In oral arguments that could affect the business of Texas transactional lawyers, an inquisitive and sometimes quizzical Texas Supreme Court Tuesday watched the flip of an ethical coin.
Heads: Transactional lawyers engaged in business for their clients should enjoy the same immunity from civil lawsuits as litigators.
Tails: Why should they?
The case involves the complicated sale of a footwear business. At question is an allegation of fraud: that a lawyer from Haynes and Boone, who had represented the sellers, failed to disclose to the ultimate buyers that some of the designs they were paying for had never been properly protected by patents.
In effect, both sides are seeking clarification of a 2015 Texas Supreme Court decision, Cantey Hanger v. Byrd, a case that extended attorney immunity to litigators accused of fraud during the transfer of assets after settlement of a contentious divorce.
“Listen to what the petitioners are asking this court to do,” said Houston appellate attorney Kenneth Breitbeil, representing the buyers. “They want to take a narrow exception that protects lawyers when they are acting with their clients in the scope of litigation and expand it into a blanket immunity — even if it involves defrauding a third party in a business transaction.”
Well, yes, said Russell Post, representing Haynes and Boone. Whether a lawyer’s work involves contracts or litigation over those contracts, their work bears the same legal and ethical responsibilities; and that relationship, he argued, is protected in Texas. And if not, it should be.
“The client is entitled to loyalty; and the attorney is entitled to immunity,” Post told the court.
That position — and the case itself — has drawn the rapt attention of transactional lawyers. A consortium of 50 law firms — some of the largest in Texas —filed amicus briefs in the case; one urged SCOTX to hear the appeal; the other, supported Haynes and Boone’s specific claims to broader attorney immunity. The collective firms include 41,000 lawyers in 23 offices across the state.
Their concern is that an emerging conflict between state appellate courts, as well as the U.S. Fifth Circuit, leaves the multi-office, multidisciplinary teams often involved in transactions stuck on both sides of the attorney-immunity fence.
From as early as 1910, Texas courts have recognized a need for attorney immunity from non-client lawsuits. In Kruegel v. Murphy the court declared, “Attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.”
In Cantey Hanger the Texas Supreme Court said even allegations of fraud performed during the course of client representation were immune to non-client actions. In its absence clients could be deprived of zealous representation, and because of attorney-client privilege, lawyers could be denied defenses available to others.
But the ruling by Houston’s Fourteenth Court of Appeals in December 2019 not only overturned a trial court’s dismissal of Haynes and Boone from the fraud litigation, it declared that two other state appeals courts, as well as the U.S. Fifth Circuit, were misreading Cantey Hanger in the first place. The opinion, written by Justice Meagan Hassan, says Cantey Hanger doesn’t even speak to the issue. Having decided that the actions of the Cantey Hanger firm were within the scope of the divorce litigation, the court specifically declined to do so.
She also suggests that the Texas Supreme Court wouldn’t when asked, citing a dissent by Justice Paul Green (since retired). Joined by three other justices, Green criticized the majority in Cantey for going as far as they did — extending attorney immunity for conduct that “merely occurs in the scope of client representation.”
Post, an appellate lawyer at Beck Redden, told the court that Hassan’s opinion erred in at least three ways: that the issue was settled by Cantey Hanger; that an immunity for all lawyers in the course of their work is a rational and principled policy, and that the standard she suggests (limiting immunity to “litigation, quasi-litigation or the litigation-related context”) is impractical in the context of real-life transactional law. Antitrust and tax practices are often involved in helping clients avoid litigation, he noted, even when they are not involved in litigation itself.
Justices Eva Guzman and Debra Lehrmann pressed Post on what “lawyerly” activities could be included or excluded from a broader immunity doctrine.
Driving to the courthouse to represent a client is required of a lawyer, for instance, but would not qualify as a “lawyerly” duty. Would negotiations — normally engaged by the parties to an agreement —be considered “lawyerly” if done by lawyers?
In response, Post echoed the language of Cantey Hanger: “Whether the conduct requires the office, profession training, skill and authority of a lawyer.”
What about negotiating a contract? Lehrmann asked.
“Negotiating a contract falls at the very heart of discharging legal services to the client. Therefore, it’s at the heart of the privilege.”
“And if an attorney is negotiating a fraudulent contract?” asked Guzman.
“That’s precisely the kind of case the court decided in Cantey Hanger,” Post replied.
Breitbeil, a Houston-based attorney at Frost Brown Todd, told the court they should discount fears of any flurry of lawsuits that might result from the absence of attorney immunity for transactional lawyers. The standards for such a civil action are too high, he said, and the consequences of ignoring attorney fraud are too dire to make Texas an outlier.
He pointed out that such cases are rare. “When they do occur, they are serious, and they involve big damages. It would be a grievous mistake to place this court’s view outside the mainstream — where all the lawyer has to do is say: ‘I was representing my client.'”
The case is Haynes and Boone and Arthur Howard v. NFTD, et al. The oral arguments can be view here.