A client who alleges Winstead’s failure to request $1.2 million in damages in a motion for default judgment amounts to legal malpractice will get to proceed with its lawsuit against the firm and one of its shareholders, the Texas Supreme Court determined Friday.
Justice Jane Bland authored the court’s unanimous ruling siding with USA Lending Group, rejecting arguments from the firm and shareholder James Ruiz that the case must be dismissed under the Texas Citizens Participation Act. The TCPA is Texas’ answer to strategic lawsuits against public participation, known as SLAPP suits, that are brought with the intention of chilling one’s free speech rights. It mandates early dismissal of baseless lawsuits, and Winstead had argued this suit fits the bill.
“The motion to dismiss stage is not a battle of evidence; it is the clearing of an initial hurdle,” Justice Bland wrote. “The Act does not select for plaintiffs certain to succeed; it screens out plaintiffs certain to fail — those who cannot support their claims with clear and specific evidence. Because USA Lending adduced prima facie evidence to support its claim for legal malpractice, the court of appeals erred in ordering the case dismissed. Accordingly, we reverse the judgment of the court of appeals and remand the case to the trial court.”
USA Lending filed a petition for review with the Texas Supreme Court in September 2021. The Twelfth Court of Appeals in Tyler dismissed the lawsuit in March 2021 after holding that the TCPA applied to the claims because they were brought in response to the firm’s communication, which in this case was the motion for default judgment.
The appellate panel also held USA Lending failed to show it would be able to collect a judgment against the former employee it was suing in the underlying suit.
A trial court had agreed with USA Lending that the TCPA didn’t apply and allowed the suit to move forward.
Dylan B. Russell, a partner with Hoover Slovacek who argued the case before the Texas Supreme Court in March on behalf of USA Lending, issued a statement to The Lawbook on Friday that his client was “pleased” with the ruling.
“The court’s clarification on what is required to meet the prima facie burden in this context is helpful for addressing TCPA appeals of legal malpractice cases in Texas,” he said. “Because the court limited its decisional analysis to the prima facie issue, however, a number of TCPA-related legal questions remain uncertain for Texas jurisprudence, including those questions discussed at length during oral argument and briefed by the parties.”
During oral arguments in March, Justice Debra Lehrmann had requested both parties file post-argument briefing addressing how the court’s 2018 holding in Youngkin v. Hines would apply in this dispute. In that case, the court determined that the TCPA mandated dismissal of a legal malpractice lawsuit a nonclient brought against an attorney based on statements the attorney made in open court.
While discussion of Youngkin and its implications in this dispute was lengthy during oral arguments, there is no reference to the Youngkin case in the court’s unanimous 17-page ruling issued Friday.
Winstead has maintained that USA Lending’s legal malpractice lawsuit against the firm and Ruiz is rooted in its “communication,” the allegedly deficient motion for default judgment. The firm has also argued that USA Lending failed to present evidence that it could have collected any damages from the former employee.
USA Lending hired Winstead to represent it in a breach of fiduciary duty lawsuit, filed in April 2017, against a former employee, Mike Ahmari, in federal court. The suit centered on USA Lending’s claims that it was the owner of certain domain names and toll-free numbers that it hired Ahmari to procure on its behalf, according to court documents.
USA Lending alleged Ahmari refused to transfer ownership and intended to use them to launch a competing company.
Ahmari never responded to the lawsuit.
When the trial court entered final judgment declaring USA Lending the legal owner of all rights, title and interest in the domain names and toll-free numbers, the company realized Winstead failed to request the $1.2 million in damages USA Lending was seeking.
Counsel for Winstead did not respond to messages seeking comment Friday.
Winstead and Ruiz are represented by Murray Fogler and Robin O’Neil of Fogler Brar O’Neil & Gray.
USA Lending is also represented by Brett Wagner and Ryan W. Smith of Doherty Wagner.
The case number is 21-0437.