Stanfield v. Neubaum

• Citation: 494 S.W.3d 90
• Decision Date: 24 June 2016
• Docket Number: NO. 15–0387,15–0387
• Court: Supreme Court of Texas
• Parties: Brenton M. Stanfield, Thomas P. Stone, Stone & Associates, LLP, and Jimmy Van Knighton, II, Petitioners, v. Jon T. Neubaum and Barbara Neubaum, Respondents

494 S.W.3d 90

Brenton M. Stanfield, Thomas P. Stone, Stone & Associates, LLP, and Jimmy Van Knighton, II, Petitioners,

v.Jon T. Neubaum and Barbara Neubaum, Respondents

NO. 15–0387

Supreme Court of Texas.

Argued March 30, 2016

Opinion delivered: June 24, 2016

Sam A. Houston, Stephen R. Bailey, Scott, Clawater & Houston, LLP, Houston TX, for Petitioners.

Kristin Bays, J. Randal Bays, Bays & Bays, Conroe, TX, for Respondents.

JUSTICE GUZMAN

delivered the opinion of the Court, in which JUSTICE GREEN, JUSTICE JOHNSON, JUSTICE WILLETT, JUSTICE LEHRMANN, JUSTICE BOYD, JUSTICE DEVINE, and JUSTICE BROWN joined.

Litigation rarely results in complete satisfaction for those involved. When a lawyer makes a mistake and the client loses the case as a result, the law affords a remedy. What happens, however, when the lawyer pursues a winning strategy (perhaps with some strategic missteps), but the trial judge errs, and the error requires a costly appeal to correct? Is the lawyer liable for the appellate costs incurred to correct the error? Although the question presents a novel issue, the answer is governed by well-established causation principles.

In this legal malpractice case, the clients do not allege their attorneys argued the wrong legal standard to the trial court or otherwise contributed to the trial court's legal error. Rather, the clients contend the court's error would have been immaterial and would not have produced an adverse judgment if the attorneys had presented additional evidence and arguments. Without conceding negligence, the attorneys argue proximate cause is lacking because, as a matter of law, judicial error constitutes a new and independent, or superseding, cause that severs any causal connection between the attorneys' alleged negligence and the costs the clients incurred to appeal.

Although we do not hold judicial error is always a superseding cause that would preclude a subsequent malpractice action, proximate-cause principles support our conclusion that judicial error can constitute a new and independent cause depending on the circumstances. Here, the trial court's adverse judgment was reversed on the basis of a judicial error that the trial attorneys did not cause and which could not reasonably be anticipated at the time. We therefore hold that, as a matter of law, any unrelated negligence by the trial attorneys was too attenuated from the remedial appellate attorney fees to be a proximate cause of those expenses.

I. Background

The causation issue central to the disposition of this appeal originates from prior litigation in which the malpractice defendants represented the malpractice plaintiffs in a suit alleging usurious lending practices. We thus begin with a brief summary of the usury litigation that precipitated the underlying malpractice action.

A. Usury Case

In September 2006, Buck Glove Company sued Jon and Barbara Neubaum for usury, alleging the Neubaums loaned money at usurious interest rates through their agent, Marvin March. The Neubaums hired Thomas Stone and Brenton Stanfield of Stone & Associates to represent them. The Neubaums' attorneys filed an answer, asserted counterclaims, and joined March as a responsible third party. After Buck Glove sent a usury demand letter to the Neubaums in December 2007, the Neubaums' attorneys responded with a usury cure letter and amended the Neubaums' answer to include the affirmative defense of usury cure and bona fide error. See TEX. FIN. CODE §§ 305.006(c)

, .101, .103. Before trial, the Neubaums' attorneys filed a motion for summary judgment, asserting the usury cure letter as a bar to liability for usurious lending, but the trial court denied the motion.

Although the Neubaums' answer included the affirmative defense of bona fide error, along with a usury cure defense, the Neubaums' attorneys did not press either of those arguments at trial or introduce evidence to support those defenses. Instead, the Neubaums' attorneys attacked Buck Glove's case in chief, arguing March was not acting as the Neubaums' agent when he made loans to Buck Glove and the Neubaums were the victims of a Ponzi scheme operated by March and Buck Glove.¹ To establish March and Buck Glove were operating a Ponzi scheme, the Neubaums' attorneys (1) presented testimony of several witnesses and (2) introduced supporting bank records into evidence without expert testimony. See Neubaum v. Buck Glove Co., 302 S.W.3d 912, 915 (Tex.App.–Beaumont 2009, pet. denied)

(describing the testimony of witnesses who “invested” with March).

At the charge conference, the Neubaums' attorneys objected to an actual or apparent authority submission, arguing no evidence supported an agency claim. The trial court overruled the objection and included an agency question in the jury charge. The jury found March committed fraud against the Neubaums, but also found the Neubaums loaned money to Buck Glove through their agent, March, at usurious interest rates. In accord with the jury's verdict, the trial court rendered judgment awarding Buck Glove almost $4 million in damages and penalties and the Neubaums slightly over $150,000 on their counterclaim against Buck Glove for money had and received.

In a motion for new trial or reformation of the judgment, the Neubaums' attorneys assailed the judgment on several grounds, including (1) the jury's finding that March committed fraud against the Neubaums necessarily precluded the jury's finding that the Neubaums were guilty of usury because the usury claim was predicated solely on an agency theory, (2) the evidence was legally insufficient to support the jury's liability finding on usury, (3) no evidence supported the apparent authority instruction in the jury charge, and (4) the usury cure letter precluded liability as a matter of law. The motion was denied.

The Neubaums hired new counsel to appeal the adverse usury judgment. The appeal was successful. The appellate court reversed the usury judgment based on legally insufficient evidence that March made loans to Buck Glove as the Neubaums' agent, an essential element of the usury claim. See id. at 920

. Buck Glove filed a petition for review, which was denied. When all is said and done, the Neubaums recovered over $150,000 on their counterclaim against Buck Glove but incurred over $140,000 of appellate attorney's fees to obtain a favorable resolution of the usury case.

B. The Malpractice Suit

Despite ultimately prevailing in the usury case, the Neubaums sued their trial attorneys, Brenton Stanfield, Thomas Stone, Stone & Associates, LLP, and Jimmy Van Knighton, II (collectively, the Attorneys), for legal malpractice.² The Neubaums claim the Attorneys' negligent representation in the trial court proceedings resulted in an adverse judgment that necessitated a remedial appeal and caused them to incur unnecessary or enhanced appellate attorney's fees and costs. The asserted negligence includes: (1) failing to present evidence of the usury cure letter to the jury and not requesting a jury question regarding usury cure; (2) failing to present evidence of bona fide error and not requesting a jury question regarding that defense; and (3) failing to designate an expert to explain how the bank records admitted at trial revealed a Ponzi scheme. The Neubaums do not contend the Attorneys failed to properly present or argue the agency defense or otherwise contributed to the trial court's failure to make a proper ruling on that issue. Rather, the Neubaums argue the trial court's error would have been immaterial and a favorable judgment would have been rendered absent the Attorneys' malpractice in other regards. The Neubaums conclude the Attorneys' negligence proximately caused them to incur additional expenses to overturn the erroneous trial court judgment.

Challenging the causation and damages elements of the Neubaums' malpractice claims, the Attorneys filed a traditional motion for summary judgment, arguing the court of appeals' ruling vindicated their trial strategy and conclusively established the Neubaums would have obtained a favorable judgment on the usury claim based on the case the Attorneys presented if the trial court had not erred. As the Attorneys noted, they properly preserved the agency issue in the trial court, which enabled the appellate court to correct the error, and the Neubaums ultimately prevailed. Without admitting any malpractice occurred, the Attorneys maintained the trial court's error was the sole cause of the Neubaums' injury because the Attorneys pursued a winning strategy and did not contribute to the judicial error. The trial court agreed and granted summary judgment in the Attorneys' favor.

The Neubaums appealed, and a divided court of appeals reversed and remanded in part. 465 S.W.3d 266, 268 (Tex.App.–Houston [14th Dist.] 2015)

(affirming summary judgment only as to breach-of-fiduciary duty claims that were not subsequently appealed). The court held the Attorneys' summary-judgment evidence failed to “conclusively prove that (1) if a reasonably prudent attorney had represented the Neubaums in the Usury Lawsuit, the Neubaums would not have obtained a more favorable result than the result they actually obtained; or (2) the [a]lleged [d]amages were caused by the erroneous rulings of the trial court in the Usury Lawsuit rather than by any of the alleged negligence.” Id. at 274

. Reasoning that expert testimony was necessary to prove the Attorneys' negligence did not proximately cause the Neubaums' harm, the court of appeals concluded the Attorneys' failure to produce expert testimony was fatal to their summary-judgment motion. Id. at 275–76. The court of appeals declined to consider whether judicial error can constitute a superseding cause that breaks the causal chain and, as a matter of law, negates proximate cause. See

id. at 277 n. 14.

The dissenting justice addressed the judicial-error issue and, based on undisputed facts, concluded the summary-judgment evidence conclusively established judicial error was a new and...