Cook v. Brundidge, Fountain, Elliott and Churchill

• Decision Date: 11 February 1976
• Docket Number: No. B--5371,B--5371
• Citation: 533 S.W.2d 751
• Parties: Betty L. COOK et al., Petitioners, v. BRUNDIDGE, FOUNTAIN, ELLIOTT & CHURCHILL, a Partnership for the Practice of Law, Respondents.
• Court: Texas Supreme Court

Page 751

533 S.W.2d 751

Betty L. COOK et al., Petitioners, v. BRUNDIDGE, FOUNTAIN, ELLIOTT & CHURCHILL, a Partnership for

the Practice of Law, Respondents.

No. B--5371.

Supreme Court of Texas.

Feb. 11, 1976.

Rehearing Denied March 24, 1976.

Mary Neal Sisk, Dallas, for petitioners.

Jackson, Walker, Winstead, Cantwell & Miller, Donald L. Case and Jack Pew, Jr., Dallas, for respondents.

STEAKLEY, Justice.

As this case reaches us, it is a suit by Betty L. Cook, et al, against Brundidge Fountain, Elliott & Churchill, a partnership for the practice of law. ¹ The suit sought to recover actual and exemplary damages against the law firm arising from alleged breaches of fiduciary duty in the attorney-client relationship, and from alleged fraudulent acts. The breaches and fraudulent acts were alleged to have been committed by Warren C. Lyon, a partner in the firm at the times in question. The motion of the law firm for summary judgment was granted by the trial court and this has been affirmed by the Court of Civil Appeals. 522 S.W.2d 740. The question for decision is whether the law firm established conclusively that it is not liable for the acts of Lyon. We hold that it did not and so reverse the judgments below and remand the cause for trial.

We learn the following from the summary judgment record. Brundidge, Fountain, Elliott & Churchill is a partnership engaged in the practice of law in Dallas, Texas. Warren C. Lyon was a partner of the law firm at the times in question. As such, in 1969, he represented the plaintiff Betty L. Cook in a divorce proceeding; he also prepared a will for her and for Isabelle Griffin, another plaintiff. Fees were charged by the law firm for these services and paid by Betty L. Cook and Isabelle Griffin. Lyon was also engaged in the real estate business and was an officer and stockholder in Texas Yummers, a Texas corporation. He also owned stock in a California company known as United States Franchise Corporation which assisted with the organization of Texas Yummers. Fees were also paid to the law firm by Texas Yummers.

Sometime in 1969, during a conference with Lyon concerning her divorce, Betty L. Cook informed Lyon that she, together with her aunt, Mrs. Isabelle Griffin, and her sister, Winifred Baker, were receiving approximately $60,000 from the sale of some property which had come to them from an estate in Illinois. Betty L. Cook asked Lyon if he knew of someone with whom they could consult concerning the invest of this money in some real estate in Texas. Lyon told her he was a silent partner in a real estate firm and might be able to help her. He suggested several investments and then told her about Yummers, a fast-food franchise operation based in California, in which he had invested at, he said, substantial profit. Lyon said he had obtained a Yummers franchise and was in the process of forming a Texas corporation to handle it.

Betty L. Cook, et al, decided to invest in Yummers. They directed their attorney in Illinois to send Lyon a check for the proceeds of the sale of the land in Illinois, which he did. The check was dated July 3, 1969, and was in the sum of $60,343.25; it was made payable to 'Warren Lyon as Attorney for Isabelle M. Griffin, Winifred Baker and Betty Cook.' The check was mailed to and received by Lyon at the office of the law firm but there is no showing that the funds were deposited in or handled by or through any account of the law firm.

On July 9, 1969, Betty L. Cook, et al, conferred with Lyon in the law firm's office. A contract was executed whereby they loaned to Texas Yummers Corporation a minimum of $50,000 to be used in the construction of a Yummers store in Dallas. Lyon signed the contract as president of Texas Yummers. Betty L. Cook, et al, alleged under oath that Lyon represented to Plaintiff Cook, Mrs. Griffin and Mrs. Baker that he had prepared the contract, that it was a good and valid mortgage contract and that as their attorney he could assure them that their interests were well-protected. Betty L. Cook testified that Lyon represented to them that their funds had been placed in a trust account until it could be invested in the new store: 'The money was going to be held until actually the property was bought and the building begun and the pay back started, which was September 15. . . . It was to be paid back to us at one thousand dollars a month to be divided equally between the three of us for fifteen years.'

The payment due September 15, 1969, under the July 9 contract was not made. On October 16, at Betty L. Cook's request, Lyon sent Isabelle Griffin a check for $250 from Texas Yummers Corporation to cover her living expenses.

During October and November of 1969, Lyon persuaded Betty L. Cook, et al, to exchange their rights under the July 9 contract for stock in Texas Yummers. Betty L. Cook, et al, agreed to take 12,000 shares each, at $1.00 per share, plus a.$19,000 note from Texas Yummers. Betty L. Cook also gave Lyon $5,000 for 5,000 more shares on November 14. On December 4, Lyon and Weaver executed and Betty L. Cook, et al, received the.$19,000 note from Texas Yummers. On December 23, Betty L. Cook signed an 'investment letter' promissing to purchase 17,000 shares; Isabelle Griffin and Winifred Baker signed similar letters for 12,000 shares each. In February of 1970, Betty L. Cook, et al, received what purported to be stock certificates for Texas Yummers.

The facts regarding Texas Yummers Corporation were these: a Texas Yummers Corporation was incorporated on February 27, 1969; Lyon was designated as an incorporator and director. The law firm was retained by United States Franchise Corporation, a California corporation which owned and operated 'Yummers' stores in California, to set up this Texas corporation. On March 3, 1969, Texas Yummers paid the law firm $500 as a retainer; the check was signed by Lyon. $50,000 of the funds of Betty L. Cook, et al, was deposited in an account of Texas Yummers.

On December 2, 1969, Texas Yummers was dissolved, and a new Texas Yummers Corporation was formed; Lyon was again an incorporator and director. On July 21, 1972, a Petition for Involuntary Bankruptcy of Texas Yummers was filed; on August 11, the corporation was adjudged bankrupt. On September 12, a meeting of the creditors of the corporation was held. Soon thereafter, this suit was instituted.

As indicated in the forepart of this opinion, the severed proceeding before us seeks the recovery of damages against the partnership law firm upon the theory of vicarious liability for the acts of Lyon, a partner. We are concerned at this stage with the motion of the law firm for summary judgment that was sustained by the trial court and upheld by the Court of Civil Appeals upon the stated conclusion:

. . . that the summary judgment proof established as a matter of law that Lyon had neither the actual authority nor the apparent authority to represent the law firm in the fraud perpetrated upon plaintiff. Such proof shows the fraudulent acts by Lyon were not consented to, authorized, ratified, or adopted by the other members of this law firm. 522 S.W.2d 740, 742.

This holding of the Court of Civil Appeals states the essential position of the law firm.

It should also be stated that the problem at hand does not involve in any respect the question of the personal liability of a lawyer who defrauds a client, whatever the circumstances.

The motion of the law firm for summary judgment relied for support on its filed answer, on the affidavits of Lyon, and of Ralph D. Churchill, a senior member of the firm; and upon the deposition testimony of Betty L. Cook, a plaintiff, and Charles A. Girand, a licensed Texas attorney engaged in the practice of law in Dallas.

The answer of the law firm admitted that Lyon was a partner in the practice of law but denied that he was a partner, or that he was acting in the capacity of a partner, 'in giving the advice, performing the services and doing or omitting to do the acts complained of by plaintiffs.' As to such, he was, the law firm alleged, acting in his individual capacity.

The affidavit of Lyon was to the same effect, i.e., that in all transactions with Betty L. Cook, other than with respect to the divorce proceeding and the preparation of a will for her, he was acting in his individual and personal capacity, for which the law firm received no fee or payment from Betty L. Cook.

The affidavit of Churchill was to the effect that the firm is engaged exclusively in the practice of law; that Lyon as a partner was not authorized to act as an investment counselor, securities broker or dealer, or to act as a real estate broker, dealer or agent, and that Lyon was not a partner in the performance of any such services performed for Betty L. Cook; that the only service Lyon performed as a partner was the handling of a divorce for Betty L. Cook and the preparation of a will for her and perhaps a will for one of the other plaintiffs; that Lyon was acting in his individual capacity with respect to his real estate business and as a stockholder in United States Franchise Corporation, and in the corporation known as Yummers; and that 'this firm received no fee, payment, commission, or profit in any of such transactions.'

The deposition testimony of Girand was directed to the reasons for the dissolution of the original incorporation of Yummers and the formation of the second corporation.

The deposition of Betty L. Cook, who was deposed as a witness on behalf of the defendants, Lyon and Weaver, dealt principally with the sequence of events in her relationship with Lyon. She also filed an affidavit in support of her response to the motion of the law firm for summary judgment. In this she stated:

At no time in my dealings with Defendant Lyon did he indicate that he was acting in any capacity other than as my attorney at law or separate from the law firm of which he was a partner. Stuart L. Mamer, an attorney of...