WHO MAY SUE AN ATTORNEY

Three categories of people may sue an attorney. First, a person may sue an attorney when there is an attorney-client relationship between the parties. To establish an attorney-client relationship, the client must show that the attorney agreed to represent the client or provide advice. If there is no explicit contract between an attorney or a client, the client may still prove the attorney agreed to represent him by showing the attorneys' conduct. A client need not pay the attorney to establish an attorney-client relationship.

Second, even if the attorney never agreed to represent a party, the attorney may still be liable if he fails to advise that he is not representing the party where the circumstances lead the party to believe the attorney is representing him. For example, in one case, a husband being pursued by the IRS hired a criminal attorney. The attorney hired an accountant who prepared tax returns for the husband and the wife. The wife went to the attorneys' office to sign the tax returns. The husband and wife later divorced and the IRS foreclosed on the wife's house. The wife sued the criminal attorney. The court found while the attorney never agreed to represent the wife, the attorney could still be held liable for failing to tell the wife he did not represent her.

These cases also arise in the business context. It is not unusual for a business entity, such as a partnership or corporation, to hire an attorney. In those situations, the attorney only represents the entity. However, the attorney is often required to speak to individuals involved with the businesses, such as partners, employees or officers. In such a situation, the individuals may believe that the attorney is acting on their behalf and they may have claims against the attorney unless the attorney informs the individuals that he is not representing them.

Third, an attorney may be held liable for making a false representation of fact to a non-client if the non-client justifiably relies on the representation and the attorney knows that the non-client will rely on the information. These cases most often arise in cases where attorneys are asked to provide opinion letters. For example, in one leading case, a company sought a bank loan. Before approving the loan, the bank required the company to submit a title opinion stating that it owned several oil wells used to secure the loan. The company hired an attorney, who submitted a title opinion that the company owned the rights to the wells. At the time of the work, the attorney knew the opinion was made for the purposes of securing the loan. When the company defaulted on the loan, it discovered that the company did not own the wells and the title opinion from the attorney was incorrect. The bank was later allowed to sue the attorney for negligent misrepresentation even though no attorney-client relationship existed between the bank and that attorney.

The general rule is that a party in a lawsuit may not have a negligent misrepresentation claim against the other party's attorney because the party would not be justified in relying on the advice of an adversary. There are, however, notable exceptions. In the leading case on the subject, a borrower and a savings and loan entered into a settlement agreement to end a lawsuit. As part of the settlement, the borrower required the attorney for the savings and loan to sign an agreement saying that the settlement had been approved by the savings and loan board of directors. Unbeknownst to the attorney, the board had not approved the action. The savings and loan was later taken over by the government and the borrower was sued because the settlement was not effective. The borrower then sued the savings and loan attorney for falsely representing that the agreement was approved. The court allowed the suit to proceed even though no attorney client relationship existed between the borrower and the attorney.

When discussing who may sue an attorney, it is important to recognize who may not sue an attorney. Absent extreme circumstances, a person may not sue the opposing counsel in his lawsuit for engaging in outrageous conduct and beneficiaries of a will or trust may not sue the attorney who drafted the will or trust.

As always, there may be exceptions to these rules, and you are urged to contact an attorney to determine if they apply to you.

THEORIES OF RECOVERY — WHAT MAY AN ATTORNEY BE SUED FOR

An attorney is not liable to his client simply because he does not obtain a favorable result. To prevail, the client must show the attorney acted improperly in one of the following ways.

Negligence

The most common cause of action presented in legal malpractice claims is a negligence claim. To prevail on a negligence claim, the client must prove that the attorney did not use a reasonable degree of care. In other words, the client must prove that the attorney took some action that a prudent attorney would not have taken or that the attorney failed to take some action that a prudent attorney would have taken.

There are many ways an attorney may be negligent. For example, if an attorney gives wrong advice to the client, the attorney may be negligent. If an attorney fails to file public documents, such as a lawsuit or a deed, on time or in the right place, the attorney may be negligent. Or, if the attorney acts to create a conflict between him and his client, the attorney may be negligent.

In Texas, a client must use expert witnesses to establish the reasonable degree of care the attorney should have used. Generally, the expert witness must be an attorney practicing in the same practice area and same locale as the attorney being sued.

Breach of Fiduciary Duty

An attorney is a fiduciary of his client, and the attorney owes the client a duty of utmost good faith. As part of this duty, the attorney has several obligations to the client. For example, the attorney must place the interests of the client above the interests of the attorney; the attorney must make full and fair disclosure about the representation; and the attorney cannot take advantage of his position to gain a profit at the expense of his client.

Fiduciary duty cases arise in several situations, but are most common in cases where there may be a conflict of interest involving the attorney and client. These potential conflicts arise in numerous ways. For example, in one leading case, an attorney represented several clients who were injured in one incident. The case eventually settled. After settlement, the clients claimed that while the settlement was in the attorney's best interest (who represented the clients on a contingent fee basis) and the interest of some of the clients, it was not in the interest of all the clients. The Texas Supreme Court allowed the clients to sue the attorney for his breach of fiduciary duties.

Breaches of fiduciary duty also arise in business transactions. These may arise when an attorney has a history with one of the parties in the transaction. For example, when a corporation or partnership needs advice from an attorney, the principals often choose an attorney who one of the partners or officers knows or has used before. In this case, the attorney has the utmost duty to do what is right for the company, even if it is against the interests of the person who has had the personal relationship with the attorney.

A growing area of concern is attorneys or law firms who invest in the business of their clients. In such a situation, the attorney has the obligation to put the interest of the business first, even if it means prejudicing the attorney's investment. As you might expect, it could be difficult for an attorney to recommend that a business file bankruptcy knowing that it could cost the attorney all of his investment in the company.

Deceptive Trade Practices Act

The Texas Deceptive Trade Practices Act regulates most business activities in Texas, including the conduct of attorneys. For a client to prevail on a DTPA claim, the client must prove (1) that he was a "consumer" as defined in the DTPA and (2) that the attorney took some action that violated the statute and caused the client damage.

To prove that he was a "consumer," the client must prove that he sought or acquired the attorney's services through a purchase. Obviously, any person or company directly hiring an attorney or firm qualifies as a consumer. However, even if a person or company does not purchase the services, they may still be consumers if they receive legal advice that was paid for by someone else. For example, Texas courts have held that a partner may be a consumer of legal services purchased by a partnership, an employee may be a consumer of legal services purchased by an employer, and a wife may be a consumer of legal services purchased by her husband. On the other hand, Texas courts have also been clear that the beneficiaries under a will are not consumers under the DTPA.

To be a consumer, the client (or someone) must purchase the services of the attorney. As a result, while a client may pursue a negligence claim against an attorney that gives him wrong free advice, the same client could not pursue a DTPA claim.

Once the client proves he is a consumer, he must also prove that he was harmed by an attorney's violation of the DTPA. The DTPA provides a list of over twenty types of conduct that are forbidden. The items most applicable to claims against attorneys are the prohibitions against (1) making statements that the attorney's services may have benefits that they do not have; (2) making statements that the attorney's services are of a particular quality or standard when they are not; (3) representing that an agreement has rights, remedies, or obligations when it does not; (4) failing to disclose information concerning the services which was known at the time of the services if the failure was intended to induce the client into entering a transaction he would not have entered had the information been disclosed; and (5) engaging in any action that is unconscionable.

DTPA cases most often arise when an attorney is overstating his abilities to his client. For example, an attorney may be liable for telling the client he is board certified in a specialty, when in fact he is not. Similarly, an attorney may be liable for telling the client he had handled certain types of claims when he had not. Or, an attorney's conduct may be unconscionable if he tells the client he had taken some action, such as filing a lawsuit, when he had not.

In 1995, the Texas legislature amended the DTPA to say that clients could not sue under the DTPA for misrepresentations or other conduct that can be characterized as the advice, judgment or opinion of the attorney. What constitutes advice and opinion is still being determined by the courts. Clearly, an attorney could still be sued for the actions described above, but there are still questions about how much further the exemptions extend.

Fraud

Attorneys may also be sued for committing fraud on their clients. An attorney commits fraud if he makes a misrepresentation that he knows is false with the intent that the client act on it and the client eventually acts on it. An attorney may also commit fraud by failing to disclose or concealing facts if the attorney knows the client is unaware of the facts and the attorney intends to induce the client into taking some action by concealing the facts. When an attorney breaches his fiduciary duty or violates the Deceptive Trade Practices Act, the attorney's conduct often constitutes fraud.

Negligent Misrepresentation

Attorneys may occasionally be liable to non-clients if the attorney makes a false misrepresentation that the attorney knows will be relied upon by the non-client. These claims are discussed in more detail in the section of the site relating to who may sue attorneys.

POTENTIAL RECOVERY: What can I recover?

Causation

In any legal malpractice action, the client must prove the damages sustained as a result of the attorney's improper conduct. This may be particularly difficult if the attorney's error occurred in litigation because the client must prove what would have happened in the litigation if his attorney had not erred.

Ordinarily, to do so a client must prove "a case within a case" — that the client would have won if his attorney had not committed malpractice. In some cases, it may be possible to claim the attorney's error caused the settlement value of the case to decrease.

Also, in litigation cases, the client must show that the jury award or a reasonable settlement amount could have been collected from the defendant in the underlying case.

Actual/Economic Damages

Economic damages may be recovered in all forms of malpractice cases. In litigation cases, economic damages may include any elements of damages that the client could have recovered in the underlying litigation, including out of pocket losses, mental anguish damages, lost pre-judgment and post-judgment interest, and lost court costs.

Mental Anguish Damages

Mental anguish damages are ordinarily not recoverable in malpractice claims based on negligence, but may sometimes be recovered in Deceptive Trade Practices claims.

Exemplary Damages

Exemplary damages may be recoverable if an attorney acted with malice or committed fraud. These awards are capped by statute, but there are numerous complicated exceptions.

Similarly, clients who are able to prove that attorneys knowingly or intentionally violated the Deceptive Trade Practices Act may be entitled to statutory damages in an amount up to two times the award of actual damages.

Forfeiture of Fees

If a client wins on either a breach of fiduciary duty claim or a DTPA claim, the attorney may be required to give the client any fees he collected on the case.

Attorneys' Fees

A client may not recover the amount of fees he had to pay to bring a claim against his first attorney except on a DTPA claim or as part of exemplary damages if such damages are recoverable.

STATUTE OF LIMITATIONS (When must suit be filed)

The statute of limitations for malpractice claims based on negligence, breach of fiduciary duty, and violations of the DTPA is two years. As a result, a client must generally sue an attorney within two years of the date of the malpractice or the client loses his claim. However, if the client is unable to discover the attorney's malpractice, then the discovery rule applies. In that case, the statute of limitations is extended and the client must sue within two years of the date he discovers the malpractice or the date he should have discovered the malpractice if he had exercised reasonable care and diligence.

The general rule also has an exception that occurs for malpractice that occurs in a lawsuit. In that case, the two year period for the negligence and breach of fiduciary duty claims does not begin to run until the lawsuit, including all appeals, is completed. This delay occurs even if the client fired the lawyer he intends later to sue. This tolling or delay period does not apply to DTPA claims.