The Texas Supreme Court questioned during oral arguments Tuesday how its precedent in an earlier case outlining the contours of the Texas Citizens Participation Act applies to a malpractice lawsuit accusing Winstead of filing a deficient motion for default judgment that didn’t include a request for $1.2 million in damages.
The justices requested post-argument briefing from Dylan B. Russell of Hoover Slovacek, who represents USA Lending, and Robin O’Neil of Fogler Brar O’Neil & Gray, who represents Winstead, explaining how its 2018 opinion in Youngkin v. Hines impacts the court’s analysis of this case. In Youngkin, the court determined that the TCPA — Texas’ free speech law aimed at bringing an early end to strategic lawsuits against public participation, so-called SLAPP suits — mandated dismissal of a legal malpractice lawsuit a nonclient brought against an attorney based on statements the attorney made in open court.
If USA Lending is right, and Winstead’s actions in moving for a default judgment without requesting $1.2 million in damages doesn’t constitute a “communication,” but instead is a failure to communicate, then the company’s malpractice suit will be revived.
Winstead has maintained that USA Lending’s legal malpractice lawsuit against the firm and shareholder James 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.
Justice Jeff Boyd said he was struggling with a threshold issue: whether the TCPA applies. Justice Boyd explained it’s unclear to him “whose constitutional right is at issue here” because when Winstead filed the motion in court it was acting as an agent for the client in exercising the client’s constitutional right.
“I’m having a hard time understanding the argument as to how it becomes Winstead exercising [its] constitutional rights on behalf of a client,” he said.
Russell said he wasn’t making that argument but is “bound to it because of the Youngkin opinion.”
“Our lawsuit is not based on that communication or in response to it,” he said. “We’re not complaining about what was said in that motion. We’re complaining about what was not said in that motion. … Assume for argument it was Winstead’s exercise of its right to file this petition. We still think our lawsuit … was not based upon that exercise of the right to petition, even if it’s Winstead’s right.”
Justice Evan Young asked Russell whether there could be a malpractice claim in this case had Winstead requested money damages in the motion but had asked for it in such a deficient or inept way that the court denied it. Russell said it would be tougher to make that case.
“But here, they simply didn’t,” he said. “There’s no communication whatsoever that says ‘Please give us money damages.’”
USA Lending Group filed a petition for review 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 did not apply and allowed the suit to move forward.
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.
O’Neil told the justices during oral arguments that there are some cases, including Ray v. Fikes, where the court has determined a claim is “based on the lawyer’s wholesale failure to act,” such as a failure to file suit before limitations run, and concluded the TCPA didn’t apply.
“That is not the situation here,” she said. “Here, there is no way to interpret USA Lending’s claim other than it is based on Winstead’s making and submission of a document … specifically referenced as a communication in the TCPA. It is essentially a criticism of Winstead’s communication with the court.”
Justice Jane Bland pushed back, saying she wouldn’t characterize the claim as a criticism of the communication but instead as based on the “absence” of communication.
“So anytime there’s a failure to phrase a claim, any absence of pleading or proof, that’s always going to implicate the TCPA?” Justice Bland asked.
O’Neil said that’s not necessarily the case and that the analysis boils down to the definition of communication as stated in the TCPA, which is the making or submitting of a statement or document.
“The claim itself is based on a document, which the TCPA defines as a communication,” she said of the facts in this case.
Winstead and Ruiz are represented by Murray Fogler and Robin O’Neil of Fogler Brar O’Neil & Gray.
USA Lending is represented by Dylan B. Russell of Hoover Slovacek and Brett Wagner and Ryan W. Smith of Doherty Wagner.
The case number is 21-0437.