Swinehart v Stubbeman & McRae

• Decision Date: 07 June 2001
• Parties: <!--48 S.W.3d 865 (Tex.App.-Houston 2001) DAVID D. SWINEHART, Appellant, v. STUBBEMAN, MCRAE, SEALY, LAUGHLIN & BROWDER, INC., WILLIAM E. SCHWEINLE, JR., AND ELLISON, SCHWEINLE & PARRISH, P.C., Appellees. NO. 14-99-00717-CV. Court of Appeals of Texas, Houston (14th Dist.)
• Court: Texas Court of Appeals

Page 865

48 S.W.3d 865 (Tex.App.-Houston [14th Dist.] 2001)

DAVID D. SWINEHART, Appellant, v. STUBBEMAN, MCRAE, SEALY, LAUGHLIN & BROWDER, INC., WILLIAM E. SCHWEINLE, JR., AND ELLISON, SCHWEINLE & PARRISH, P.C. , Appellees.

NO. 14-99-00717-CV.

Court of Appeals of Texas, Houston (14th Dist.).

June 7, 2001.

Rehearing Overruled June 7, 2001.

On Appeal from the 129th District Court Harris County, Texas Trial Court Cause No. 95-41396. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Panel consists of Justices Yates, Wittig, and Frost.

OPINION ON REHEARING

Frost, Justice.

The motions for rehearing filed by appellant, David D. Swinehart, and appellees, Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., William E. Schweinle, Jr., and Ellison, Schweinle & Parrish, P.C., are overruled. This court's opinion issued on March 8, 2001, is withdrawn, and this opinion is substituted in its place.

Appellant, David D. Swinehart, appeals the summary judgment entered in favor of his former attorneys, appellees, Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Ellison, Schweinle & Parrish, P.C., and William E. Schweinle, Jr., on legal malpractice claims arising out of appellees' handling of an underlying state court lawsuit and related bankruptcy proceedings.¹ We affirm, in part, and reverse and remand, in part.

I. Factual and Procedural Background

Swinehart, a petroleum geologist, entered into four contracts with Haber Oil Co., Inc., a corporation involved in the acquisition, promotion, and development of oil and gas leases. Under these contracts, Swinehart agreed to locate, evaluate, and recommend oil and gas drilling prospects to Haber Oil. The third contract entered into on July 9, 1982, provided that Swinehart was to receive a monthly retainer of $8,000 and fifty percent of Haber Oil's "carried working interest and/or other retained revenue interest retained that is by Haber after sale to investors or other party of prospect solicited, reviewed and recommend by Swinehart." Drilling yielded significant amounts of oil and gas on some of the leases. While Haber Oil paid Swinehart his retainer and assigned to him his percentage interest in some of the wells pursuant to the third contract, Haber Oil failed to assign to Swinehart all of the interests to which Swinehart claimed he was entitled. Instead, Haber Oil sent Swinehart notice that it was terminating their contractual relationship.

A. Underlying Litigation

Swinehart filed suit against Haber Oil in state district court, seeking the imposition of a constructive trust on the unassigned mineral interests on the basis of Haber Oil's alleged breach of a confidential relationship with Swinehart. He also sought an accounting and compensatory and punitive damages. Swinehart joined as defendants the purchasers of the oil and gas produced from wells on the unassigned leases. The trial court ordered these purchasers to place funds in an escrow account until the ownership of the disputed leases could be determined.

While Swinehart's lawsuit against Haber Oil was pending in state court, Haber Oil filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. At that time, appellee, Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., represented Swinehart and filed on his behalf a proof of claim in the bankruptcy case, listing Swinehart as an unsecured creditor seeking damages from Haber Oil in the amount of $2,300,000. The proof of claim did not expressly provide that Swinehart held a security interest or an equitable interest, but copies of Swinehart's pleadings from the state lawsuit were attached to the proof of claim. Haber Oil filed an objection to Swinehart's claim, alleging that the claim was "disputed, contingent and unliquidated," and also that more than enough funds had been placed in escrow to satisfy Swinehart's claim. A few days before the bankruptcy court confirmation hearing on Haber Oil's reorganization plan, Swinehart filed an objection to the plan on the basis that the plan would discharge his state court claim for a constructive trust without the adjudication of that claim, and would further allow Haber Oil or its successors to hold title to mineral interests belonging to Swinehart.²

The bankruptcy court approved Haber Oil's reorganization plan. Under the plan, a third party was to advance to Haber Oil the cash required to fund the plan in return for a security interest in all property in the Haber Oil bankruptcy estate. The plan did not specifically address Swinehart's claim, but there was a handwritten notation by the bankruptcy judge at the bottom of the approval order stating that "Haber Oil will not seek to withdraw the funds held in escrow on account of the Swinehart [claim]." The post-confirmation committee filed an objection to Swinehart's claim in the bankruptcy court. In a trial memorandum filed in support of his response to the post-confirmation committee's objection, Swinehart alleged, for the first time, the existence of a confidential relationship between Haber Oil and Swinehart in connection with their joint activities. He requested the imposition of a constructive trust on the disputed leases and an award of either the ownership interest in the properties or, alternatively, the fair market value of the leases.

The bankruptcy court held several hearings on the post-confirmation committee's objections and Swinehart's response. The bankruptcy court first concluded Swinehart had an ownership interest in the disputed leases pursuant to the third contract. Finding that Haber Oil had already sold those mineral interests to a third party, the bankruptcy court deemed a sale of the disputed leases from Swinehart back to Haber Oil, and awarded Swinehart $971,689 for the value of those interests. The bankruptcy court further found Swinehart owned the escrowed funds in the amount of $410,348, then being held in the state court registry, and awarded those funds to Swinehart. The bankruptcy court also found other suspended funds which were not in escrow, but were attributable to the disputed leases, to be $719,242, and the interest on those funds to be $277,490, totaling $996,732, of which Swinehart was awarded $318,954 as a Class 5 unsecured claimant under the reorganization plan. The United States District Court for the Northern District of Texas affirmed the orders of the bankruptcy court.

The United States Fifth Circuit Court of Appeals reversed the award of the constructive trust of the full value of the disputed leases and the funds held in escrow in the state court lawsuit. See In re Haber Oil Co., 12 F.3d 426 (5th Cir. 1994). The Fifth Circuit noted numerous problems with Swinehart's claims in the bankruptcy proceedings. First, the applicable rules of bankruptcy procedure required the initiation of an adversary proceeding for Swinehart's claim of an equitable interest in the disputed leases, but the Fifth Circuit determined that Swinehart had not complied with those rules. Id. at 37-38. The Fifth Circuit further observed that "[f]rom his very involvement in the bankruptcy proceedings, Swinehart's conduct was consistent with that of an unsecured creditor. . . . Not until literally the eve of the hearing . . . did Swinehart attempt to make his state constructive trust claim an issue in the federal bankruptcy proceedings." Id. at 439.

After reviewing the record with regard to Swinehart's allegation of fraud in support of his claim for a constructive trust, the Fifth Circuit found Swinehart had not established fraud on the part of Haber Oil. Id. at 441-42. Further, after noting that a constructive trust can only attach to a specific res, or some identifiable property that can be traced back to the original res acquired by fraud, the Fifth Circuit concluded Swinehart had failed to satisfy the tracing requirements inherent in the assertion of a constructive trust with respect to Swinehart's real property interests. Id. With regard to the bankruptcy court's decision to award Swinehart the funds paid into the registry of the state court, the Fifth Circuit found Swinehart's entitlement to those funds depended upon his status as the "owner" of the interests in the disputed leases, but that he had not established through proper pleadings and proof that he was a constructive trust beneficiary, or anything other than an unsecured creditor. Id. After the Fifth Circuit reversed his award in the bankruptcy proceedings, Swinehart settled the state court lawsuit against Haber Oil for $622,000, which was the amount of the funds on deposit in the escrow account.

B. Claims Against Appellees

In this legal malpractice case, Swinehart asserted claims for negligence, gross negligence, breach of warranty, breach of contract, and violations of the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA") in connection with appellees' legal representation of him in the state court lawsuit and bankruptcy proceedings. Specifically, Swinehart contends his failure to recover an ownership interest in the disputed leases was the result of the following alleged errors in appellees' representation of him: (1) failure to file a proof of claim identifying him as a secured creditor; (2) the unauthorized withdrawal of Swinehart's objections to the plan of reorganization; (3) failure to pursue an adversary proceeding in bankruptcy court; (4) failure to pursue the constructive trust in state court; and (5) failure to file an application for relief from stay in bankruptcy court.

Appellees moved for summary judgment on Swinehart's negligence and gross negligence claims on the element of causation i.e., that Swinehart could not have recovered either his claimed interest in the disputed leases or, alternatively, the value of those leases under the third contract because: (1) the third contract was not enforceable under the statute of frauds, and (2) the...