First National Bank v. Douglass ( 1998 )

REVISED, June 17, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-10167
_____________________
THE FIRST NATIONAL BANK OF DURANT,
Plaintiff-Appellant,
versus
TRANS TERRA CORPORATION INTERNATIONAL, ET AL.,
Defendants,
LANE & DOUGLASS and DON R. LANE,
Defendants-Appellees.
No. 97-10914
THE FIRST NATIONAL BANK OF DURANT,
Plaintiff-Appellant,
versus
MALCOLM C. DOUGLASS,
Defendant-Appellee.
_______________________________________________________
Appeals from the United States District Court for
the Northern District of Texas
_______________________________________________________
May 27, 1998
Before REAVLEY, JONES and BENAVIDES, Circuit Judges.
REAVLEY, Circuit Judge:
The principal issue in this diversity case is whether a
lender can pursue a negligence claim against an attorney who, in
the course of representing a borrower, submits an inaccurate
title opinion to the lender. Because we hold that Texas law
allows for such a claim under the facts presented, we reverse.
BACKGROUND
Tim Epps was the president and owner of Trans Terra
Corporation International (Trans Terra). Trans Terra owned
interests in six oil and gas wells known as the Ledrick wells,
located in Roberts County, Texas. Attorney Malcolm Douglass, of
the firm of Lane & Douglass, prepared a lease on the Ledrick
wells for Epps in 1990. In the course of preparing the lease and
a 1992 opinion letter, he personally went to the Roberts County
courthouse to examine title records on the wells. Thereafter he
prepared numerous title opinions on the wells purporting to show
the ownership interests of Trans Terra. In preparation of these
later opinions he did not examine courthouse records for the
documents affecting the title, but instead relied on information
provided to him by Epps and a landman, Chuck Robinson.
In October of 1993 Epps approached appellant First National
Bank in Durant (the Bank), seeking a $2 million loan to Trans
Terra, to be secured by Trans Terra’s interest in the Ledrick
wells. In considering the loan request, the Bank reviewed 1993
title opinions Douglass had prepared for Trans Terra. These
title opinions were addressed to Epps and Trans Terra.
2
In November of 1993 the Bank agreed to loan Trans Terra $1.5
million, provided that the Bank receive an updated title opinion
addressed to the Bank. Attorney Ben Munson documented the loan
transaction for the Bank by preparing all of the loan documents
except the title report. He prepared a promissory note and a
deed of trust providing a description of the collateral derived
in part from Douglass’ title opinions. The property descriptions
state that Trans Terra had a .33 net revenue interest in three of
the Ledrick wells and a .48761 net revenue interest in the other
three Ledrick wells.
The loan was set for closing on November 19. On November 18
Munson faxed Douglass a letter requesting a title opinion on the
Ledrick wells that was (1) “dated within 30 days of November 19,
1993,” and (2) addressed to the Bank. Douglass had no prior
notice that he was to prepare such a title opinion. Epps flew to
Oklahoma for the November 19 closing. Bank officers and Munson
attended the closing on behalf of the Bank. Epps did not bring
the title opinion the Bank expected. Epps called Douglass and
requested the opinion. This conversation was made on a speaker
phone in the presence of Munson and the Bank personnel. Epps
told Douglass that he had promised the Bank a title opinion and
asked Douglass to prepare it. Munson recalled that Epps told
Douglass he was in the process of closing a loan and needed a
title opinion directed to the Bank as soon as it could be
completed. Douglass stated that he did not have time to prepare
the opinion that day. Epps and the Bank agreed to sign the loan
3
documents with the understanding that the loan would not fund
until the title report was received.
On the following Monday, November 22, Douglass forwarded a
title opinion to the Bank. As requested, this title opinion was
addressed to the Bank. It states that the “title opinion is
rendered solely and exclusively for your benefit.” It also
states that Douglass has “examined the Deed Records of Roberts
County, Texas, from inception of title to the date of this
opinion as to the captioned acreage.” In fact, Douglass had not
examined records at the courthouse to the date of the opinion,
and had not received any new information from the landman,
Robinson.
Trans Terra defaulted on the loan. The Bank proceeded to
foreclose on the collateral, namely Trans Terra’s interests in
the Ledrick wells. The November 22 title opinion and earlier
title opinions prepared by Douglass were incorrect. For example,
Douglass later wrote the Bank in December of 1994, informing it
that Trans Terra’s net revenue interest on the Ledrick 55-1 well
was .039375, versus .33 as represented in the November 22 title
opinion, and the net revenue interest in the Ledrick 55-4 well
was .028150, versus .33 as represented. In preparing the title
opinion Douglass failed to discover certain instruments which
caused Trans Terra’s interests in the Ledrick wells to be
substantially smaller that those represented in the title
opinion. The Bank’s expert testified that Douglass was negligent
4
in preparing the title opinion without having examined the
courthouse records.
The Bank sued Trans Terra, Epps, Douglass, Lane & Douglass,
and Douglass’ law partner Don Lane. Trans Terra and Douglass
filed for bankruptcy. Proceedings against Trans Terra and
Douglass were severed and administratively closed. The Bank and
Epps later entered into an agreed but uncollectible judgment.
The case proceeded to trial against the law firm and Lane, based
on theories of legal malpractice and negligent misrepresentation
on the part of Douglass. The jury sided with the Bank, finding
an attorney-client relationship between Douglass and the Bank,
and negligence on the part of Douglass. It awarded damages in
the amount of the deficiency on the loan.
The district court granted a post-verdict motion for
judgment as a matter of law in favor of defendants Lane and the
law firm. It concluded that under Texas law the Bank was not
Douglass’ client, and therefore could not recover against these
defendants. Douglass then dismissed his bankruptcy case,
notified the district court that the automatic stay had been
terminated, and moved for summary judgment based on the court’s
judgment in favor of Lane and the law firm. The court granted
summary judgment in favor of Douglass, consistent with its prior
ruling that the absence of attorney-client privity between the
Bank and Douglass precluded a recovery for the Bank.
The Bank appeals the judgment in favor of Lane and the law
firm, and the separate judgment entered in favor of Douglass.
5
Appellees concede that if the judgment as a matter of law in
favor of Lane and the law firm must be reversed, the summary
judgment in favor of Douglass cannot stand.
DISCUSSION
A judgment as a matter of law is warranted if the facts and
inferences point so strongly and overwhelmingly in favor of one
party that reasonable people could not arrive at a verdict to the
contrary.1 In this diversity case, we must of course endeavor
to decide the case as the Texas Supreme Court would decide it.2
A. Attorney-Client Privity and Negligent Misrepresentation
The district court concluded that a reasonable jury could
not find an attorney-client relationship between Douglass and the
Bank. The Bank argues that there was sufficient evidence to
support such a finding, and alternatively, that the Bank can
recover under a negligent misrepresentation theory irrespective
of an attorney-client relationship. We find merit with the
latter argument.
Texas law is clear that a legal malpractice claim requires
proof of an attorney-client relationship between the plaintiff
and the defendant attorney. In Banc One Capital Partners
Corporation v. Kneipper, we explained:
1
Texas Farm Bureau v. United States, 53 F.3d 120, 123 (5th
Cir. 1995).
2
Texas Dep’t of Housing and Community Affairs v. Verex
Assurance, Inc., 68 F.3d 922, 928 (5th Cir. 1995); Jackson v.
Johns-Manville Sales Corp., 781 F.2d 394, 397-98 (5th Cir. 1986)
(en banc).
6
In order to establish liability for professional
negligence or legal malpractice, the [plaintiffs] must
show the existence of a duty owed to them by [the
attorney], a breach of that duty, and damages arising
from the breach. Under Texas law, there is no
attorney-client relationship absent a showing of
privity of contract, and an attorney owes no
professional duty to a third party or non-client.3
This principle was confirmed in Barcelo v. Elliott,4 where
the Texas Supreme Court held that an attorney who negligently
drafts a will or trust agreement owes no duty of care to the
beneficiaries of the will or trust. The court noted that the
“potential tort liability to third parties would create a
conflict during the estate planning process, dividing the
attorney’s loyalty between his or her client and the third-party
beneficiaries.”5 It reasoned that “the greater good is served
by preserving a bright-line privity rule which denies a cause of
action to all beneficiaries whom the attorney did not represent.
This will ensure that attorneys may in all cases zealously
represent their clients without the threat of suit from third
parties compromising that representation.”6 It also expressed
concern that “[w]ithout this ‘privity barrier,’ the rationale
goes, clients would lose control over the attorney-client
3
67 F.3d 1187, 1198 (5th Cir. 1995) (citations omitted).
4
923 S.W.2d 575 (Tex. 1996).
5
Id. at 578.
6
Id. at 578-79.
7
relationship, and attorneys would be subject to almost unlimited
liability.”7
In support of the existence of an attorney-client
relationship between Douglass and the Bank, the Bank points out
that the November 22 title opinion was addressed to the Bank, and
states that it “is rendered solely and exclusively for [the
Bank’s] benefit.” Appellees Douglass, Lane, and Lane & Douglass
(hereinafter the lawyers) point to evidence rebutting the
existence of an attorney-client relationship. The Bank had its
own counsel, Munson. Munson’s letter to Douglass requesting the
preparation of the title opinion states that “[i]t is my
understanding that you represent Trans Terra Corporation
International,” the borrower. Douglass never billed the Bank for
his services, and consistent with lending practices, the borrower
paid all the closing costs, including the legal fees of Douglass
and Munson. Douglass testified that his clients were Trans Terra
and Epps. Further, the title opinion states in its opening
sentence that it was prepared at the request of Epps.
We agree with the district court that the lawyers were
entitled to judgment as a matter of law on the legal malpractice
claim, because no attorney-client relationship existed between
Douglass and the Bank. The mere fact that the November 22 letter
was addressed to the Bank, or states it was prepared for the
benefit of the Bank, is insufficient to establish an attorney-
client relationship. In Bank One, the opinion letter in issue
7
Id. at 577.
8
was addressed to the plaintiff investors, and stated that it was
furnished solely for their benefit, yet we held as a matter of
law that no attorney-client relationship existed between the
investors and the defendant law firm retained by the issuer of
the securities purchased by the plaintiffs.8 Further, the
statement in the opinion letter that it was rendered solely and
exclusively for the Bank’s benefit must be read in context. The
next sentence states that “[i]t is not a representation of the
title to the subject acreage to any other party.” The disclaimer
was plainly intended to protect Douglass from claims of reliance
by parties other than the Bank, rather than to manifest an
intention to create an attorney-client relationship.
An attorney-client relationship can arise by express
agreement or by implication from the parties’ actions.9
However, courts will not readily find an implied relationship
“absent a sufficient showing of intent.”10 In Banc One, we held
as a matter of law that neither an expressed nor implied
attorney-client relationship existed based on a single letter
addressed to plaintiffs and purporting to give an opinion solely
for their benefit.
Likewise, a rational jury could not find an implied
attorney-client relationship in this case based on the November
22 title opinion, where (1) Douglass did not bill the Bank for
8
Banc One, 67 F.3d at 1199 & n.21.
9
Id. at 1198.
10
Id.
9
his services, (2) the Bank had its own counsel, (3) the Bank’s
counsel stated in his November 18 letter his understanding that
Douglass represented Trans Terra, not the Bank, (4) Douglass
testified without qualification that his clients were Epps and
Trans Terra, not the Bank, and (5) the title opinion states that
it was prepared at the request of Epps.11 The attorney-client
relationship is contractual in nature.12 Whether the contract is
express or implied, there must be a meeting of the minds that the
attorney will render professional services to the client.13 An
“implied” contract merely refers to the manner of proof; the
meeting of the minds is inferred from the conduct of the parties
or the circumstances.14 On these facts, a rational jury could
not infer a meeting of the minds that Douglass would serve as
attorney for the Bank.
The Bank argues that the testimony of its attorney expert
supports a finding of an express or implied attorney-client
11
Cf. Kotzur v. Kelly, 791 S.W.2d 254, 258 (Tex. App.--
Corpus Christi 1990, no writ) (holding that fact issue precluded
summary judgment on issue of implied attorney-client relationship
where attorney admitted that he knew that plaintiffs did not have
a separate attorney, and charged plaintiffs for his services.)
12
Vinson & Elkins v. Moran, 946 S.W.2d 381, 405 (Tex. App.-
-Houston [14th Dist.] 1997, writ dism’d by agr.).
13
Id.; Hallmark v. Hand, 885 S.W.2d 471, 476 (Tex. App.--El
Paso 1994, writ denied) (holding that elements of a contract,
including element of meeting of minds, are the same whether the
contract is express or implied).
14
Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros.
Welding Co., 480 S.W.2d 607, 609 (Tex. 1972); Williford v.
Submergible Cable Servs., Inc., 895 S.W.2d 379, 384 (Tex. App.--
Amarillo 1994, no writ).
10
relationship between Douglass and the Bank. He testified that
when a lawyer addresses a title opinion to a lender, the lawyer
is “in effect” representing the Bank. We agree with the lawyers
that the unqualified statement by the expert that the lawyer
always represents the addressee of a title opinion is a legal
conclusion that will not support the verdict, and is further an
incorrect statement of the law. The designation of an addressee
in a title opinion letter, without more, does not establish a
meeting of the minds that the author of the title opinion will
serve as counsel to the addressee.
Even though an attorney-client relationship did not exist
between Douglass and the Bank, we agree with the Bank that under
the facts presented Texas law allows it a cause of action under a
theory of negligent misrepresentation. At the outset we note
that the Bank’s complaint asserted separate causes of action for
attorney malpractice and negligent misrepresentation. Likewise,
the jury charge instructed the jury on both legal malpractice and
negligent misrepresentation (the former requiring proof of an
attorney-client relationship), and the jury found liability and
damages under both theories.
The Texas Supreme Court, in Federal Land Bank Association of
Tyler v. Sloane,15 adopted the common law cause of action for
negligent misrepresentation as set out in the RESTATEMENT (SECOND)
OF TORTS § 552 (1977). Under § 552:
15
825 S.W.2d 439, 442 (Tex. 1991).
11
(1) One who, in the course of his business, profession
or employment, or in any other transaction in which he
has a pecuniary interest, supplies false information
for the guidance of others in their business
transactions, is subject to liability for pecuniary
loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable
care or competence in obtaining or communicating the
information.
(2) Except as stated in Subsection (3), the liability
stated in Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of
persons for whose benefit and guidance he intends to
supply the information or knows that the recipient
intends to supply it; and
(b) through reliance upon it in a transaction that he
intends the information to influence or knows that the
recipient so intends or in a substantially similar
transaction.
Sloane expressly agreed with the Restatement’s definition,
and also set out its own elements of the negligent
misrepresentation cause of action:
(1) the representation is made by a defendant in the
course of his business, or in a transaction in which he
has a pecuniary interest; (2) the defendant supplies
“false information” for the guidance of others in their
business; (3) the defendant did not exercise reasonable
care or competence in obtaining or communicating the
information; and (4) the plaintiff suffers pecuniary
loss by justifiably relying on the representation.16
Under either formulation of the elements of a negligent
misrepresentation claim, the evidence supports a finding of
liability against Douglass.
The lawyers argue that a negligent misrepresentation cause
of action cannot be asserted against an attorney absent an
attorney-client relationship between the plaintiff and the
attorney. In F.E. Appling Interests v. McCamish, Martin, Brown &
16
Sloane, 825 S.W.2d at 442.
12
Loeffler,17 the Texarkana Court of Appeals recently held that
attorneys are subject to liability under the § 552 cause of
action for negligent misrepresentation, whether or not an
attorney-client relationship existed. In Appling, decided after
the district court granted the motion for judgment, the plaintiff
sued a savings association, VSA, under a lender liability theory.
The parties worked toward a settlement, but the plaintiff was
concerned that the settlement agreement would not be enforceable
if VSA became insolvent and was taken over by the FSLIC. To
complete the settlement, an attorney for the defendant law firm
signed a settlement agreement, stating that VSA and its counsel
represent that the agreement has been approved by the VSA board
of directors and otherwise meets the requirements of 12 U.S.C. §
1823(e). Later, VSA did become insolvent, the FSLIC became the
receiver, and a federal court held that the settlement agreement
was unenforceable because it did not comply with § 1823(e).
After analyzing Barcelo and other authorities, the court held
that contractual privity between the plaintiff and the defendant
attorney is not required if the elements of a § 552 negligent
misrepresentation claim are otherwise met.18
The Appling court reasoned that a negligent
misrepresentation claim is not premised on the breach of a duty a
professional owes his client or others in privity, but on an
independent duty based on the attorney’s manifest awareness of
17
953 S.W.2d 405 (Tex. App.--Texarkana 1997, writ denied).
18
Id. at 406-08.
13
plaintiff’s reliance on the representation and intention that the
plaintiff so rely.19 It noted that its holding did not conflict
with Barcelo, since the plaintiffs in that case “would have no
negligent misrepresentation cause of action because the defendant
never made a representation to them.”20
“[A] decision by an intermediate appellate state court ‘is a
datum for ascertaining state law which is not to be disregarded
by a federal court unless it is convinced by other persuasive
data that the highest court of the state would decide
otherwise.’”21 Although the lawyers correctly point out that
Appling is in conflict with earlier intermediate state appellate
court decisions,22 we are persuaded that the Texas Supreme Court
would agree with Appling. It is the latest authority from the
Texas courts, and in our view is directly on point. The Texas
Supreme Court denied review in Appling. The Appling court had
the benefit of the Texas Supreme Court’s decisions in Sloane and
Barcelo, the most recent Texas Supreme Court decisions relevant
to the issue presented, and discussed both cases. We further
19
Id. at 408.
20
Id. at 409.
21
Verex Assurance, 68 F.3d at 928 (citation omitted).
22
Thompson v. Vinson & Elkins, 859 S.W.2d 617, 623 (Tex.
App.--Houston [1st Dist.] 1993, writ denied); First Mun. Leasing
Corp. v. Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W.2d
410, 413-14 (Tex. App.--Dallas 1983, writ ref’d n.r.e.); Bell v.
Manning, 613 S.W.2d 335, 337-38 (Tex. Civ. App.--Tyler 1981, writ
ref’d n.r.e.).
14
note that writing contrary to Appling in earlier Texas cases was
not essential to the holdings in those cases.23
We also conclude that the Texas Supreme Court’s reasons for
requiring attorney-client privity in legal malpractice cases do
not compel a privity requirement in a negligent misrepresentation
case such as this one. As discussed above, Barcelo reasoned that
the privity requirement is justified because: (1) “potential tort
liability to third parties would create a conflict during the
estate planning process, dividing the attorney’s loyalty between
his or her client and the third-party beneficiaries;”24 (2) the
privity requirement “will ensure that attorneys may in all cases
zealously represent their clients without the threat of suit from
third parties compromising that representation;”25 and (3)
“[w]ithout this ‘privity barrier’ . . . clients would lose
23
While Thompson rejects the application of § 522 to
lawyers, it is readily distinguishable from Appling and the
pending case because the evidence was undisputed that the law
firm defendant made no representations to the plaintiffs. 859
S.W.2d at 622. First Municipal Leasing imposed a privity
requirement in a negligent misrepresentation case, but also held
that even absent a privity requirement “the final result in the
present case would be the same . . . . [T]he non-client First
Municipal could not recover for the alleged negligence because it
did not rely upon the opinion of the Attorneys.” 648 S.W.2d at
413. Similarly, Bell requires privity between the attorney and
the plaintiff, but indicates that the result would have been the
same without a privity requirement because “we fail to see how
the [representation] could be classified as a negligent
representation . . . .” 613 S.W.2d at 339.
24
Barcelo, 923 S.W.2d at 578.
25
Id. at 578-79.
15
control over the attorney-client relationship, and attorneys
would be subject to almost unlimited liability.”26
These concerns are not present where the negligent
misrepresentation claim is premised on the facts presented in the
pending case. There is no conflict of interest where, as here,
both the client borrower and the third party lender jointly ask
the attorney to prepare an opinion letter. A conflict could only
arise if the client secretly hopes that the title opinion will
contain false information, and we see no reason to protect the
attorney from his own negligence with a privity barrier in such
circumstances. We see no burden on zealous representation when
both the lender and client request a discrete service from the
attorney, namely the preparation of a title opinion. Again,
barring sinister motives of the client, both client and lender
seek only a accurate title opinion. Further, where as here the
client directs the attorney to prepare a title opinion for a
single lender, and the attorney prepares the opinion disclaiming
liability to any party other than the lender, there is little
risk that the client will lose control over the attorney-client
relationship or the attorney will face unlimited liability.
B. Other Issues
The lawyers argue that the evidence does not show that the
inaccurate title opinion was the proximate cause of any injury to
the Bank, since the loan documents were signed before the title
opinion was received. The evidence shows, however, that Epps and
26
Id. at 577.
16
the Bank agreed that the loan would not fund, and indeed it did
not fund, until the title opinion was received. The lawyers
argue that the Bank was legally obligated to fund the loan after
the loan documents were signed, whether or not the title opinion
was received. A rational jury could conclude that, regardless of
the terms of the loan documents, Epps understood that no loan
proceeds would be forthcoming without the title opinion, and that
he would not have demanded the proceeds without the title
opinion. Further, the loan agreement states that the borrower
agrees to furnish certain defined financial information and “such
other information from time to time as Bank may reasonably
request,” and the deed of trust requires Epps to furnish, at any
time upon request of the Bank, real estate documents, including
“instruments of further assurance . . . and other documents as
may in the sole opinion of the [Bank] be necessary or desirable
to effectuate, complete, perfect, continue or preserve” Trans
Terra’s loan obligations.
The lawyers argue that the jury was incorrectly instructed
that the measure of damages is “the amount of money paid out by
the Bank, minus recoveries had on the loan.” They argue that the
correct measure of damages is the difference between the true
value of the collateral and the value of the collateral as
represented in the title opinion. We agree with the district
court’s instruction. In Sloan, the court adopted the measure of
damages as set out in RESTATEMENT (SECOND) OF TORTS § 552B (1977).
Under § 552B:
17
(1) The damages recoverable for a negligent
misrepresentation are those necessary to compensate the
plaintiff for the pecuniary loss to him of which the
misrepresentation is legal cause, including
(a) the difference between the value of what he has
received in the transaction and its purchase price or
other value given for it; and
(b) pecuniary loss suffered otherwise as a
consequence of the plaintiff’s reliance upon the
misrepresentation.
(2) the damages recoverable for a negligent
misrepresentation do not include the benefit of the
plaintiff’s contract with the defendant.27
The evidence supports a measure of damages equal to the
entire amount of the loan, minus the amounts secured through note
payments and foreclosure, since such a measure reflects the
“pecuniary loss suffered otherwise as a consequence of the
plaintiff’s reliance upon the misrepresentation.” The Bank’s
president testified that if the November 22 title opinion had
shown Trans Terra’s true interests in the Ledrick wells, the Bank
would not have made the loan at all, for two reasons. First, the
Bank would not have made the loan if the interests set out in the
title opinion had been seriously at odds with earlier
representations of Trans Terra’s interests. Second, the cash
flow expected from the true interests would not have been
sufficient to support the loan.28
27
Sloane, 825 S.W.2d at 442 (emphasis added).
28
While the jury instruction was correct, we note that
testimony regarding the amount of the Bank’s damages does not
appear to square with the correct measure of damages. The Bank’s
president testified that the Bank recovered $501,766 at
foreclosure, on a loan of $1.5 million. Yet he testified that
the amount still owing on the note was $1,214,260. This figure
apparently includes interest the Bank would have received under
the terms of the note. However, § 552B, as quoted above, does
not allow the plaintiff to recover the benefit of the plaintiff’s
18
The lawyers moved for a new trial in the alternative to
their motion for judgment. The district court denied this
motion, which was mooted by the granting of the motion for
judgment. The lawyers contend that if we reverse the judgments,
we should hold that they are entitled to a new trial rather that
entry of judgment against them on the jury verdict.
The ground for the new trial motion was that the district
court allowed the Bank’s expert to testify about the November 22,
1993 title opinion. The lawyers complain that the expert report
produced before trial did not reference that title opinion as a
document the expert had reviewed, as required by FED. R. CIV. P.
26(a).
“The admission or exclusion of expert testimony is a matter
left to the discretion of the trial court, and that decision will
not be disturbed on appeal unless it is manifestly erroneous.”29
Further, the admission of expert testimony in violation of Rule
26(a) is subject to harmless error analysis.30
The district court did not manifestly err in allowing the
expert to testify about the November 22 title opinion. The
contract. Sloane explains that § 552B “allows for damages
suffered in reliance upon negligent misrepresentation, but not
for the failure to obtain the benefit of the bargain.” 825
S.W.2d at 443. Accordingly, the Bank is only entitled to recover
the amount of principal it originally loaned, minus the amounts
secured through pre-default loan payments and foreclosure, plus
any prejudgment and post-judgment interest Texas law might allow.
29
Eiland v. Westinghouse Elec. Corp., 58 F.3d 176, 180 (5th
Cir. 1995).
30
FED. R. CIV. P. 37(c)(1).
19
expert report indicates that the expert had reviewed numerous
other title opinions Douglass had prepared, which provided
essentially the same opinions contained in the November 22 title
opinion. The expert report goes on to give the opinion that
Douglass was negligent “in the preparation of the oil and gas
title opinions” insofar as the opinions represent that he had
reviewed the courthouse records when in fact he had not. The
report assumed that Douglass had not reviewed the courthouse
records. The lawyers knew or should have known that the expert
would have the same opinion as to the November 22 title opinion,
whether or not he had reviewed it prior to preparing the expert
report, and that the Bank would ask him about that title opinion
at trial.
The judgments below are reversed, and the case is remanded
for further proceedings consistent with this opinion.
REVERSED and REMANDED.
ENDRECORD
20
EDITH H. JONES, Circuit Judge, dissenting.
With due respect to my colleagues’ sensitivity to Texas
law, and with some sympathy for the result they reach, I feel I
must respectfully dissent from the portion of the majority
opinion discussing negligent misrepresentation under RESTATEMENT
(RECORD) OF TORTS § 552.
Texas case law is without doubt unclear regarding
whether lawyers are liable for the tort of negligent
misrepresentation absent a privity relationship. Two lines of
cases now directly conflict with each other in their statement of
the law. Compare F.E. Appling Interests v. McCamish, Martin,
Brown & Loeffler, 953 S.W.2d 405 (Tex. App.—Texarkana 1997, pet.
denied) (permitting a negligent misrepresentation claim against
an attorney absent privity) with Thompson v. Vinson & Elkins, 859
S.W.2d 617, 622-23 (Tex. App.—Houston [1st Dist.] 1993, writ
denied); First Mun. Leasing Corp. v. Blakenship, Potts, Aikman,
Hagin & Stewart, 648 S.W.2d 410, 413-14 (Tex. App.—Dallas 1983,
writ ref’d n.r.e.); Bell v. Manning, 613 S.W.2d 335, 338 (Tex.
Civ. App.—Tyler 1981, writ ref’d n.r.e.) (all holding that a
negligent misrepresentation claim pursuant to § 552 cannot be
made absent an attorney-client relationship). Although, as the
majority here notes, the “anti-negligent misrepresentation” cases
may be factually distinguishable such that their holdings could
(not must) rest on other grounds, their statement of the law
could not be more clear and forthright—and contradictory to
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Appling. The Supreme Court’s unfortunate denial of review in
Appling affords no solution to the dilemma.
But in a closely related case, the Texas Supreme Court
has strictly construed the privity requirement for a legal
malpractice claim wherein third-party beneficiaries of a trust
sue the lawyer and law firm that created the trust. See Barcelo
v. Elliott, 923 S.W.2d 575 (Tex. 1996). In doing so, the court
rejected the position of the vast majority of states, which have
relaxed the privity barrier in the estate planning context. See
id. at 577-78; see also id. at 579 (Cornyn, J., dissenting) (“By
refusing to recognize a lawyer’s duty to beneficiaries of a will,
the Court embraces a rule recognized by only four states, while
simultaneously rejecting the rule in an overwhelming majority of
jurisdictions.”). Interestingly, Appling, the case from which
the majority here infer that Texas will extend to lawyers the
potential liability for negligent misrepresentation, relies
entirely upon cases from other states in dispensing with privity.
Appling has to distinguish two contrary Texas appellate cases to
reach its conclusion.
Judge Reavley’s opinion is certainly not wrong, as it
reflects a rule many other states have adopted. The only
question is whether the Texas Supreme Court, having made such a
bright-line decision for privity in Barcelo, will cut back on it
to adopt Appling. I do not think these two decisions are easily
reconcilable in principle, in equity, or in fact. Thus, I am
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wary of making the majority’s Erie-guess that Appling will become
governing Texas law. I respectfully dissent.
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