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Texas Supreme Court to Hear Winstead Malpractice Case

February 24, 2023 Michelle Casady

The Texas Supreme Court has agreed to determine whether an attorney’s failure to request damages in a client’s motion for default judgment constitutes a “communication” or a “failure to communicate” in a case that asks it to decide if the Texas Citizens Participation Act applies to a legal malpractice claim.

In a list of orders issued Friday, the state’s high court granted a petition for review finance company USA Lending Group filed in September 2021, and set oral arguments for March 21. 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,” then the company’s malpractice suit will be revived.

The Twelfth Court of Appeals in Tyler dismissed the lawsuit in March 2021 after holding that the TCPA — Texas’ free speech law aimed at bringing an early end to strategic lawsuits against public participation, so-called SLAPP suits — 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.

Winstead has maintained that the legal malpractice lawsuit USA Lending brought against it 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.  

USA Lending hired Winstead to represent it in a breach of fiduciary duty lawsuit against a former employee, Mike Ahmari, in federal court. The suit centered around USA Lending’s claims 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 was the legal owner of all rights, title and interest in the domain name and toll-free number, the company realized Winstead failed to request the $1.2 million in damages USA Lending was seeking.

In urging the Texas Supreme Court not to grant review in the malpractice suit, Winstead argued the case was simply a “run-of-the-mill TCPA appeal” that presented the court nothing novel and had no “significant precedential value.”

“The court of appeals made clear that had USA Lending presented some evidence or fact — an affidavit, a document, anything — tending to show some portion of the judgment could have been collected, USA Lending would have met its burden,” Winstead told the justices. “Naked assumptions and conclusory statements are not enough to meet the clear and specific standard.”

USA Lending argued in briefing that the case has the opportunity to impact “every legal-malpractice case filed in Texas, particularly those premised on a litigation attorney’s failure to request relief for a plaintiff-client in an underlying case.”

“First, if the opinion below stands, virtually all such legal-malpractice cases will be disposed of under the TCPA unless a client can obtain expert-witness evidence regarding collectability on the underlying defendant,” USA Lending told the court. “But in the TCPA context, it is very difficult to obtain such evidence due to the discovery stay and expedited procedures. And that difficulty is exacerbated when the underlying defendant resides outside of Texas, like 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.

Michelle Casady

Michelle Casady is based in Houston and covers litigation and appeals — including trials, breaking news and industry trends — for The Texas Lawbook.

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