." The court reasoned that since the defendant attorneys would have been unable to predict the corporation's future bankruptcy, they were entitled to summary judgment on the related malpractice claims.
Dyer, 779 S.W.2d at 478.
Id. (citing McClure v. Allied Stores of Texas, Inc., 608 S.W.2d 901 (Tex. 1980)).
This case is inapposite to the dispute here because this Court has made no finding that the potential defenses available to the infringement defendants would have been impossible to predict for Hamilton and others engaged in representing Plaintiffs below. The essential core of this case is whether Defendants were negligent in failing to effectively draft the patent applications and file these documents with the Patent Office in a timely manner. Defendants' argument and citation to Dyer essentially asks the Court to presume the validity of their premise, which goes to the heart of this case and will be a main component of the parties' arguments at trial, and grant summary judgment on these grounds. The Court finds that Dyer and the standards discussed therein do not compel such an outcome.
Defendants also cite to Grimes v. Andrews, another Texas appellate court decision involving claims of legal malpractice in which the district court granted defendant's motion for summary judgment. In that case like in this one, the underlying claims were settled prior to a court decision. As Plaintiffs point out, Defendants also cited this decision in earlier submissions to this Court. In Grimes, the Waco division of the Texas court of appeals examined the legal malpractice claims using the case-within-a-case methodology, determining what the outcome of the underlying case would have been had the suit gone forward. The Grimes court held that the defendant attorney's advice was sound and, since there was no genuine issue of material fact as to whether the attorney breached his duty to his client, the summary judgment order by the trial court was appropriate. Far from supporting the Defendants' argument that they are entitled to a grant of summary judgment, the Grimes decision instead stands merely for the proposition that an attorney is not liable for malpractice when his advice is sound. As Plaintiffs point out, Grimes actually supports their arguments against a grant of summary judgment, rather than Defendants' arguments in support. Further, they assert that Hamilton and the other Defendants breached their duty of care to Plaintiffs and whether they did so will be a central issue at trial. The Court agrees and finds that Grimes fails to support Defendants' motion for summary judgment.
Grimes v. Andrews, 997 S.W.2d 877 (Tex.App.-Waco 1999).
Id. at 884.
Id. at 885.
Finally, Defendants cite Rodriguez v. Klein's holding that "We refuse to recognize increased susceptibility to suit as a recoverable damage." Rodriguez involved allegations of negligent drafting of a contract by plaintiff clients against their former counsel. In this case also, the appellate court affirmed summary judgment entered in favor of the defendant attorneys by the trial court. In Rodriguez, the Texas court of appeals focused on the causation issue, finding that the plaintiffs had not proved that the attorneys' allegedly negligent acts were the cause-in-fact of the plaintiffs' damages.
Rodriguez, 960 S.W.2d at 185.
Id. at 184-85.
Here, the Defendants have not proved through competent summary judgment evidence that some other act or event — separate from Hamilton's allegedly negligent representation — brought about the damages alleged here. Reviewing again the motion for summary judgment and reply, Defendants have not even pursued this line of argument and alleged other acts or events that they claim gave rise to the defenses available to the infringement defendants. Under these circumstances, Rodriguez's holding and the underlying rationale are not instructive as to whether summary judgment should be entered for Defendants. Certainly they do not support a grant of summary judgment on the record before the Court.
For the foregoing reasons, the Court finds that Defendants have failed to show that there are no genuine disputes of material fact or that judgement as a matter of law is appropriate on these issues. As a result, the Court will deny Defendants' motion for partial summary judgment.
ACCORDINGLY, IT IS ORDERED that Defendants' Motion for Partial Summary Judgment (Docket No. 107) is DENIED.