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Fifth Circuit Dismisses Suit Against Schiff Hardin

January 3, 2019 Allen Pusey

The U.S. Fifth Circuit Wednesday dismissed a lawsuit filed in East Texas against Schiff Hardin charging that the Chicago-based law firm had misrepresented facts to an insurance company during its defense of a products liability lawsuit.

In a 12-page opinion the appeals court concluded that the trial court erred in rejecting Schiff Hardin’s contention that they were immune from such suits under Texas law.

The suit was filed in East Texas by Ironshore Europe DAC, an insurance company that had provided excess insurance to Dorel Juvenile Group, Inc., a manufacturer of children’s car seats. Schiff Hardin defended Dorel during a trial involving an auto accident that resulted in a spinal injury and brain damage that paralyzed a one-year-old child. The lawsuit claimed that Dorel had failed to properly warn consumers of the risk posed by their car seat’s front-facing design.

Dorel was self-insured for $6 million, but Ironshore provided extra insurance of up to $25 million. That policy included an “assistance and cooperation” clause that required Dorel to inform Ironshore of any key information about the progress of the lawsuit.

Although Schiff Hardin complied with Ironshore’s requests, the trial itself did not go well for Dorel. An East Texas jury awarded the family of the injured child more than $24 million in compensatory damages and another $10 million in exemplary damages. Ironshore sued Schiff Hardin in federal court for misrepresenting the progress of the case, including a pre-trial settlement offer of $3.25 million.

Ironshore sued, pinning its case on Restatement of Torts (Second) § 552, a principle adopted by the Supreme Court of Texas in 1999, which makes professionals liable for misrepresentations or incompetence that non-clients might rely on during the course of their business transactions.

Ironshore argued that they had relied on false assurances from Schiff Hardin attorneys that the litigation was going well despite several turns in the litigation that proved detrimental to the case. And Schiff countered that the case should be dismissed on the basis of Texas case law granting lawyers immunity from third-party complaints during or about their representation of a client.

The federal trial judge granted dismissal of most of Ironshore’s claims of misrepresentation as immune under Texas law. But citing the Erie Doctrine – which requires federal courts to interpret applicable state case law in cases of diverse jurisdiction – the judge surmised that Schiff Hardin’s failure to communicate the settlement offer to Ironshore could be a claim not subject to the broader protections of lawyer immunity in Texas.

In his opinion for the Fifth Circuit panel, Judge W. Eugene Davis wrote that the trial court’s “Erie guess” was wrong.

Davis said that while Texas courts have never ruled specifically on the issue of lawyer immunity from non-client civil claims, the appellate panel’s own “Erie guess” was that the Texas Supreme Court would extend immunity to Ironshore’s claim of misrepresentation by omission.

Making its own “Erie guess” the panel cited recent decisions by the Texas Supreme Court – Cantey Hanger v. Byrd in 2015 and Youngkin v. Hines in 2018. In both cases, SCOTX concluded that regardless of the behavior alleged, lawyer immunity is in play during a lawyer’s representation of a client ­– even in an allegation of fraud.

Wrote Davis: “The Cantey Hanger court’s rejection of the argument that attorney immunity does not extend to fraudulent and other intentional conduct committed by the attorney in the course of representing his client makes it clear to us that the Supreme Court of Texas would extend immunity to the much less egregious conduct of negligent misrepresentation, whether or not the non-client relied on the negligent misrepresentation. The district court therefore erred in determining that attorney immunity did not apply to claims of negligent misrepresentation.”

Allen Pusey

Allen Pusey is a senior editor and writer at The Texas Lawbook.

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