Zuniga v. Groce, Locke & Hebdon

• Decision Date: 31 May 1994
• Docket Number: No. 04-93-00614-CV,04-93-00614-CV
• Citation: 878 S.W.2d 313
• Parties: Manual ZUNIGA, Jr.; Mary Zuniga; Betty Jo Zuniga; Thomas Zuniga; Manuel Zuniga, III; and Minor Child Rick Zuniga, Appellants, v. GROCE, LOCKE & HEBDON, A Professional Corporation; and Ron A. Sprague, Appellees.
• Court: Texas Court of Appeals

Page 313

878 S.W.2d 313

Manual ZUNIGA, Jr.; Mary Zuniga; Betty Jo Zuniga; Thomas

Zuniga; Manuel Zuniga, III; and Minor Child Rick

Zuniga, Appellants, v. GROCE, LOCKE & HEBDON, A Professional Corporation; and Ron

A. Sprague, Appellees.

No. 04-93-00614-CV.

Court of Appeals of Texas,

San Antonio.

May 31, 1994.

Rehearing Denied June 16, 1994.

Larry J. Doherty, Michael H. Norman, Doherty, Norman & Wagner, Houston, for appellants.

Cathy J. Sheehan, Nancy L. Farrer, Lewin Plunkett, Sylvan S. Lang, Jr., Plunkett, Gibson & Allen, Inc., San Antonio, for appellees.

Before BUTTS, PEEPLES and LOPEZ, JJ.

OPINION

PEEPLES, Justice.

The issue in this case is whether a client may assign his cause of action for legal malpractice arising out of litigation. For the reasons stated below, we hold that he may not.

The Zunigas brought a personal injury suit against Bauer Manufacturing Company and other defendants. Attorney Ron Sprague of Groce, Locke & Hebdon ¹ defended Bauer in that suit. Ultimately the Zunigas obtained a judgment against Bauer, whose insurer had become insolvent. Bauer assigned to the Zunigas its rights to sue the law firm for malpractice, and the Zunigas agreed not to collect the judgment from Bauer. The trial court rendered summary judgment for Sprague on the sole ground that a legal malpractice cause of action is not assignable; ² whether Sprague was indeed negligent is a contested issue not before us.

We need not state the facts of the underlying personal injury litigation in great detail. Mr. Zuniga fell from a ladder and was seriously injured. Sprague defended Bauer against the Zuniga family's personal injury claim, which asserted that Bauer had defectively manufactured and labeled the ladder. Bauer's insurer became insolvent, and Bauer feared a large judgment would put it into bankruptcy. At a pre-trial hearing on the motions in limine, the Zunigas contended that certain of Sprague's responses to discovery negligently admitted part of the liability case against Bauer. The Zunigas settled with a different defendant for $7.5 million, and the case against Bauer was not tried. Later the Zunigas' lawyers ³ offered to settle with Bauer if Bauer would assign its malpractice cause of action against Sprague and the law firm.

Bauer ultimately agreed to a $25 million judgment and assigned its malpractice action to the Zunigas. The Zunigas did not give Bauer a covenant not to execute as part of the settlement. Instead, the Zunigas and their lawyers agreed that Bauer could transfer all its assets (except the malpractice cause of action) to a new corporation, and the Zunigas waived their rights to the new entity's assets and released all claims against all the individuals connected with Bauer. The parties also agreed that the asset transfer was not a fraudulent transfer under the Uniform Fraudulent Transfer Act. The Zunigas then brought this suit against Sprague.

The only Texas case that has spoken directly on the issue of assignability contains this statement: "A part or all of a claim for legal malpractice can be assigned, just as any other negligence claim." Stonewall Surplus Lines Ins. Co. v. Drabek, 835 S.W.2d 708, 711 (Tex.App.--Corpus Christi 1992, writ denied). The Zunigas urge us to accept and apply this statement as settled Texas law.

We decline to simply accept the Drabek court's statement as a binding declaration of the law of Texas on this issue for four reasons: it is dictum, it is unsupported by reasoning or authority, it is overbroad and incorrect as a matter of substantive law, and the supreme court has said the issue is open and unsettled in Texas.

The statement is dictum. The Drabek court did not hold that a malpractice claim is generally assignable, or assignable to the original tort plaintiff. The issue in Drabek was whether an excess carrier could sue the primary carrier's attorneys. We need not accept dictum as binding authority. Moreover, the court cited no authority for its sweeping statement, nor did it support the statement with reasoning of any kind.

The statement in Drabek is also demonstrably incorrect: it is not true that any negligence claim is assignable, although most are. For example, "it is contrary to public policy to permit a joint tortfeasor the right to purchase a cause of action from a plaintiff to whose injury the tortfeasor contributed." International Proteins Corp. v. Ralston-Purina Co., 744 S.W.2d 932, 934 (Tex.1988). Likewise, Mary Carter agreements, in which the plaintiff assigns to a settling defendant an interest in the plaintiff's recovery from a co-defendant, are against public policy in Texas. Elbaor v. Smith, 845 S.W.2d 240 (Tex.1992).

In addition, the supreme court recently declined to decide whether a legal malpractice action is assignable. On the same day the supreme court denied review in Drabek, it expressly left open the question whether a legal malpractice cause of action is assignable. See American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 484 n. 6 (Tex.1992); id. at 486 (Hecht, J., concurring).

For all these reasons, we address the issue of assignability presented in this appeal as an open question.

Ordinarily, a nonclient cannot sue a lawyer for malpractice because there is no privity of contract. American Centennial, 843 S.W.2d at 484. There is an exception to this rule when an excess insurance carrier is forced to pay a judgment because the primary carrier and its attorneys negligently allowed the insured to suffer a judgment in excess of the primary coverage. Id. Our question is whether a client, who is in privity with the lawyer, may assign his cause of action to someone who lacks privity and thereby enable the assignee to bring the malpractice lawsuit. As another court has said: "The question in this case is not whether clients should be able to make claims against lawyers for malpractice. The question is whether to allow clients to sell off their claims for pursuit by others." Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 345 (Ind.1991). This case has nothing to do with the client's right to pursue his own case against the lawyer.

In most jurisdictions one cannot assign a cause of action for legal malpractice. See Schroeder v. Hudgins, 142 Ariz. 395, 690 P.2d 114, 118-19 (Ct.App.1984); Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 Cal.Rptr. 83 (1976); Roberts v. Holland & Hart, 857 P.2d 492, 495-96 (Colo.Ct.App.1993), cert. denied; Washington v. Fireman's Fund Ins. Co., 459 So.2d 1148 (Fla.Dist.Ct.App.1984); Brocato v. Prairie State Farmers Ins. Ass'n, 166 Ill.App.3d 986, 117 Ill.Dec. 849, 850-851, 520 N.E.2d 1200, 1201-1202 (1988), appeal denied, 121 Ill.2d 567, 122 Ill.Dec. 434, 526 N.E.2d 827; Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 339-45 (Ind.1991); Bank IV Wichita, Nat'l Ass'n v. Arn, Mullins, Unruh, Kuhn & Wisson, 250 Kan. 490, 827 P.2d 758, 764-65 (1992); Coffey v. Jefferson County Bd. of Educ., 756 S.W.2d 155, 157 (Ky.Ct.App.1988); Joos v. Drillock, 127 Mich.App. 99, 338 N.W.2d 736, 738-39 (1983); Wagener v. McDonald, 509 N.W.2d 188, 189-92 (Minn.Ct.App.1993); Chaffee v. Smith, 98 Nev. 222, 645 P.2d 966 (1982); Francis M. Dougherty, Annotation, Assignability of Claim for Legal Malpractice, 40 A.L.R.4th 684 (1985).

A few jurisdictions allow such assignments. See Thurston v. Continental Cas. Co., 567 A.2d 922, 923 (Me.1989); Collins v. Fitzwater, 277 Or. 401, 560 P.2d 1074, 1077-78 (1977), overruled on other grounds, Lancaster v. Royal Ins. Co., 302 Or. 62, 726 P.2d 371 (1986); Hedlund Mfg. Co. v. Weiser, Stapler & Spivak, 517 Pa. 522, 539 A.2d 357, 359 (1988). Though a New York statute prohibits assignment of personal injury claims, the New York decisions allow assignment on the ground that legal malpractice actions do not fall within the statute because they are not suits for personal injuries. See Oppel v Empire Mut. Ins. Co., 517 F.Supp. 1305 (S.D.N.Y.1981).

For several reasons we are persuaded that Texas legal malpractice actions arising out of litigation should not be assignable.

Most of the authorities disallowing assignment have reasoned that to allow assignability would make possible the commercial marketing of legal malpractice causes of action by strangers, which would demean the legal profession. ⁴ This is a legitimate concern. We do not relish the thought of entrepreneurs purchasing the legal rights of clients against their attorneys as an ordinary business transaction in pursuit of profit. We do not know the extent to which this fear would be realized if we were to permit assignment, or whether it has been realized in the few states that have already permitted assignment. In the fountainhead case on this subject, a person with no apparent connection to the original representation purchased the legal malpractice action as a thing of value. See Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 Cal.Rptr. 83 (1976) (assignee bought divorce litigant's rights against lawyer for allegedly negligent representation regarding property division).

Most legal malpractice assignments seem to be driven by forces other than the ordinary commercial market. In most of the reported cases, the motive for assignment was the plaintiff's inability to collect a judgment from an insolvent, uninsured (or underinsured) defendant. In several instances, the malpractice plaintiff was the original plaintiff who, unable to collect against the original defendant, obtained the malpractice action in hopes of satisfying the underlying judgment. See, e.g., Brocato v. Prairie State Farmers Ins. Ass'n, 166 Ill.App.3d 986, 117 Ill.Dec. 849, 850-851, 520 N.E.2d 1200, 1201-1202 (Ill.App.Ct.1988), appeal denied, 121 Ill.2d 567, 122 Ill.Dec. 434, 526 N.E.2d 827; Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 339-45 (Ind.1991); Thurston v. Continental Cas. Co., 567 A.2d 922 (Me.1989) (products liability plaintiff was assigned rights to sue defendant's lawyer for malpractice and its insurer for negligent failure to settle); ...