McCamish-Martin v. F.E. Appling Interests

• Decision Date: 29 April 1999
• Docket Number: 970970
• Citation: 991 S.W.2d 787
• Parties: IN THE SUPREME COURT OF TEXAS ------------ NO. 97-0970 ------------ MCCAMISH, MARTIN, BROWN & LOEFFLER, PETITIONER v. F. E. APPLING INTERESTS, INDIVIDUALLY AND ON BEHALF OF BOCA CHICA DEVELOPMENT CO., RESPONDENT ---------------------------------------------------- ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE SIXTH DISTRICT OF TEXAS ----------------------------------------------------
• Court: Texas Supreme Court

IN THE SUPREME COURT OF TEXAS

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NO. 97-0970

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MCCAMISH, MARTIN, BROWN & LOEFFLER, PETITIONER

v.

F. E. APPLING INTERESTS, INDIVIDUALLY AND ON BEHALF OF BOCA CHICA DEVELOPMENT CO., RESPONDENT

----------------------------------------------------

ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE SIXTH DISTRICT OF TEXAS

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Argued on October 22, 1998

JUSTICE HANKINSON delivered the opinion of the Court.

JUSTICE GONZALES did not participate in the decision.

In this case, we determine whether McCamish, Martin, Brown & Loeffler, a law firm representing Victoria Savings Association (VSA), may be liable to F.E. Appling Interests, a general partnership, and Boca Chica Development Company, a joint venture partnership managed by Appling, both nonclients, for the tort of negligent misrepresentation, as defined by the RESTATEMENT (SECOND) OF TORTS 552 (1977). At trial, McCamish, Martin moved for summary judgment on Appling's negligent misrepresentation claim on the sole ground that, absent privity, McCamish, Martin owed no duty to Appling. The trial court rendered a take-nothing summary judgment in favor of McCamish, Martin based on the lack of privity between the parties. The court of appeals reversed and remanded for a trial on the merits, 953 S.W.2d 405, holding that a negligent misrepresentation claim is not the equivalent of a legal malpractice claim and is not barred by the privity rule. We affirm the judgment of the court of appeals.

Appling, a general partnership comprising four family trusts, was the managing partner of Boca Chica, a joint venture formed to develop recreational property. According to Appling's affidavit, Boca Chica obtained a loan and line of credit from VSA in 1985 to finance a real estate project. Boca Chica accepted the loan based on VSA's oral representation that VSA would later expand the line of credit, provided that Boca Chica's lot sales justified completing the development. However, in 1987, VSA decided not to extend the additional credit, despite the continued viability of the project. In 1988, Boca Chica went bankrupt and brought a lender liability claim against VSA for $15 million in damages.

With trial set for March 13, 1989, Boca Chica feared that the Federal Savings & Loan Insurance Corporation would declare VSA insolvent and take it over before a judgment could be obtained. If VSA were placed in receivership, Boca Chica's claim, based on the breach of an oral promise, would be unenforceable against VSA. Boca Chica was, therefore, anxious to settle. Boca Chica and VSA entered into settlement negotiations in early March 1989. They reached an agreement, which called for Boca Chica to deed the development to VSA in exchange for forgiveness of the outstanding debt that Boca Chica owed to VSA. Once the parties agreed on these terms, Appling wanted to ensure that the settlement agreement would be enforceable against the FSLIC.

Under 12 U.S.C. 1823(e)(1), no agreement is enforceable against the FSLIC unless the agreement:

(A) is in writing, (B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution, (C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (D) has been, continuously, from the time of its execution, an official record of the depository institution.

Appling distrusted VSA's representations that the agreement met the requirements of section 1823(e). Consequently, Appling agreed to sign the agreement only if VSA's lawyers would affirm that the agreement did, in fact, comply with the statute. The parties and their attorneys signed a settlement agreement, dated March 8 and 9, 1989, in which the requested representations were made: [B]oth Victoria and its counsel represent to Plaintiffs that (a) this agreement is in writing; (b) it is being executed by both Victoria and Plaintiffs contemporaneously with the acquisition of these assets by Victoria; (c) that the Agreement has been approved by the Board of Directors of Victoria Savings Association and that such approval is reflected in the minutes of said board (a copy of which shall be attached to this Agreement); and (d) that a copy of this Agreement shall be from the time of its execution continuously maintained as an official record of Victoria; all in accordance with 12 USC 1823(e).

The settlement agreement also included a "full, mutual general release" by both parties as to "all claims and causes of action, known and unknown, asserted or which might have been asserted, in this litigation." The agreement did not contain any disclaimer of reliance on representations made by the other party.

McCamish, Martin represented VSA in the underlying lawsuit. Ralph Lopez, an attorney with McCamish, Martin, signed the settlement agreement. In his deposition, Lopez stated that he was VSA's attorney of record for the lawsuit and that he signed the settlement agreement in the course and scope of his employment with VSA.

On February 16, 1989, the VSA Board of Directors, including Tom Martin, a McCamish, Martin shareholder who principally represented VSA, adopted a resolution consenting to the Texas Savings and Loan Commissioner putting VSA under "voluntary supervision." This resolution gave Jerry Payne, representative of the Texas Savings and Loan Department, the power to settle lawsuits against VSA. On March 3, 1989, the VSA Board, including Martin, and James Pledger, the Savings and Loan Commissioner, signed an agreed order placing VSA under the Commissioner's voluntary supervisory control. The order provided, in part, that "no action taken at any Board meeting will be valid or binding on [VSA] unless and until such action is approved in writing by the Supervisor or the Commissioner."

On March 12, 1989, the VSA Board approved the settlement agreement reached by Appling and Boca Chica. Martin did not sign the approval resolution. In his deposition, Lopez claimed that Martin did not inform him about the supervisory order and that Lopez did not know the VSA Board lacked the authority to approve the settlement agreement when he signed the agreement on behalf of VSA.

Payne never ratified the settlement agreement, and the agreement was never entered as a final judgment. On June 29, 1989, VSA was declared insolvent, and the FSLIC was appointed receiver. The FSLIC removed Appling's case against VSA to federal court. The federal court concluded that the VSA Board gave up its authority to enter into a settlement when it signed the agreed supervisory order on March 3, 1989. Thus, the settlement agreement was not binding on the FSLIC because it was not approved by the VSA Board as required by section 1823(e). See F.E. Appling Interests v. McCamish, Martin, Brown & Loeffler, C.A. NO. V-89-0027 (S.D. Tex. May 11, 1992) (mem.).

Appling then filed this suit, individually and on behalf of Boca Chica, against McCamish, Martin, alleging that McCamish, Martin negligently misrepresented that the VSA Board had approved the settlement agreement. McCamish, Martin moved for summary judgment on the negligent misrepresentation claim on the sole ground that the firm owed no duty to Appling. The trial court granted the motion. The trial court later rendered final judgment, ordering that Appling take nothing. Appling appealed. The court of appeals reversed and remanded on the theory that, even absent privity, an attorney may owe a duty to a third party to avoid negligent misrepresentation. 953 S.W.2d at 410.

On petition for review, McCamish, Martin argues that Appling does not have a cause of action against McCamish, Martin for the tort of negligent misrepresentation, as defined by the RESTATEMENT (SECOND) OF TORTS 552, because, under Texas law, an attorney owes no duty of care to a third party absent privity. In particular, McCamish, Martin contends that Texas law does not permit a nonclient to sue a lawyer for negligence arising out of the lawyer's representation of a client because the lawyer and nonclient are not in privity. According to McCamish, Martin, the Texas privity requirement reflects the importance of the attorney-client relationship and takes into account the nature and demands of the adversarial system.

Moreover, McCamish, Martin argues that under Texas law, the privity rule applies to all negligence-based causes of action, whether the nonclient's claims are characterized as legal malpractice or negligent misrepresentation. Because McCamish, Martin represented Appling's adversary in a litigation matter and was never in privity with Appling, the law firm claims that it cannot be held liable to Appling for negligent misrepresentation. Appling responds that the court of appeals correctly held that an attorney may be liable to a nonclient under the RESTATEMENT (SECOND) OF TORTS 552. Specifically, Appling claims that both the RESTATEMENT and Texas law envision the application of section 552 to attorneys. Appling also argues that there is no strict privity requirement in a cause of action against an attorney under section 552. Thus, Appling urges this Court to recognize a distinction between cases of legal malpractice, which are subject to the privity rule, and cases of negligent misrepresentation, which are not.

Furthermore, according to Appling, applying section 552 to attorneys does not offend the policy justifications for the privity rule, such as exposure to conflicting duties and to unlimited liability. Appling points out that the rules of professional conduct require an attorney to make certain no conflict of interest exists and to obtain the client's consent before undertaking an evaluation for a nonclient. Additionally, Appling emphasizes that section 552 limits liability to a...