First Nat. Bank of Durant v. Trans Terra Corp. Intern.
| Decision Date | 27 May 1998 |
| Docket Number | Nos. 97-10167,97-10914,s. 97-10167 |
| Citation | 142 F.3d 802 |
| Parties | The FIRST NATIONAL BANK OF DURANT, Plaintiff-Appellant, v. TRANS TERRA CORPORATION INTERNATIONAL, et al., Defendants, Lane & Douglass and Don R. Lane, Defendants-Appellees. The FIRST NATIONAL BANK OF DURANT, Plaintiff-Appellant, v. Malcolm C. DOUGLASS, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Steven L. Hoard, Julie A. Lawson, Mullin, Hoard and Brown, Amarillo, TX, for Plaintiff-Appellant.
Robert H. Smith, Smith & Stone, Amarillo, TX, for Defendants-Appellees.
Appeals from the United States District Court for the Northern District of Texas.
Before REAVLEY, JONES and BENAVIDES, Circuit Judges.
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.
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.
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 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 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.
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 in preparing the title opinion without having examined the courthouse records.
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. 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.
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
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:
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 6 It also expressed concern that "[w]ithout this 'privity barrier,' the rationale goes, clients would lose control over the attorney-client 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...
To continue reading
Request your trial
-
Williams Controls v. Parente, Randolph, Orlando
...and relied upon' and `the potential liability was restricted to a comparatively small group.'"); First Nat'l Bank of Durant v. Trans Terra Corp. Int'l, 142 F.3d 802, 809 (5th Cir.1998) ("[A] negligent misrepresentation claim is not premised on the breach of a duty a professional owes his cl......
-
Armstrong v. AMERICAN PALLET LEASING INC.
...professions, such as abstracters and attorneys."). Other court have explicitly so held. See First Nat'l Bank of Durant v. Trans Terra Corp. Int'l, 142 F.3d 802, 808-809 (5th Cir.1998) (applying Texas law); Molecular Tech. Corp. v. Valentine, 925 F.2d 910, 915-16 (6th Cir.1991) (applying Mic......
-
Associated Mortg. Corp. v. Weaver (In re Weaver)
...of interest would give the lender the benefit of its bargain rather than its out-of-pocket loss. First Nat'l Bank of Durant v. Trans Terra Corp. Int'l , 142 F.3d 802, 811 n.28 (5th Cir. 1999) ; Citizens State Bank v. Shearson Lehman Bros., Inc. , 874 F.Supp. 307, 309 (D. Kan. 1994). However......
-
Vine Street v. Keeling ex rel. Estate of Keeling
...Constitution or by acts of Congress, the law to be applied in any case is the law of the state"). 104. First Nat'l Bank of Durant v. Trans Terra Corp., 142 F.3d 802, 806 (5th Cir.1998) (internal quotations and footnote 105. Vine St.'s Compl. at ¶ 52 (Docket No. 240 at 12). 106. The statute ......