Smith v. O'Donnell

• Citation: 288 S.W.3d 417
• Decision Date: 26 June 2009
• Docket Number: No. 07-0697.,07-0697.
• Parties: Paul H. SMITH, et al., Petitioners, v. Thomas O'DONNELL, Executor of the Estate of Corwin Denney, Respondent.
• Court: Supreme Court of Texas

288 S.W.3d 417

Paul H. SMITH, et al., Petitioners, v. Thomas O'DONNELL, Executor of the Estate of Corwin Denney, Respondent.

No. 07-0697.

Supreme Court of Texas.

Argued September 10, 2008.

Decided June 26, 2009.

Casey L. Dobson, Paige Arnette Amstutz, Jane M.N. Webre, Scott Douglass & McConnico, L.L.P., Austin TX, for Petitioner.

Vincent L. Marable III, Paul Webb, P.C., Wharton TX, Brett Wagner, Mark W. Long, Larry J. Doherty, Doherty Long & Wagner, L.L.P., Houston TX, for Respondent.

Justice O'NEILL delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice BRISTER, Justice MEDINA, and Justice JOHNSON joined.

Thomas O'Donnell, as executor of the estate of Corwin Denney, sued Cox & Smith, Corwin's attorneys, for legal malpractice, breach of fiduciary duty, and gross negligence/malice arising out of advice the attorneys gave Corwin while he was serving as executor of his wife's estate. The trial court granted summary judgment for the attorneys on all claims. The court of appeals reversed the summary judgment on the legal malpractice claim based on our holding in Belt v. Oppenheimer, Blend, Harrison & Tate, Inc., 192 S.W.3d 780 (Tex.2006). 234 S.W.3d 135, 138. In Belt, we held that an executor was in privity with the decedent's attorneys and could sue them for estate-planning malpractice. 192 S.W.3d at 787. A prior case, Barcelo v. Elliott, 923 S.W.2d 575 (Tex.1996), barred estate-planning legal malpractice claims brought by third-party beneficiaries of the estate. This case asks us to consider whether an executor may bring suit against a decedent's attorneys for malpractice committed outside the estate-planning context. We hold that the executor should not be prevented from bringing the decedent's survivable claims on behalf of the estate, and affirm the court of appeals' judgment.

I. Background

When Corwin Denney's wife, Des Cygne, died, Corwin served as executor of her estate. He retained Cox & Smith to advise him in the independent administration of her estate, and consulted the law firm regarding the separate versus community character of the couple's assets. According to Corwin, he and his wife had orally agreed that stock in Automation Industries, Inc., would be his separate property and stock in Gilcrease Oil Co. would be hers. Cox & Smith prepared a memorandum advising Corwin that the Automation and Gilcrease stock was presumed to be community property, and that additional information was necessary before classifying the assets. According to Cox & Smith, Corwin was also advised that he should probably pursue a declaratory judgment to properly classify the stock, which he declined to do. Cox & Smith, relying upon an analysis performed by Corwin's California accountant and without seeking a declaratory judgment, prepared an estate tax return that omitted any Automation stock from a list of Des Cygne's assets. Corwin died twenty-nine years later, leaving the bulk of his estate to charity. Approximately one month after his death, the Denney children, as beneficiaries of Des Cygne's trust, sued Corwin's estate alleging that Corwin had misclassified the Automation stock as his separate property, and as a result underfunded their mother's trust. O'Donnell, the executor of Corwin's estate, settled the children's claims for approximately $12.9 million, less than half of their estimated value.¹ O'Donnell then brought this suit for legal malpractice against Cox & Smith, alleging that the attorneys failed to properly advise Corwin about the serious consequences of mischaracterizing assets, and that their negligence caused damage to Corwin's estate.

II. Procedural History

At the trial court, Cox & Smith won a summary judgment on all claims. The trial court did not state a basis for its decision. The court of appeals initially affirmed the summary judgment, holding that no cause of action had accrued to Corwin during his lifetime, and thus O'Donnell lacked privity with the lawyers. O'Donnell v. Smith, No. 04-04-00108-CV, 2004 WL 2877330, at *3 (Tex.App.-San Antonio Dec.15, 2004). We vacated and remanded for reconsideration in light of our decision in Belt, 192 S.W.3d 780. In Belt, we held that there was no accrual problem under similar circumstances. 192 S.W.3d at 785-86. There, the independent executrixes of an estate brought a legal malpractice claim on the estate's behalf alleging that a negligently-drafted will had increased the estate's tax liability. Id. at 782. We held that because the injury that formed the basis of the claim occurred when the will was drafted, the claim accrued prior to the decedent's death. 192 S.W.3d at 785-86. We further held that legal malpractice claims for pure economic loss are survivable and an estate's personal representative may bring survivable claims on behalf of the estate. Id. at 785-87.

In this case, the court of appeals held, on remand, that (1) a fact issue existed as to whether a malpractice cause of action accrued during Corwin's lifetime; (2) such a claim would survive in favor of the estate; and (3) no evidence supported O'Donnell's malice claim. 234 S.W.3d at 145-48. Cox & Smith argued to the court of appeals that despite our holding in Belt, the summary judgment should have been affirmed because O'Donnell lacks privity with Cox & Smith. Cox & Smith based its argument on Barcelo, 923 S.W.2d 575, in which we held that estate-planning attorneys owe no duty to third-party beneficiaries, and are not subject to malpractice lawsuits brought by them. Cox & Smith contends legal malpractice claims cannot be brought by anyone but the client, and Belt merely created a narrow exception for executors bringing estate-planning legal malpractice claims. The court of appeals rejected this argument, and we consider it here.

III. Privity Between Attorneys and Executors of the Client's Estate

An executor is a personal representative who "`stands in the shoes'" of the decedent. Belt, 192 S.W.3d at 787. As a general rule, an estate's personal representative may bring the decedent's survivable claims on behalf of the estate. Id. at 784; see also TEX. PROB.CODE § 233A ("Suits for the recovery of personal property, debts, or damages ... may be instituted by executors or administrators."). In Belt, we considered whether the executrixes' legal malpractice claim was survivable. 192 S.W.3d at 784. At common law, actions for damage to real or personal property survive the death of the owner. Id. Thus, we held that "legal malpractice claims alleging pure economic loss survive in favor of a deceased client's estate." Id. at 785.

Having identified these claims as survivable, we must consider whether there is any reason for an exception preventing executors from bringing them. Cox & Smith again relies on our holding in Barcelo, where we identified the longstanding privity rule barring non-clients from suing for legal malpractice. 923 S.W.2d at 577. In that case, the beneficiaries of a will and a trust agreement sued the estate-planning attorney for legal malpractice, alleging that negligent drafting had harmed their interests. Id. at 576. We refused to join the majority of states that relax the common-law privity barrier for intended beneficiaries, and held that third parties lack privity with a deceased's attorney and cannot sue for malpractice. Id. at 577-79.

We identified two policy considerations that supported our decision in Barcelo. First, allowing these suits could disrupt the attorney-client relationship. If third parties could sue for estate-planning legal malpractice, attorneys would be distracted by the threat of future lawsuits from disgruntled heirs, making them less able to serve their clients. Id. at 578. Second, third-party estate-planning malpractice suits would allow disappointed beneficiaries to seek a greater share of the estate by claiming the testator's true intent was different from what is expressed in a formally-executed will, and thus create "a host of difficulties." Id.

Cox & Smith contends Barcelo bars all legal malpractice suits brought by non-clients, with the exception of estate-planning malpractice claims brought by executors, like that in Belt. To adopt the rule Cox & Smith suggests would place us alone among the states, and would unnecessarily immunize attorneys who commit malpractice. None of the concerns we voiced about third-party malpractice suits apply to malpractice suits brought by an estate's personal representative. The threat of executor lawsuits will not impede the attorney-client relationship, because the estate's suit is based on injury to the deceased client, as opposed to any third party. The estate's suit is identical to one the client could have brought during his lifetime. An estate's interests, unlike a third-party beneficiary's, mirror those of the decedent. Belt, 192 S.W.3d at 787.²

Cox & Smith argues that the estate's interest in this suit is not truly in line with the decedent's because Corwin had always intended to keep the community-property stock out of the trust and treat it as his own property, and he did so without seeking the declaratory judgment Cox & Smith recommended.³ This argument, though, goes to the weight of the legal malpractice claim and does not change the fact that O'Donnell "stands in the [deceased's] shoes" in assessing the claim's merit and deciding whether or not to assert it on the estate's behalf. Id. Of course, if the evidence demonstrates that Corwin would have ignored Cox & Smith's advice no matter how competently provided, the malpractice claim will fail for lack of proximate causation. But at this point in the proceedings, the merits of the malpractice claim are undeveloped. There is at least some evidence that Corwin would have followed his lawyers' advice to pursue a declaratory judgment if they had clearly advised him to do so or warned him adequately of the severe consequences of mischaracterizing community assets.

And although Cox & Smith suggests, and the dissenting...