Mallios v. Baker

• Decision Date: 06 January 2000
• Docket Number: No. 98-0408,98-0408
• Citation: 11 S.W.3d 157
• Parties: (Tex. 2000) John C. Mallios d/b/a Mallios & Associates, Mallios & Associates, P.C., and James D. Blume, Petitioners v. Mark W. Baker, Respondent
• Court: Texas Supreme Court

Page 157

11 S.W.3d 157 (Tex. 2000)

John C. Mallios d/b/a Mallios & Associates Mallios & Associates, P.C., and James D. Blume, Petitioners v. Mark W. Baker, Respondent

No. 98-0408

IN THE SUPREME COURT OF TEXAS

Argued on December 8, 1998

Decided Jan. 6, 2000

On Petition for Review from the Court of Appeals for the Fifth District of Texas

Justice GONZALES delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice ENOCH, Justice Hankinson, and Justice O'NEILL joined.

In this case we must decide whether the trial court properly issued summary judgment for the defendants, an attorney and a law firm, on the theory that the plaintiff, contrary to Texas public policy, had assigned a portion of his legal malpractice claim to a third party and therefore should be barred from pursuing the claim. The court of appeals reversed the summary judgment and remanded. 971 S.W.2d 581. While we do not reach the question of whether the agreement between the plaintiff and the third party violated public policy, we agree that summary judgment for the defendants is improper on this record. Consequently, we affirm the court of appeals' judgment.

Mark Baker was seriously injured on his motorcycle when he fled from police officers attempting to stop him for driving while intoxicated on the wrong side of the road. Baker sued the owner of Mimi's Pub for selling him alcoholic beverages when he allegedly was so obviously intoxicated that he was a clear danger to himself and others. He hired attorneys John Mallios and James Blume, and their firm, Mallios and Associates, P.C. (collectively, "Mallios") to represent him. On Baker's behalf, Mallios sued Shades Automotive Glass Tinters, Inc., whom Mallios believed to be the owner of Mimi's Pub, and obtained a default judgment for more than $1 million. Baker then sought out T. J. Herron after reading a local newspaper advertisement by Herron that he would buy judgments in excess of $25,000. After some investigation, Herron concluded that Shades Automotive did not own Mimi's Pub, and that Mallios had sued the wrong person. Because Baker's personal injury claim against the real owner was by then barred by limitations, Baker decided to sue Mallios for legal malpractice.

Baker and Herron signed an agreement in which Baker assigned an interest in the proceeds from his malpractice claim against Mallios to Herron in exchange for Herron's assistance in pursuing the claim. The agreement provided that Herron would recommend legal counsel and negotiate the terms of employment for Baker subject to his approval, and would pay "all attorney fees, costs and expenses of the investigation, pursuit and prosecution" of those claims. Herron would be reimbursed out of any recovery from Mallios and would also be entitled to fifty percent of any recovery net of all expenses. The parties also agreed that Baker's claims could not be settled without both Baker's and Herron's consent and Baker would "fully cooperate in the investigation, pursuit and prosecution" of the claims against Mallios. The agreement also allowed Herron to terminate it if he determined that prosecuting Baker's claims "would prove not to be economically feasible."

Herron recommended to Baker that he engage attorney Darrell Minter to pursue his malpractice claim. Consistent with Herron's recommendation, Baker hired Minter to represent him on an hourly rate basis. At the same time, Baker, Minter, and Herron all signed an agreement providing that Herron would pay Minter's hourly fees, plus an additional contingent fee of ten percent of Herron's net recovery. Herron also guaranteed payment of all sums due to Minter and agreed to be solely responsible for such payment.

Minter then filed this lawsuit for Baker against Mallios. Mallios moved for summary judgment on the theory that Baker had assigned part of his claim to Herron and therefore Baker's prosecution of the claim contravened public policy. The trial court apparently agreed and granted summary judgment for Mallios. Concluding that the arrangement between Baker and Herron did not violate any public policy rationale expressed by Texas and other courts for precluding some assignments of legal malpractice claims, the court of appeals reversed. 971 S.W.2d 581.

The relief Mallios sought below dictates how we must consider this appeal. Mallios moved for and obtained summary judgment against Baker. Mallios's summary judgment motion could only have been based on one of two theories: either that Baker assigned his claim to Herron and therefore Baker is not the proper party to pursue it, or that Baker, by making an invalid assignment, is precluded from bringing the claim.

Mallios propounded only the second theory -- that Baker's legal malpractice claim is barred because he purportedly assigned it to Herron and that such an assignment contravenes public policy. But even assuming Mallios is correct that the agreement between Baker and Herron violates Texas public policy, an issue we do not decide today, the question remains whether that invalidity would entitle Mallios to a take-nothing judgment on Baker's malpractice claim. The situation here is not like the one in State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996), for example, in which we rendered a take-nothing judgment against the purported assignee of a claim because the assignment was void, leaving her no claim to pursue. Id. at 697; see also Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313 (Tex. App. -- San Antonio 1994, writ ref'd). Here, Baker is the alleged assignor, and assuming there was a partial assignment, Baker still retained a portion of his claim. Mallios does not dispute that Baker had the right to sue Mallios before Baker's agreement with Herron. And even if we were to reach the issue of the agreement's validity and determine that Mallios is correct that it is an invalid assignment, that would not vitiate Baker's right to sue Mallios. Thus, either way, summary judgment was improper and Baker may continue his suit. We therefore express no opinion on the validity of the underlying arrangement between Baker and Herron.

Accordingly, we conclude that the trial court should not have granted summary judgment against Baker, and we affirm the court of appeals' judgment.

Justice HECHT filed a concurring opinion, in which Justice OWEN, Justice BAKER, and Justice ABBOTT joined.

Justice ENOCH filed a concurring opinion, in which Chief Justice PHILLIPS joined.

Justice HECHT filed a concurring opinion,joined by Justice OWEN, Justice BAKER, and Justice ABBOTT concurring.

The principal question in this case is whether a person may buy all or part of a legal malpractice claim purely as an investment, unrelated to any other transaction. That is the issue that the defendant raised and the parties argued in the district court, and the issue that the district court decided. It is the issue that the parties briefed in the court of appeals, and the issue that the court of appeals decided.¹ It is the issue that the parties briefed and argued in this Court. The answer is that if the interest purchased gives such a buyer not merely a share in any recovery but substantial control over the claim, the transfer contravenes public policy and is therefore void.

The Court dodges the only question the parties and the lower courts have put to us because, it says, the assignor of an interest in a legal malpractice claim may prosecute the claim even if the assignment is void. No doubt he can, but that does not spare the Court from answering the question. If the assignor would not prosecute his claim, absent an assignee's investment in it, then the validity of the assignment is, as a very real and practical matter, crucial to the case. The assignor could prosecute his claim, but he won't. And if the assignee would not continue to bankroll the prosecution of the claim if he knew that he could not share in the recovery, that too would affect the case. Holding the assignment invalid does not require judgment against the assignor, I agree, but it will certainly affect the assignor's willingness to continue on and the assignee's willingness to finance the effort. The assignor, the assignee, and the defendant are all three directly affected by whether the assignment is valid, and they are entitled to an answer -- which is that the assignment is invalid.

The parties in this case are in the same situation as the parties in Elbaor v. Smith.² There a plaintiff and defendant settled with a so-called Mary Carter agreement: that is, the defendant took an assignment of a financial interest in any recovery by the plaintiff, and remained a party in the case. At trial, the settling defendant supported the plaintiff's position as against a nonsettling defendant. We held that such agreements contravene public policy because they provide ulterior financial incentives for parties to take positions they would not otherwise take and thus unfairly distort litigation.³ There is nothing wrong with one defendant siding with the plaintiff against another defendant; the one defendant may believe the other to be liable. The vice is not in the unusual alignment of the parties, but in the financial incentives that encourage the alignment. So in the present case: the vice is not in a mere assignment of part of plaintiff's recovery, but in an assignment coupled with such control that the third party assignee has a commercial investment in the outcome and the power to protect it. Whether the assignment in this case is valid has very real and practical significance to all the parties. I would conclude that the assignment in this case is invalid, for the reasons I now explain.

I

Severely intoxicated, Mark W. Baker was driving his motorcycle home from Mimi's Pub about 2:00 a.m. when police officers attempted to stop him, apparently for driving on the wrong side of the road. Trying to outrun them, Baker lost control, wrecked his motorcycle, and sustained serious...