Britton v. Seale ( 1996 )

United States Court of Appeals,
Fifth Circuit.
No. 95-20487.
Marian E. BRITTON, Plaintiff-Appellant,
v.
Robert A. SEALE, Jr., John B. Holstead, and Roger L. Beebe,
Defendants-Appellees.
April 30, 1996.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, Chief Judge, and HIGGINBOTHAM and SMITH, Circuit
Judges.
JERRY E. SMITH, Circuit Judge:
Marian Britton ("Britton") appeals the dismissal of her legal
malpractice action. Finding no error, we affirm.
I.
This suit arises from a feud between Britton and her brothers
(collectively "the Brittons" or "the children") over their
respective inheritances. The Brittons' parents created a number of
partnerships and trusts, including three for Britton, and named
their sons as trustees. Britton later sued her brothers for an
accounting, apparently believing they had stolen from her trusts.
While that litigation was pending, the probate court declared
the Brittons' mother to be incompetent and made her a ward of that
court; their father had died earlier. The children eventually
settled the suit, largely with their mother's money. The
settlement provided that the mother's guardian would not
investigate wrongdoing by either the children or lawyers and other
1
professionals who had represented the mother; the probate court
later transferred any claims the mother had against professionals
to her children.
Defendants and their law firm handled estate work for the
Brittons' parents and continued to represent the mother and her
court-appointed guardian during Britton's suit. They also defended
Britton's brothers against that suit and helped negotiate the
settlement.
Britton brought this legal malpractice action against the
individual attorneys, asserting that they violated their
professional duties to her mother because of a conflict of
interest. The district court found that "legal malpractice claims
are not assignable" under Texas law and dismissed the complaint.1
II.
Britton alleges that defendants suffered from a conflict of
interest in representing both the mother and the sons. She further
contends that defendants took advantage of the mother by
encouraging her to fund the settlement of her daughter's suit and
to pay other debts of her sons. Britton also alleges that Beebe
undervalued assets on an estate tax valuation.
Britton concedes that the dispositive question on appeal is
1
Britton argues that the district court should have
converted defendants' motion to dismiss into one for summary
judgment because defense counsel presented "extraneous matters"
to the court. The district court's holding does not rely on any
evidence outside the pleadings, however, and the mere presence of
additional issues in the record did not require the court to
treat the motion as one for summary judgment. See Davis v.
Bayless, 70 F.3d 367, 372 n. 3 (5th Cir.1995).
2
whether the probate court's transfer order gave her standing to
bring this action. The Texas Supreme Court recently answered this
question by adopting the following court of appeals holding:
On balance, we conclude that the costs to the legal system of
assignment outweigh its benefits. We hold that an assignment
of a legal malpractice action arising from litigation is
invalid.
Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313, 318 (Tex.App.—San
Antonio 1994, writ refused).2
A.
Britton contends that Zuniga is distinguishable because her
mother's claims arise from estate work, not litigation. While the
court of appeals limited the express holding of Zuniga to claims
arising from litigation, its reasoning extends well beyond the
facts of that case. The court discussed the pros and cons of
assignment and concluded generally that "the costs to the legal
system of assignment outweigh its benefits." Id. The only other
court that has interpreted Zuniga read it broadly: "Because we
agree with appellees and the reasoning set forth in [Zuniga ], we
hold that legal malpractice claims are not assignable." City of
Garland v. Booth, 895 S.W.2d 766, 769 (Tex.App.—Dallas 1995, writ
denied).
2
The notation "writ refused" indicates that the court found
that "the judgment of the court of appeals is correct and ... the
principles of law declared in the opinion ... are correctly
determined." TEX.R.APP.P. 133(a). Thus, "a decision ... in
which the Supreme Court refuses a writ of error is as binding as
a decision of the Supreme Court itself." "21' Int'l Holdings v.
Westinghouse Elec. Corp., 856 S.W.2d 479, 483 (Tex.App.—San
Antonio 1993, no writ) (quoting Ohler v. Trinity Portland Cement
Co., 181 S.W.2d 120, 123 (Tex.Civ.App.—Galveston 1944, no writ)).
3
Britton argues that despite the breadth of the language quoted
above, Texas courts are concerned only with specific abuses—such as
sale to strangers for profit and transfer by defendants in
settlement of litigation—and not with assignment in general.3
Britton is correct in noting that the Texas cases discuss a variety
of specific problems that would result from permitting assignment,
but she is wrong in concluding that they limit the ban on
assignment to cases presenting those problems. Instead, Zuniga and
Booth appear to prohibit assignment altogether in order to prevent
such problems from occurring. See Zuniga, 878 S.W.2d at 317
("Ultimately, to allow assignment would make lawyers reluctant—and
3
Britton also cites a few inapposite Texas cases in an
attempt to undercut Zuniga. First, she argues that the state
supreme court specifically reserved the question of whether legal
malpractice claims are assignable, see American Centennial Ins.
Co. v. Canal Ins. Co., 843 S.W.2d 480, 484 n. 6 (Tex.1992), and a
lower court subsequently noted that the supreme court's position
on the issue "is uncertain," see Charles v. Tamez, 878 S.W.2d
201, 206 (Tex.App.—Corpus Christi 1994, writ denied). While
Britton's characterization of those cases is accurate, it is also
misleading, as both American Centennial and Charles preceded
Zuniga.
Second, Britton observes that a court of appeals stated
in dicta that attorney malpractice claims may be assigned.
See Stonewall Surplus Lines Ins. Co. v. Drabek, 835 S.W.2d
708, 711 (Tex.App—Corpus Christi 1992, writ denied).
Zuniga, however, expressly overruled that portion of
Stonewall Surplus. See Zuniga, 878 S.W.2d at 314-15.
Finally, though no one has cited it, we note that the
same court of appeals also found that a woman had standing
to prosecute a legal malpractice action that her husband had
assigned to her. See Pankhurst v. Weitinger & Tucker, 850
S.W.2d 726 (Tex.App.—Corpus Christi 1993, writ denied).
Pankhurst discusses the issue as one of marital property,
not assignment in general, and preceded both Charles, in
which the same court of appeals disallowed an assignment,
and Zuniga. If Pankhurst retains any vitality, it does so
only in the context of family law.
4
perhaps unwilling—to represent defendants with inadequate insurance
and assets."); Booth, 895 S.W.2d at 769 (reasoning that "to allow
assignability of such claims would relegate the legal malpractice
action to the marketplace and convert it to a commodity to be
exploited").4
Even if the Texas Supreme Court were to limit its ban on
assignment of legal malpractice claims to those "arising from
litigation," the instant situation would still fall within that
ban. The mother's guardian assigned these claims to the children
following their settlement of the earlier litigation, and the
underlying subject matter of that litigation was substantially the
same as the issue in this suit: fraudulent mismanagement of the
Britton trusts. In fact, Britton alleges in this suit that
defendants conspired with her brothers to defraud her mother in
connection with the settlement of the earlier suit. As a result,
it is not a stretch to say that the present suit "aris[es] from
litigation."
B.
Britton argues that the assignment is valid because her
4
Zuniga and Booth both look to the leading opinion on this
subject, Goodley v. Wank & Wank, Inc., 62 Cal. App. 3d 389, 133
Cal. Rptr. 83 (1976), which states:
It is the unique quality of legal services, the
personal nature of the attorney's duty to the client
and the confidentiality of the attorney-client
relationship that invoke public policy considerations
in our conclusion that malpractice claims should not be
subject to assignment.
Id. at 87 (emphasis added).
5
mother's claims passed to the children "by operation of law." She
relies on a bankruptcy opinion that observes, in dicta, that "it is
not self-evident that, under California law, a claim for legal
malpractice would not pass by operation of law, as, for example, to
the malpractice plaintiff's heirs in the event of death, or to the
successor of a corporate plaintiff merged out of existence or
dissolved." Ellwanger v. Budsberg (In re Ellwanger), 140 B.R. 891,
899 (Bankr.W.D.Wash.1992). Defendants respond that even if the
probate court had authority to transfer the mother's claims to the
guardian "by operation of law," such an exception would not cover
the guardian's subsequent assignment to the children.
As the state has declared the mother to be legally incompetent
and has deprived her of the right to manage her own affairs, there
is considerable force to Britton's contention that the state ought
to permit someone to prosecute the mother's claims for her.
Britton errs, however, in assuming that she is that person. To the
extent that the claims passed "by operation of law," they passed to
the guardian, not Britton. Moreover, Texas could assuage the
concerns discussed in Ellwanger by permitting the guardian to
prosecute the mother's claims as part of his general duty to manage
her estate. Thus, Britton would not benefit from any such
exception.
Nonplused, Britton contends that her mother's claims passed
"by operation of law" a second time when the guardian transferred
them to the children. She further asserts that this second
transfer differed from an ordinary assignment in that the probate
6
court approved the guardian's request to assign the claims and then
ordered him to do so, pursuant to the probate code.
Under Texas law, the mere fact that a court has general
statutory authority to order the transfer of property does not
permit it to order the transfer of a legal malpractice claim.5
Thus, while a probate court order directing the transfer of such a
claim might be said to effect an assignment "by operation of law,"
it would also do so in derogation of law. Such an order would
still be entitled to full res judicata and collateral estoppel
effect, but, as discussed below, defendants are not bound by the
probate court's order. Absent such preclusive effect, the order is
ineffectual to the extent that it purports to assign legal
malpractice claims.6
C.
Britton contends that her contract, fraud, conspiracy, and
deceptive trade practices claims are "independent" of her
negligence and fiduciary duty claims and therefore escape Texas's
ban on assignability. In the district court, however, Britton
filed a document stating that "[t]his is a legal malpractice
action...." In addition, each of Britton's claims alleges that the
5
See Charles, 878 S.W.2d at 205, 208 (holding that, at least
under some circumstances, a judgment creditor is not entitled to
transfer of a legal malpractice cause of action under Texas's
turnover statute); Zuniga, 878 S.W.2d at 317 & n. 5 (extending
Charles to all legal malpractice claims).
6
To be fair to the probate court, we note that it
transferred a broad class of claims, including all those the
mother had against professionals. As a result, it did not
directly address the question of whether the guardian should
transfer the mother's legal malpractice claims.
7
defendant attorneys acted improperly in the course of performing
legal services for a client. Finding no reason to depart from
Britton's own characterization of her suit, we conclude that all of
her claims assert legal malpractice and are non-assignable.
III.
Britton contends that the probate court's transfer order is
res judicata as to defendants' non-assignability defense. She
explains that because the probate court decided that the mother's
claims should be transferred to her children, defendants could have
contested the transfer's validity in that court.
As a threshold matter, defendants contend that Britton's
argument is properly analyzed under the principle of collateral
estoppel, not res judicata, because she requests preclusion only as
to a single issue—the defense of non-assignability—not an entire
cause of action. Because a Texas court rendered the earlier
judgment, Texas law governs its preclusive effect. See Heller Fin.
v. Grammco Computer Sales, 71 F.3d 518, 523 n. 4 (5th Cir.1996).
Texas uses res judicata as a bar not only to causes of action, but
also to at least some defenses that could have been raised in the
earlier proceeding. See, e.g., Jones v. Strauss, 800 S.W.2d 842,
844 (Tex.1990). While Britton's res judicata argument is a weak
one, it is at least within the scope of that doctrine.
The doctrine of res judicata does not preclude defendants
from contesting the transfer's validity, however, because it bars
litigation only between the parties to the earlier suit and those
in privity with them. See Getty Oil Co. v. Insurance Co. of N.
8
Am., 845 S.W.2d 794, 800 (Tex.1992), cert. denied, --- U.S. ----,
114 S. Ct. 76, 126 L. Ed. 2d 45 (1993). Defendants were not parties
to the probate proceeding and did not represent any parties at the
time the court approved the assignment. In fact, the probate
court's transfer order specifically names the people it "shall be
binding upon"; defendants are not among them.
Britton contends nonetheless that defendants were
"parties-in-interest" to the proceeding because they were creditors
of the estate. While Britton is correct that Texas law generally
permits creditors of an estate to participate in probate
proceedings, see TEX.PROB.CODE ANN. §§ 3(r), 10 (Vernon 1980), at
least one Texas court has restricted the participation of
"interested persons" to matters in which their own interests are
materially affected. See Guardianship of Price v. Murfee, 408
S.W.2d 756, 758 (Tex.Civ.App.—Amarillo 1966, no writ). As the
judgment itself enumerates those it intends to bind, we decline to
expand its scope indiscriminately to all creditors of the estate.
In summary, we conclude that in Texas, most if not all claims
of legal malpractice, including this one, cannot be assigned.
Britton has no standing, and the judgment, accordingly, is
AFFIRMED.
9