Jodie Kelly v. Paul Rembach

Case: 16-20699 Document: 00514123406 Page: 1 Date Filed: 08/18/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 16-20699 FILED
August 18, 2017
JODIE KELLY,
Lyle W. Cayce
Clerk
Plaintiff - Appellee
v.
SETH A. NICHAMOFF,
Defendant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
This interlocutory appeal arises out of the district court’s denial of
Defendant-Appellant Seth Nichamoff’s motion to dismiss based on his
assertion of Texas’s attorney immunity. Plaintiff-Appellee Jodie Kelly’s
complaint alleges that Nichamoff conspired with two other Defendants to
defraud her into purchasing undervalued shares of Legacy Automation, Power
& Design, Inc., a Texas company owned by one of the Defendants, Paul
Rembach. Specifically, she alleges that Nichamoff helped to fraudulently
manipulate Legacy’s shares, falsely assured Kelly that she was purchasing
shares sufficient to give her 50% ownership, withheld and concealed
information that would have revealed the fraud, and falsely represented the
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value of the shares.
Nichamoff moved to dismiss Kelly’s claims against him, invoking
attorney immunity under Texas law. He argued that he was entitled to
immunity because he was Rembach’s attorney during the transaction and the
alleged conduct fell within the scope of his representation. The district court
denied Nichamoff’s motion to dismiss, concluding that Texas’s attorney
immunity was inapplicable because Nichamoff’s representation of Rembach
occurred during a business transaction (a stock transfer) and was unrelated to
litigation or an otherwise adversarial context. Nichamoff appeals, arguing that
the district court adopted an unduly narrow view of Texas’s attorney immunity
doctrine. We affirm the district court’s judgment, but do so on alternative
grounds.
I
“[A] district court’s order denying [a] defendant[’s] motion[] to dismiss on
the basis of attorney immunity under Texas law is an appealable collateral
order.” Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 348 (5th Cir. 2016).
Thus, we have jurisdiction to review the district court’s denial of Nichamoff’s
motion to dismiss. See id. “We review de novo a district court’s denial of a
motion to dismiss based on immunity [and] also review de novo a district
court’s interpretation of state law.” Id. at 345. When considering a motion to
dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, we take
all factual allegations as true and construe the facts in the light most favorable
to the plaintiff. Gines v. D.R. Horton, Inc., 699 F.3d 812, 816 (5th Cir. 2012).
“Although dismissal under rule 12(b)(6) may be appropriate based on a
successful affirmative defense, that defense must appear on the face of the
complaint.” EPCO Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA,
467 F.3d 466, 470 (5th Cir. 2006).
When deciding whether to apply a state-law immunity, we are “bound to
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answer the question the way the state’s highest court would resolve the issue.”
Troice, 816 F.3d at 345 (quoting Occidental Chem. Corp. v. Elliot
Turbomachinery Co., 84 F.3d 172, 175 (5th Cir. 1996)). “In applying Texas law,
we look first to the decisions of the Texas Supreme Court.” Hux v. S. Methodist
Univ., 819 F.3d 776, 780 (5th Cir. 2016). If the Texas Supreme Court has not
ruled on an issue, we “make an Erie guess, predicting what [the Texas Supreme
Court] would do if faced with the [same] facts.” Id. In doing so, we typically
“treat state intermediate courts’ decisions as the strongest indicator of what a
state supreme court would do, absent a compelling reason to believe that the
state supreme court would reject the lower courts’ reasoning.” Id. at 780–81.
Under Texas law, attorney immunity is a “comprehensive affirmative
defense protecting attorneys from liability to non-clients, stemming from the
broad declaration . . . that ‘attorneys are authorized to practice their profession,
to advise their clients and interpose any defense or supposed defense, without
making themselves liable for damages.’” Cantey Hanger, LLP v. Byrd, 467
S.W.3d 477, 481 (Tex. 2015) (quoting Kruegel v. Murphy, 126 S.W. 343, 345
(Tex. Civ. App. 1910, writ ref’d)), reh’g denied (Sept. 11, 2015). The immunity
aims “to ensure ‘loyal, faithful, and aggressive representation by attorneys
employed as advocates.’” Id. (quoting Mitchell v. Chapman, 10 S.W.3d 810, 812
(Tex. App.–Dallas 2000, pet. denied)). Generally, the immunity applies to
“conduct . . . involving ‘the office, professional training, skill, and authority of
an attorney.’” Reagan Nat’l Advert. of Austin, Inc. v. Hazen, No. 03-05-00699-
CV, 2008 WL 2938823, at *3 (Tex. App.—Austin July 29, 2008, no pet.)
(citations omitted). If an attorney shows that the conduct at issue was “part of
the discharge of the [attorney’s] duties in representing [the] client,” immunity
is appropriate. Cantey, 467 S.W.3d at 481 (quoting Toles v. Toles, 113 S.W.3d
899, 910–11 (Tex. App.–Dallas 2003, no pet.)).
On the other hand, “attorneys are not protected from liability to non-
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clients for their actions when they do not qualify as ‘the kind of conduct in
which an attorney engages when discharging . . . duties to [a] client.’” Id. at
482 (quoting Dixon Fin. Servs., Ltd. v. Greenberg, Peden, Siegmyer & Oshman,
P.C., No. 01–06–00696–CV, 2008 WL 746548, at *7 (Tex. App.–Houston Mar.
20, 2008, pet. denied) (mem. op. on reh’g)). For example, an attorney cannot
avoid liability “for the damages caused by [the attorney’s] participation in a
fraudulent business scheme with [the] client, as ‘such acts are entirely foreign
to the duties of an attorney.’” Id. (quoting Poole v. Hous. & T.C. Ry. Co., 58 Tex.
134, 137 (1882)).
Importantly, an attorney seeking dismissal based on attorney immunity
bears the burden of establishing entitlement to the defense. JJJJ Walker, LLC
v. Yollick, 447 S.W.3d 453, 468 (Tex. App.—Houston [14th Dist.] 2014, pet.
denied); see also Cantey, 467 S.W.3d at 484 (“An attorney who pleads the
affirmative defense of attorney immunity has the burden to prove that [the]
alleged wrongful conduct . . . is part of the discharge of [the attorney’s] duties
to [the] client.”). To meet this burden, the attorney must “conclusively establish
that [the] alleged conduct was within the scope of [the attorney’s] legal
representation of [the] client.” Santiago v. Mackie Wolf Zientz & Mann, P.C.,
No. 05-16-00394-CV, 2017 WL 944027, at *3 (Tex. App.—Dallas Mar. 10, 2017,
no. pet. h.); accord Cantey, 467 S.W.3d at 484. Although Texas courts
occasionally grant attorney immunity at the motion to dismiss stage, in those
cases, the scope of the attorney’s representation—and thus entitlement to the
immunity—was apparent on the face of the complaint. See, e.g., Highland
Capital Mgmt., LP v. Looper Reed & McGraw, P.C., No. 05-15-00055-CV, 2016
WL 164528, at *1, *7 (Tex. App.—Dallas Jan. 14, 2016, pet. denied) (granting
immunity when the complaint specifically alleged that a law firm’s wrongful
actions occurred “during [the firm’s] representation of” the employee in that
suit and concluding that “[b]ecause the facts alleged by [the plaintiff] were
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sufficient to support the defense of immunity, [the firm] did not need to present
further evidence in support of its motion”).
II
Nichamoff has not conclusively established that the conduct alleged by
Kelly fell within the scope of his representation of Rembach. Kelly
acknowledges in her complaint that “Nichamoff was Rembach’s attorney” at
the time Kelly acquired the Legacy shares. But this information establishes
only that Rembach was Nichamoff’s client. It does not establish the scope of
Nichamoff’s representation. The mere fact that an attorney was representing
a client at the time of alleged fraudulent activity is not enough to warrant
immunity. See id. at *5 (“A lawyer . . . cannot shield his [or her] own willful
and premeditated fraudulent actions from liability simply on the ground that
[the lawyer] is an agent of the client.”) (quoting Alpert v. Crain, Caton & James,
P.C., 178 S.W.3d 398, 406 (Tex. App.–Houston [1st Dist.] 2005, pet. denied)).
Without more information about the scope of Nichamoff’s representation of
Rembach, he cannot conclusively establish at this stage that the conduct
alleged by Kelly fell within it.
Moreover, Kelly’s complaint alleges that “Nichamoff received payments,
not just for his fee for the [stock transfer] transaction, but additional payments,
as a result of his participation in the conspiracy to defraud Plaintiff Kelly.”
Kelly also claims that the Defendants (including Nichamoff) “had a pecuniary
interest in . . . Kelly’s acquisition of” Legacy stock. These contentions allege
that Nichamoff was “participat[ing] in independently fraudulent activities,”
rather than merely representing a client’s interests in a business transaction.
Hazen, 2008 WL 2938823, at *3. While “[m]erely labeling an attorney’s conduct
‘fraudulent’ does not and should not remove it from the scope of client
representation or render it ‘foreign to the duties of an attorney[,]’” Texas courts
have repeatedly warned that “[i]f a lawyer participates in independently
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fraudulent activities, [the lawyer’s] action is ‘foreign to the duties of an
attorney.’” Highland, 2016 WL 164528, at *4, *5 (quoting Cantey, 467 S.W.3d
at 483; Alpert, 178 S.W.3d at 406). This includes “an attorney who participates
in a fraudulent business scheme with [the] client” and is thus “not protected
by the doctrine because such acts are ‘entirely foreign to the duties of an
attorney’ and ‘not part of the discharge of an attorney’s duties in representing
a party.’” Santiago, 2017 WL 944027, at *3.
Crediting Kelly’s allegations, Nichamoff took actions that constitute
fraud independent of his duties as an attorney and would not qualify as “acts
taken and communications made to facilitate the rendition of legal services to
[the client].” Dixon, 2008 WL 746548, at *9. Nichamoff “cannot shield his own
willful and premeditated fraudulent actions from liability simply on the ground
that he is an agent of his client.” Alpert, 178 S.W.3d at 406. Instead,
independently fraudulent conduct is “foreign to the duties of an attorney” and
falls outside the scope of client representation. Cantey, 467 S.W.3d at 483; see
also LJH, Ltd. v. Jaffe, No. 4:15-CV-00639, 2017 WL 447572, at *3 (E.D. Tex.
Feb. 2, 2017) (“[I]t is possible, based on the allegations in the Second Amended
Complaint, that Jaffe was acting based upon his ownership interest in [the
company involved in the business transaction with the plaintiff] and not solely
as an attorney.”). Thus, at this motion to dismiss stage, Nichamoff has failed
to carry his heavy burden of establishing entitlement to attorney immunity.
III
Because Nichamoff has failed to establish the scope of his representation
of Rembach and that his alleged conduct fell within that scope, we affirm the
district court’s judgment on those alternative grounds. See Ross v. Midwest
Commc’ns, Inc., 870 F.2d 271, 272 (5th Cir. 1989). We decline to reach the
merits of Kelly’s argument—embraced by the district court—that an attorney
is never entitled to immunity under Texas law if the alleged conduct was
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unrelated to litigation or a “litigation-like” setting. As Kelly points out,
Nichamoff is unable to identify a case in which a Texas court has applied
attorney immunity in a situation like this one, in which the attorney’s conduct
was disconnected from litigation and did not occur in a litigation-like setting,
such as foreclosure proceedings. On the other hand, Kelly is similarly unable
to identify a case in which a Texas court has expressly adopted the bright-line
limitation on attorney immunity that she urges.
In a recent case, Cantey Hanger, LLP v. Byrd, a slim majority of the
Texas Supreme Court explicitly declined to address this very question. 467
S.W.3d at 482 n.6. (“Because we conclude that [the defendant law firm’s]
alleged conduct falls within the scope of its duties in representing its client in
litigation, we need not consider the attorney-immunity doctrine’s application
to an attorney’s conduct that is unrelated to litigation.”). 1 Meanwhile, an
animated dissent insisted that an “attorney’s conduct must have occurred in
litigation” for attorney immunity to apply. Id. at 486 (Green, J., dissenting).
Prior to Cantey, this court expressly rejected the argument that Texas’s
attorney immunity applies only in the “litigation context,” although those cases
involved settings with litigation-like qualities. 2 In post-Cantey decisions, Texas
appellate courts have similarly declined to adopt a bright-line limitation on the
1 Despite this renunciation, the majority nonetheless cited Texas cases in which
attorney immunity applied outside of litigation, noting that although “[t]he majority of Texas
cases addressing attorney immunity arise in the litigation context[, . . . .] that is not
universally the case.” Id. (citing Campbell v. Mortgage Elec. Registration Sys., Inc., 03-11-
00429-CV, 2012 WL 1839357, at *6 (Tex. App.—Austin May 18, 2012, pet. denied); Hazen,
2008 WL 2938823, at *8)).
2 See Iqbal v. Bank of Am., N.A., 559 F. App’x 363, 365 (5th Cir. 2014) (unpublished)
(“BDFTE was retained to assist in the foreclosure, and the actions complained of by the Iqbals
are within the scope of their representation. The Iqbals argue that attorney immunity applies
only in the litigation context, but that stance is not in line with Texas law.”); Lassberg v.
Bank of Am., N.A., 660 F. App’x 262, 267 (5th Cir. 2016) (unpublished) (same).
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protection. 3 Nonetheless, as both the district court and Kelly observed, no
Texas court appears to have applied attorney immunity in a case like this one,
in which the alleged conduct occurred in a context disconnected from litigation.
Without a clear answer from the Texas Supreme Court, deciding this
appeal on the ground urged by Kelly would compel us to either limit or expand
Texas law in ways Texas courts have yet to do. And we need not do so, because
even if Texas’s attorney immunity extends to the work of transactional
lawyers, Nichamoff has not conclusively shown, as Texas courts hold he must
at this stage, that his alleged conduct fell within the scope of his legal
representation of Rembach. Consequently, he has failed to meet his burden
under Texas law and dismissal is inappropriate at this time.
We note for the district court that because this case involves an area of
Texas law that appears to be somewhat in flux, with the benefit of more
evidence and inquiry, intervening Texas decisions applying Cantey may
provide greater clarity on the limits of the protection and whether courts
should decline to apply it in cases like this one, in which the alleged conduct
may be shown to have occurred outside of litigation or a litigation-like setting.
Thus, we do not intend to foreclose Kelly’s ability to re-raise her argument at
a later stage. We conclude only that we need not reach it at this time.
3 Santiago, 2017 WL 944027, at *4 (“Even if we were to conclude that [the law firm’s]
actions occurred outside of the litigation context, the doctrine applied.”); Highland, 2016 WL
164528, at *6 n.3 (“Highland argues [Cantey] does not apply to this ‘pre-litigation’ conduct.
But the court’s reasoning in [Cantey] focuses on whether the conduct is ‘outside the scope of
an attorney’s representation of [the] client.’” (internal citation omitted)); Farkas v. Wells
Fargo Bank, N.A., No. 03-14-00716-CV, 2016 WL 7187476, at *8 (Tex. App.—Austin Dec. 8,
2016, no pet.) (“Farkas asserts that attorney immunity applies only for attorneys involved in
litigation, and Brice’s actions here were not conducted ‘in the course of any underlying
litigation.’ . . . We also note, however, as did the supreme court in Cantey Hanger, that ‘[t]he
majority of Texas cases addressing attorney immunity arise in the litigation context [,] [b]ut
that is not universally the case.’ The supreme court cited to two cases, both of which are
opinions of this Court, that indicate that attorney immunity applies outside of the litigation
context.” (internal citations omitted)).
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IV
For the foregoing reasons, we AFFIRM on alternative grounds the
district court’s denial of Nichamoff’s motion to dismiss.
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