Dennis H. Taylor and Shepherd, Smith & Bebel, P.C. v. Valerie Wilson

Reversed and Remanded and Majority and Concurring Opinions filed October 6, 2005

Reversed and Remanded and Majority and Concurring Opinions filed October 6, 2005.

In The

Fourteenth Court of Appeals

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NO. 14-04-00701-CV

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DENNIS H. TAYLOR AND SHEPHERD, SMITH & BEBEL, P.C., Appellants

V.

VALERIE WILSON, Appellee

On Appeal from the 333rd District Court

Harris County, Texas

Trial Court Cause No. 2004-02864

M A J O R I T Y   O P I N I O N

This is an interlocutory appeal from the denial of a motion to compel arbitration.^[1]  Appellants, attorney Dennis Taylor and the law firm of Shepherd, Smith, & Bebel, P.C., seek relief from the trial court=s denial of their motion to compel arbitration of Valerie Wilson=s claim for legal malpractice.  Appellants= brief asserts two issues: (1) whether a suit for legal malpractice is a claim for Apersonal injury@ under Texas Civil Practice and Remedies Code section 171.002(a)(3); and (2) if so, whether the claim must be compelled to arbitration if it is intertwined with a breach of contract claim.  We reverse the trial court=s order denying the motion to compel arbitration and remand this cause for further proceedings.

I.  Background

In 2002, Valerie Wilson retained appellants as legal counsel to represent her on a claim against an investment firm and its broker.  Appellants, on Wilson=s behalf, filed a claim in arbitration seeking economic damages arising from breach of contract, deceptive trade practices, breach of securities statutes, misrepresentation, and breach of fiduciary duty.  Wilson and appellants entered into a Power of Attorney and Contingent Fee Contract (the Aagreement@) that contains an agreement to arbitrate disputes.^[2]  After the arbitration claim was filed, the brokerage firm ceased doing business and claimed financial deficits.  As a result, appellants entered into settlement discussions with the brokerage firm and ultimately settled Wilson=s claim for $40,000.  Wilson contends appellants entered into the binding settlement agreement without her authority and in violation of the agreement.

In 2004, Wilson filed suit against appellants alleging legal malpractice, breach of fiduciary duty, and breach of contract, and seeking fee forfeiture. Appellants moved to compel arbitration pursuant to the agreement, and the trial court denied the motion. Appellants now appeal.

II. Discussion

A party seeking to compel arbitration must establish the existence of a valid, enforceable arbitration agreement and show the claims asserted fall within the scope of that agreement.  J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).  The trial court=s determination of the arbitration agreement=s validity is a legal question subject to de novo review.  Id. 

It is undisputed that the parties in this matter entered into an agreement to arbitrate their disputes.  On appeal, appellants argue the trial court erred by not compelling Wilson to arbitrate her dispute according to the terms of the agreement.

A.      APersonal Injury@   

The trial court denied appellants= motion to compel arbitration because it determined  Wilson=s legal malpractice action was a claim for Apersonal injury@ pursuant to section 171.002(a)(3) of the Texas Arbitration Act.^[3]  Tex. Civ. Prac. & Rem. Code Ann. ' 171.002(a)(3) (Vernon 2005).  The Texas Arbitration Act does not apply to a claim for personal injury unless each party to a claim, on the advice of counsel, agrees to arbitrate in writing, and the agreement is signed by each party and each party=s attorney.  Id. at ' 171.002(a)(3), (c)(1B2) (emphasis added).  It is undisputed that the parties did not comply with section 171.002(c)(1B2); therefore, the trial court held the agreement to arbitrate was unenforceable.  On appeal, appellants contend the trial court erred because a suit for legal malpractice is not a claim for Apersonal injury@ under the Texas Arbitration Act.

B.      Miller v. Brewer, In re Hartigan, and In re Godt

The issue of whether a suit for legal malpractice is a claim for Apersonal injury@ under the Texas Arbitration Act is an issue of first impression in this court.^[4] Other appellate courts that have addressed the issue are split.  Compare Miller v. Brewer, 118 S.W.3d 896, 899 (Tex. App.CAmarillo 2003, no pet.) (holding a legal malpractice suit stemming from employment discrimination is not a claim for personal injury); and In re Hartigan, 107 S.W.3d 684, 690B91 (Tex. App.CSan Antonio 2003, pet. denied) (holding a legal malpractice claim is not a claim for personal injury); with In re Godt, 28 S.W.3d 732, 738B39 (Tex. App.CCorpus Christi 2000, no pet.) (holding a legal malpractice claim is a personal injury action for all purposes).

The Corpus Christi Court of Appeals was the first to address this issue, and, relying on three cases, it held a legal malpractice suit is a claim for Apersonal injury@ under the Texas Arbitration Act.  In re Godt, 28 S.W.3d at 738B39. The Godt court relied upon Willis v. Maverick, which held a cause of action for legal malpractice is in the nature of a tort and is governed by a two-year statute of limitations.  760 S.W.2d 642, 644 (Tex. 1988).  The other two cases relied upon by the Godt court cite Willis as authority for the proposition that a legal malpractice action is a claim for Apersonal injury.@  See Sample v. Freeman, 873 S.W.2d 470, 476B77 (Tex. App.CBeaumont 1994, writ denied) (holding an award for pre-judgment interest in a legal malpractice case is appropriate because a legal malpractice action is a personal injury claim); Estate of Degley v. Vega, 797 S.W.2d 299, 302B03 (Tex. App.CCorpus Christi 1990, no writ) (classifying a legal malpractice claim as a claim for personal injury for statute of limitations purposes). However, in Willis, the Texas Supreme Court held a legal malpractice claim is in the nature of a tort for purposes of determining the statute of limitations, but it did not hold that legal malpractice is a personal injury action. Willis, 760 S.W.2d at 644. Thus, Willis stands for the proposition that legal malpractice is a tort, but not for the conclusion that a claim of legal malpractice is a claim for personal injury.

Moreover, the plaintiff=s original injury in Godt was based on personal injuries suffered from medical malpractice.  Godt, 28 S.W.3d at 734.  In reaching its conclusion, the Godt court Aapparently relied upon the fact that >the nature of Godt=s complained-of injury in her malpractice claim is an action for personal injury, rather than an action for economic or contractual losses.=@  Miller, 118 S.W.3d at 898 (quoting Godt, 28 S.W.3d at 739).  Here, unlike Godt, Wilson=s underlying claim was for economic losses rather than for personal injury.  We reject the Godt analysis and reach the same conclusion as that of our other sister courts holding a legal malpractice claim is not a claim for personal injury. See Miller, 118 S.W.3d at 897B99; In re Hartigan, 107 S.W.3d at 689B91.  Our conclusion is buttressed by  the legislative history of the personal injury exception to the application of the Texas Arbitration Act.

C.      Legislative History of the Personal Injury Provision in the Texas Arbitration Act

The legislative history regarding the personal injury exception to the Texas Arbitration Act reveals the legislature intended to restrict the scope of the personal injury exception to physical personal injury.  A summary of the legislative history of the personal injury provision in the Texas Arbitration Act is as follows:    

In 1978, the House Judiciary Committee met between legislative sessions to investigate how arbitration could be better used to relieve an increasingly overburdened court system.  The committee issued four recommendations designed to increase use of arbitration, then attempted to implement those recommendations via House Bill 15 (>>H.B. 15==) in the 66th Legislative Regular Session.  The limitation on arbitration for personal injury claims first appeared as an amendment to H.B. 15.   

In the second meeting of the House Judiciary Committee on H.B. 15, an amendment was offered to exclude personal injury actions from the [Texas Arbitration Act].  The bill was subsequently referred to a special subcommittee which modified the amendment by allowing arbitration of personal injury actions under the statute so long as the parties to a written agreement could prove they were advised on the implications of arbitration by counsel.  The amendment was only concerned with physical personal injuries, as it also sought to exclude claims for workers= compensation.  The essence of the language in the amendment was agreed to by the Senate, and subsequently adopted into the final version of the bill.  The personal injury clause remained substantially unchanged when the 74th Legislature redesignated the [Texas Arbitration Act] from the Civil Statutes to Chapter 171 of the Civil Practice & Remedies Code.  The reorganization of the Civil Practice and Remedies Code under the 75th Legislature, which divided the old section 171.001 into two sections, placed the personal injury clause in the new section 171.002 and added the requirement that a personal injury arbitration agreement must be signed by the parties themselves, as well as their attorneys.

Robert J. Kraemer, Attorney-Client Conundrum: The Use of Arbitration Agreements for Legal Malpractice in Texas, 33 St. Mary=s L.J. 909, 932B34 (2002) (emphasis added) (footnotes omitted). The legislature clearly did not intend to include a claim for legal malpractice within the personal injury exception.

III. Conclusion

We find no room for doubt in the legislature=s intent to restrict the meaning of the personal injury exception of the Texas Arbitration Act to physical personal injury.  Inasmuch as Wilson has not suffered a physical injury, her malpractice claim is not excluded from arbitration.^[5]  Thus, the trial court erred as a matter of law by finding Wilson=s legal malpractice claim was a claim for personal injury.  Because we resolve the first issue in appellants= favor, we do not address their second issue.  Accordingly, we reverse the trial court=s order denying appellants= motion to compel arbitration and remand this cause with instructions to the trial court to enter an order compelling arbitration between appellee, Valerie Wilson, and the appellants, Dennis Taylor and the law firm of Shepherd, Smith & Bebel, P.C., and staying all other proceedings in this matter pending the outcome of the arbitration.                           

/s/      John S. Anderson

Justice

Judgment rendered and Majority and Concurring Opinions filed October 6, 2005.

Panel consists of Justices Anderson, Frost, and Seymore.   

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^[1]  See Tex. Civ. Prac. & Rem. Code Ann. ' 171.098(a)(1) (Vernon 2005).

^[2]  In the last paragraph of the agreement, the last sentence provides in bold, A[a]ny dispute arising under or relating to this agreement shall be determined by arbitration in Houston, Texas according to the Arbitration Act.@  Below this sentence and above the signature line, the agreement further provides in bold type: AI CERTIFY THAT I HAVE HAD THE OPPORTUNITY TO READ THIS AGREEMENT, INCLUDING THE ARBITRATION PROVISION, AND VOLUNTARILY ENTER INTO THIS AGREEMENT FULLY AWARE OF ALL ITS TERMS AND CONDITIONS.@

^[3]  The Texas Arbitration Act is found in sections 171.001B171.098 of the Texas Civil Practice and Remedies Code.  See Tex. Civ. Prac. & Rem. Code Ann. '' 171.001B171.098 (Vernon 2005).

^[4]  We note appellants= brief cites various Texas statutes defining Apersonal injury@ in support of their proposition that the Texas Legislature did not intend the term Apersonal injury@ to encompass legal malpractice claims.  See Tex. Code Crim. Proc. Ann. art. 56.32(10) (Vernon Supp. 2004) (stating Apersonal injury@ means physical or mental harm); Tex. Gov=t Code Ann. ' 615.021(e)(1)(ABB) (Vernon Supp. 2004) (stating Apersonal injury@ means an injury resulting from an external force, an activity, or a disease caused by or resulting from a line-of-duty accident or an illness caused by line-of-duty work under hazardous conditions); Tex. Transp. Code Ann. ' 541.401(7) (Vernon 1999) (stating Apersonal injury@ means an injury to any part of the human body that requires treatment).  These statutes are consistent with the legislative history of the personal injury exclusion from the Texas Arbitration Act restricting the term to physical personal injury.

^[5]  Wilson=s first amended original petition asserted legal malpractice, breach of fiduciary duty and breach of contract claims against appellants.  Wilson also claimed damages proximately caused by those acts amounted to, among other amounts, $500,000 in mental anguish damages.  While Wilson does not assert on appeal that her claim for mental anguish damages bolsters her argument that her claim is one for personal injury, the issue is fairly raised in this appeal.

As plead in her petition, Wilson=s alleged mental anguish damages are the result of economic losses caused by an attorney=s negligence.  When a plaintiff=s mental anguish is a consequence of economic losses caused by an attorney=s negligence, the plaintiff may not recover damages for that mental anguish.  Douglas v. Delp, 987 S.W.2d 879, 885 (Tex. 1999). Thus, Wilson=s mental anguish damages are not recoverable, and cannot support her assertion that her claim is one for a physical personal injury.