Yaquinto v. Segerstrom

• Decision Date: 30 March 2001
• Docket Number: No. 00-10216,00-10216
• Parties: (5th Cir. 2001) In the Matter of: KAYLA SEGERSTROM, Debtor ROBERT YAQUINTO, JR. As Trustee for the Estate of Kayla Segerstrom Appellant, v. KAYLA SEGERSTROM; EMPLOYERS FIRE INSURANCE COMPANY; TOUCHSTONE, BERNAYS, JOHNSTON, BEALL & SMITH LIMITED LIABILITY PARTNERSHIP, Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 218

247 F.3d 218 (5th Cir. 2001)

In the Matter of: KAYLA SEGERSTROM, Debtor

ROBERT YAQUINTO, JR. As Trustee for the Estate of Kayla Segerstrom Appellant, v. KAYLA SEGERSTROM; EMPLOYERS FIRE INSURANCE COMPANY; TOUCHSTONE, BERNAYS, JOHNSTON, BEALL & SMITH LIMITED LIABILITY PARTNERSHIP, Appellees.

No. 00-10216

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

March 30, 2001

[Copyrighted Material Omitted] Appeal from the United States District Court for the Northern District of Texas Before JOLLY, MAGILL^* and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

Robert Yaquinto, Jr., as trustee of Kayla Segerstrom's Chapter 7 bankruptcy estate, appeals from a summary judgment in favor of defendants Touchstone, Bernays, Johnston, Beall & Smith L.L.P. and Employers Fire Insurance Company on the estate's legal malpractice, breach of fiduciary duty and breach of contract claims. Yaquinto also appeals the district court's denial of the estate's motion to compel discovery of certain communications between Kayla Segerstrom and her attorneys. We AFFIRM.

Factual and Procedural Background

In 1995, Kayla Segerstrom, then 17 years old, drove a van across the center line and struck head on a 1986 Honda Civic carrying the Colvin family.¹ Just over a year after the accident, the Colvins sued Segerstrom, her parents, and her parents' sole proprietorship D&R Enterprises (D&R) in Texas state court for negligence, negligent entrustment, and failure to train/vicarious liability respectively (the Colvin litigation).

The van Segerstrom drove was covered by a $75,000 motor vehicle insurance policy issued by Employers Fire Insurance Company (Employers) to D&R. D&R also had a $1 million comprehensive general liability policy issued by Commercial Union Insurance, Employers' parent company. Employers hired Touchstone, Bernays, Johnston, Beall & Smith, L.L.P. (Touchstone) to defend Segerstrom, her parents, and D&R.

Segerstrom has acknowledged responsibility for the accident, which occurred after she turned her attention from the road to a ringing cell phone. At trial, she testified that at the time of the accident she was driving the van without her parents' permission, and that she was not using the van in connection with any D&R business.² The Colvins argued that D&R shared liability for the accident because the company failed to train Segerstrom not to answer a ringing cell phone while driving the company van. The jury returned a verdict in excess of $6.5 million in favor of the Colvins, but found only Kayla Segerstrom liable. The state court eventually entered judgment against Segerstrom in excess of $8.5 million. Employers immediately tendered its $75,000 policy limits.

On February 6, 1998, the Colvins filed an involuntary bankruptcy petition against Segerstrom. See 11 U.S.C.A. 303 (West 1993). Segerstrom consented to the entry of an order for relief.³ The bankruptcy court granted a motion by Robert Yaquinto to hire Bellinger & DeWolf (Bellinger), the firm that had represented the Colvins as special counsel to pursue claims against Touchstone and Employers on a contingency basis.

With Bellinger's assistance, the estate filed a complaint against Touchstone and Employers on behalf of Segerstrom's estate alleging negligence, gross negligence and breach of fiduciary duty in connection with the Colvin litigation (the malpractice suit). The complaint alleged that Touchstone had an inherent conflict of interest in representing Segerstrom, her parents, and D&R as defendants in the same litigation. According to the estate, this conflict caused Segerstrom to absorb 100% of the liability for the accident when that liability should have been shared with D&R. As to Employers, the estate alleged that the insurer violated the general duty of reasonableness Texas imposes on insurers by hiring only Touchstone to represent Segerstrom, her parents, and D&R. This breach rendered Employers directly liable for Touchstone's conflict of interest and the harm it caused Segerstrom. The complaint sought to recover for Segerstrom's estate $8.5 million - the value of the judgment assessed against Segerstrom in the Colvin litigation.

After the initiation of the malpractice suit, Segerstrom signed an affidavit stating that Touchstone "did an excellent job" during the state court litigation and that she had no basis for dissatisfaction with the firm's work. She also reported that Touchstone advised her of all litigation risks associated with the state court trial. As to the alleged conflict between Segerstrom and her parents, Segerstrom testified "[t]here was no conflict between my position and interest and those of my parents. My parents and I knew that they were not at fault and I was not willing to lie or instruct my attorney to mislead others or try to shift blame to my parents."

In October 1998, Segerstrom's personal liability to the Colvins was discharged.

In the winter of 1999, Yaquinto filed motions to compel discovery of communications between Segerstrom and Touchstone that had been claimed by both parties as protected by attorney-client privilege. Yaquinto argued that he, as trustee, controlled Segerstrom's attorney-client privilege to the extent that it could be waived by filing a legal malpractice action. The district court referred the motions to compel to the bankruptcy court, which recommended they be granted. The district court rejected the bankruptcy court's recommendation, however, concluding that allowing the attorney-client privilege to transfer would inhibit its primary purpose: the facilitation of full and honest communications between attorneys and their clients. Yaquinto v. Touchstone, Bernays, Johnston, Beall & Smith, L.L.P., 1999 WL 354228, *2 (N.D.Tex. 1999).

Following denial of the trustee's motions to compel, Touchstone and the estate filed cross motions for summary judgment on the pending legal malpractice claims, and Employers filed a motion for summary judgment on all claims pending against it. Adopting the Report and Recommendation of a magistrate judge, the district court granted summary judgment against the estate on all claims. Yaquinto now appeals those judgments, as well as the district court's denial of the motions to compel.

Discussion

This case presents claims raised in an adversary proceeding over which the district court exercised jurisdiction pursuant to 28 U.S.C. 1334. Yaquinto timely provided notice of appeal, and this Court exercises jurisdiction pursuant to 28 U.S.C. 1291.

I.The Summary Judgment Rulings

We review grants of summary judgment de novo, guided by the same standard as the district court: Federal Rule of Civil Procedure 56. Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir. 1996). Pursuant to Rule 56, a party may obtain summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether a genuine issue of material fact exists, we view the evidence and inferences in the light most favorable to the nonmoving party. Taylor v. Gregg, 36 F.3d 453, 455 (5th Cir. 1994). Dispute about a material fact is "genuine" if the evidence could lead a reasonable jury to find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

A.The Estate's Legal Malpractice Claim Against Touchstone

Touchstone urged the district court to grant summary judgment on the following grounds: (1) Segerstrom's bankruptcy estate did not include a legal malpractice claim against Touchstone because any such claim had been denied by Segerstrom, (2) any negligence by Touchstone did not cause Segerstrom injury because her personal liability on the state court judgment had been discharged, and (3) the estate could not prove that any negligence by Touchstone caused harm to Segerstrom in the Colvin litigation by demonstrating an alternative meritorious defense that would have led to a more favorable result for her. The magistrate and district courts addressed only the first two grounds, finding in favor of Touchstone on both. The estate's briefing and oral argument in this appeal focus on reversing the district court on these two issues. Although the estate's arguments raise significant questions as to the propriety of the district court's analysis, it is well-settled that we may affirm a district court's grant of summary judgment on any ground articulated before that court. See Chriceol v. Phillips, 169 F.3d 313, 315 (5th Cir. 1999). Because we conclude that the estate has not offered sufficient proof that Segerstrom suffered injury as consequence of Touchstone's representation during the Colvin litigation, we affirm the district court's summary judgment in favor of Touchstone.

At the outset, we briefly review the district court's holding with respect to whether Segerstrom's estate includes a legal malpractice claim against Touchstone. Relying on Texas law, the district court determined that Segerstrom, and hence her estate, had no interest in an "unasserted, denied" legal malpractice claim against Touchstone. See Dauter-Clouse v. Robinson, 936 S.W.2d 329, 332 (Tex. App. 1996, no writ)(holding that Texas law does not grant debtors a property interest in "an unasserted, denied legal malpractice claim."). As a consequence, the court concluded that no cause of action became part of the bankruptcy estate.

It has long been established that federal bankruptcy law determines the scope of a debtor's bankruptcy estate. See United States v. Whiting Pools, Inc., 462 U.S. 198, 204-5 (1983). Pursuant to section 541(a) of the Bankruptcy Act of 1986 (the Code), a debtor's bankruptcy estate consists of all "legal or equitable interests . . . in property as of the commencement of the case." 11 U.S.C. 541(a) (1993). The reference to all ...