Christine Finger v. Hugh M. Ray, III and Weycer, Kaplan Pulaski & Zuber, P.C. ( 2010 )

Opinion issued August 5, 2010

In The

Court of Appeals

For The

First District of Texas

NO. 01-09-00404-CV

CHRISTINE FINGER, Appellant

V.

HUGH M. RAY, III AND WEYCER, KAPLAN, PULASKI, AND ZUBER, P.C., Appellees

On Appeal from the 151st District Court

Harris County, Texas

Trial Court Cause No. 2007-71210

O P I N I O N

          A client sued her lawyer, alleging wrongful acts arising from his representation of her during bankruptcy litigation.  The trial court granted summary judgment in favor of the lawyer and his firm on the client’s claims, but it denied summary judgment on her claim for equitable disgorgement of the attorney’s fees she incurred.  After the trial court denied summary judgment on the fee forfeiture claim, the client abandoned it, and pursues on appeal only her claims for actual damages.  The client contends that (1) the trial court erred in requiring expert testimony to prove causation of actual damages, and (2) her lay testimony about causation raises a material fact issue.  We hold that the causal connection between the conduct alleged and any injury is not within a jury’s common understanding, and thus the trial court properly ruled that expert testimony was necessary to show that the lawyer’s acts caused the client actual damages.  We affirm the judgment of the trial court.

Background

A Lawsuit and Judgment

In 2003, Christine Finger borrowed $10,000 from David Reitman, who accepted jewelry, which Finger valued at $29,495, as collateral. Although Finger repaid a portion of the loan and Reitman forgave the balance, he did not return the jewelry.  Instead, he told Finger that someone had stolen it from his car.  Finger hired a lawyer and sued Reitman for fraud, breach of contract, and various other causes of action.  She moved for summary judgment on the breach of contract claim.  The trial court granted it, entering an “Agreed Final Summary Judgment,” awarding Finger $29,495 in damages and $1200 in attorney’s fees. Shortly after the trial court signed the final judgment, Reitman told Finger that he planned to file for bankruptcy.

The Bankruptcy Proceedings

Upon hearing this news, Finger hired the defendants in this case, Hugh M. Ray and Weycer, Kaplan, Pulaski & Zuber, P.C., to represent her in collecting the judgment against Reitman and in any potential bankruptcy litigation. According to Finger, she hired Ray based upon his “express representations . . . that he would collect [her] judgment through state court collection methods that would also provide [her] with attorney[’]s fees and costs of pursuit and collection, that the judgment that [she] possessed was based upon fraud by Mr. Reitman, that if Mr. Reitman filed personal bankruptcy that he, Mr. Ray, would file an action in the bankruptcy court to except [her] claim out of the bankruptcy, and then he would further proceed with the collection outside of any bankruptcy proceeding.”

Reitman filed for bankruptcy.  During the pendency of the proceedings, Ray conducted an examination of Reitman. Ray and the bankruptcy trustee then jointly filed a Section 727 action to bar Reitman’s bankruptcy discharge.  See 11 U.S.C. § 727 (2006).  Ray did not file a Section 523 action, which seeks to remove a specific debt from the debtor’s discharge.  See 11 U.S.C. § 523 (2006).  Ultimately, the bankruptcy court approved a settlement between Finger and Reitman, and Reitman paid Finger $40,700.  Finger paid $23,500 to Ray for attorney’s fees and expenses.  After paying her lawyer, Finger collected a net amount of $17,200 from the bankruptcy settlement in satisfaction of her state court judgment against Reitman.

A Malpractice Lawsuit

Finger then sued Ray for legal malpractice, breach of fiduciary duty, and breach of contract.  Finger alleged that Ray (1) failed to file a Section 523 action to except her claim from Reitman’s discharge, (2) failed to disclose that he had not filed a Section 523 action, (3) falsely represented to Finger that he filed a Section 523 action instead of a Section 727 action, and (4) billed and collected excessive and unreasonable fees.  Finger later amended her petition to add a cause of action for DTPA violations. Finger sought a refund of the attorney’s fees and expenses that she had paid to Ray, and $225,000 in mental anguish damages.

Ray moved for a traditional and a no-evidence summary judgment on all of Finger’s claims, contending that Ray properly pursued a Section 727 action to collect Finger’s judgment, and that his work obtained successful results. Thus, according to Ray, Finger could not meet the “suit within a suit” causation requirement to recover damages for her claims.  Finger could not establish that, but for Ray’s conduct, she would have obtained a better net result in the underlying suit.  He also denied any misrepresentation and contended that Finger had failed to allege a serious breach of fiduciary duty that would require Ray to forfeit the fees he had charged her.  In the no-evidence summary judgment motion, Ray challenged each element of Finger’s claims, including causation and damages.

In response, Finger amended her petition to drop her claims for legal malpractice and breach of contract and to proceed on her breach of fiduciary duty, DTPA, and fee forfeiture claims.  In Finger’s summary judgment response, she contended that whether she could have prevailed in a section 523 action is irrelevant to her claims, because Ray falsely represented to Finger that he would file a section 523 action, not a section 727 one, and Finger paid $23,500 in attorney’s fees on the basis of this representation.  Finger contended that these claims did not require her to prove “suit within a suit” causation, and she therefore did not need expert testimony to establish liability or causation.

Finger attached her affidavit and excerpts from her deposition testimony as summary judgment evidence.  She averred that she had hired Ray based on his express representations that (1) he would pursue state court collection methods, (2) her judgment against Reitman was based upon fraud, (3) Ray would file an action to except Finger’s claim out of Reitman’s bankruptcy proceeding, and (4) Ray would proceed with collection outside of the bankruptcy proceeding. Finger further averred that but for these representations, she never would have hired Ray, but would have instead “simply filed [her] claim with the bankruptcy court and negotiated with Mr. Reitman on the settlement that [she] knew he would make, based upon conversations with him.”  Finger finally stated that, although she obtained a settlement with Reitman for $40,700, she would have been able to obtain the same settlement without having to pay $23,500 in attorney’s fees, and thus Ray’s services had no value to her.  Finger did not offer an affidavit or testimony from a licensed attorney to support her claims.

The trial court granted summary judgment on Finger’s DTPA claim and her breach of fiduciary duty claim for actual damages, and denied summary judgment on the breach of fiduciary duty claim to the extent that Finger sought equitable fee forfeiture.  In the summary judgment order, the trial court observed that Finger lacked the necessary expert testimony to establish causation because “[a]ll of Plaintiff’s claims . . . are essentially claims that but for the alleged misrepresentations by Defendants about proceeding under section 523 as opposed to section 727 of the bankruptcy code, Plaintiff would have simply filed a claim in the bankruptcy court and settled her claim with the bankrupt debtor or otherwise recovered more than she netted based upon Defendant’s efforts.”  The trial court stated that Finger required a bankruptcy law expert to create a fact issue “on her ability to have, at a minimum, collected more than what she netted in this case had she done as she claims she could have and merely ‘filed a claim.’”

After the trial court’s rulings, Finger non-suited her claim for fee forfeiture and appealed the trial court’s grant of summary judgment.

Discussion

Standard of Review

          We review de novo the trial court’s ruling on a motion for summary judgment.  Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).  In a traditional motion for summary judgment, the movant must establish that no genuine issue of material fact exists and the party is entitled to judgment as a matter of law.  Tex. R. Civ. P. 166a(c).  A party may move for no-evidence summary judgment on the ground that no evidence exists of one or more essential elements of a claim on which the adverse party bears the burden of proof at trial.  Tex. R. Civ. P. 166a(i).  The trial court must grant a no-evidence summary judgment motion unless the non-movant produces competent summary judgment evidence that raises a genuine issue of material fact.  Id.  To determine if the non-movant raises a fact issue, we review the evidence in the light most favorable to the non-movant, crediting favorable evidence if reasonable jurors could do so, and disregarding contrary evidence unless reasonable jurors could not. See Fielding, 289 S.W.3d at 848 (citing City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005)).  We must review all of the summary judgment grounds on which the trial court ruled that are dispositive of the appeal, and we may consider any other grounds on which the trial court did not rule.  See Baker Hughes, Inc. v. Keco R. & D., Inc., 12 S.W.3d 1, 5 (Tex. 1999) (citing Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 624 (Tex. 1996)).

Summary Judgment Objections

Before addressing the merits, we review Finger’s appellate challenges to the trial court’s rulings on Ray’s objections to statements in Finger’s affidavit. The trial court sustained four of Ray’s five objections.  Finger challenges only two of these adverse rulings on appeal.  First, Ray objected to Finger’s assertion that, upon Reitman’s bankruptcy, “[she] would have simply filed [her] claim with the bankruptcy court and negotiated with Mr. Reitman on the settlement that [she] knew he would make, based upon conversations with him, and would not have paid Mr. Ray and his law firm from [her] own funds the sum of $23,500.”  Ray contended that the statement is speculative and based on hearsay. Second, Ray objected to Finger’s statement that she would have been able to achieve the same settlement without paying $23,500 to Ray because she is not a competent witness to offer such an opinion.

We review the trial court’s decision to sustain objections to summary judgment evidence for abuse of discretion.  Bradford Partners II, L.P. v. Fahning, 231 S.W.3d 513, 521 (Tex. App.—Dallas 2007, no pet.); Cruikshank v. Consumer Direct Mtg., Inc., 138 S.W.3d 497, 499 (Tex. App.—Houston [14th Dist.] 2004, pet. denied).  We hold that the trial court properly sustained the first objection on the basis of hearsay—the statement relies on an out of court declarant (Reitman), and Finger offered it for the truth of the matter asserted.  See Tex. R. Evid. 801(d).  With respect to the second objection, our causation analysis addresses this evidence, and thus Finger cannot show any harm from the trial court’s ruling.  See Interstate Northborough P’ship v. State, 66 S.W.3d 213, 220 (Tex. 2001) (“Typically, a successful challenge to a trial court’s evidentiary rulings requires the complaining party to demonstrate that the judgment turns on the particular evidence excluded or admitted.”).

The Nature of the Claims

          According to Finger, Ray violated Sections 17.46(b)(5), (7), (12), and (24) and Section 17.50(a)(3) of the DTPA.[1]  In addition, she alleges that Ray breached his fiduciary duty to her by concealing from her the approach he planned to take in collecting the judgment against Reitman.[2]  Factually, Finger alleges that Ray violated the DTPA and breached his fiduciary duties to her by:  (1) falsely representing to Finger that he would except Finger’s judgment against Reitman from Reitman’s bankruptcy; (2) falsely representing to Finger that Ray would seize Reitman’s property separately from the bankruptcy proceeding to satisfy the judgment; (3) falsely representing to Finger that Ray would file a Section 523 action to except Finger’s judgment from discharge; (4) failing to disclose that Ray would not file an action to except Finger’s judgment from Reitman’s discharge to induce Finger into employing Ray; and (5) billing and collecting excessive fees because Ray’s services were unnecessary.  Accepting these liability allegations as true, we examine whether Finger has shown that they caused her actual damages.

Expert Testimony to Prove Causation

          The causation debate here is whether expert testimony to prove causation is required under these facts, and not the adequacy of a particular expert opinion, as Finger offered none.  To prevail on a DTPA claim, the plaintiff must prove that the defendant’s statutory violation is a producing cause of the injury.  Tex. Bus. & Com. Code Ann. § 17.50(a) (Vernon Supp. 2009); Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 117 (Tex. 2004); Hoover v. Larkin, 196 S.W.3d 227, 232 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (“A plaintiff may recover all damages, including attorney’s fees, that are the result of the defendant’s wrongful acts, but the burden remains on the plaintiff to demonstrate such causation.”).  To prevail on a breach of fiduciary duty claim, the plaintiff must prove that the defendant’s breach of their fiduciary duties proximately caused the plaintiff’s damages.  Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App.—Houston [1st Dist.] 2003, no pet.).  Both proximate and producing cause encompass causation in fact, which requires proof that the defendant’s act or omission was a substantial factor in bringing about the injury, without which the injury would not have occurred.  Prudential Ins. Co. of Am. v. Jefferson Assocs., 896 S.W.2d 156, 161 (Tex. 1995); Thomas v. CNC Invs., L.L.P., 234 S.W.3d 111, 124 (Tex. App.—Houston [1st Dist.] 2007, no pet.).  In addition to cause in fact, proximate cause also requires foreseeability.  See Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d 778, 785 (Tex. 2001); Thomas, 234 S.W.3d at 124.

If the damages sought are those which would have been recovered in an underlying suit save for the lawyer’s wrongful conduct, then to establish causation, a plaintiff must prove a “suit within a suit”:  that, but for the lawyer’s breach of his duty, the plaintiff would have recovered these damages.  Hoover, 196 S.W.3d at 231. The trier of fact must have some basis for understanding the causal link between the attorney’s wrongful conduct and the injury.  Although a client’s lay testimony can provide this link in some cases, in others, the “connection may be beyond the jury’s common understanding and require expert testimony.”  Alexander, 146 S.W.3d at 119.

Finger responds that her claims are independent claims for breach of fiduciary duty and DTPA violations, and neither claim requires Finger to prove “suit within a suit” causation.  See Latham v. Castillo, 972 S.W.2d 66, 69 (Tex. 1998).  On these facts, we disagree.  A bankruptcy judge must evaluate and approve all settlements of claims against the debtor, thus, to prove causation, Finger’s claims require proof that the results she would have obtained without Ray’s representation would be better than she actually achieved with it.  As the Texas Supreme Court observed in a similar case involving DTPA violations alleged against a lawyer:  “[T]he decisionmaker here was the bankruptcy judge . . . [who] did not testify as to how he might have ruled if the case had been presented differently.  Without expert testimony, the jury had no direct evidence explaining the legal significance of the omitted evidence.”  Alexander, 146 S.W.3d at 119.

Finger attempts to distinguish Alexander by contending that, if Ray had not made affirmative misrepresentations about his services to her, then she would never have hired him, and would not have incurred $23,500 in attorney’s fees.  In other words, regardless of the amount she might have recovered from Reitman without using Ray’s services, she would not have expended the $23,500 she paid to him in fees.  But this ignores Finger’s recovery of over $40,000, and her net gain from Ray’s representation.  Finger did not sustain actual losses—rather, she made money on the legal pursuit of her bankruptcy claim.  Proof that her gains would have been the same or higher without using Ray’s services requires an evaluation of alternative litigation strategies and outcomes in the bankruptcy court.  Such an evaluation is within the ambit of a legal professional, not a lay person.

Finger relies on the Fort Worth Court of Appeals’ decision in Delp v. Douglas and the Fifth Circuit’s decision in Streber v. Hunter to urge that she was the ultimate decision-maker in engaging Ray’s services, and thus her lay testimony is sufficient to prove causation.  See Delp v. Douglas, 948 S.W.2d 483, 495–96 (Tex. App.—Fort Worth 1997), rev’d on other grounds, 987 S.W.2d 879 (Tex. 1999); Streber v. Hunter, 221 F.3d 701, 726–27 (5th Cir. 2000).  But in Alexander, the Texas Supreme Court rejected the analysis in those cases, noting that in both of them the clients “made the decisions and took the actions that resulted in their injuries” because of the lawyers’ bad advice.  Alexander, 146 S.W.3d at 119. In contrast, both in this case and in Alexander, whether the alleged wrongful conduct caused any damage hinges on the outcome of the underlying legal proceedings.  See id. at 118–19.  The loss here does not stem from Finger as the sole “decision maker,” but requires a second piece:  that, without hiring Ray, she would have obtained a better result, and netted more money than she did.  Id.; see also Hoover, 196 S.W.3d at 233 (“To the extent she seeks attorney’s fees as actual damages, [the plaintiff’s] lack of causation evidence defeats her.”).  And, Finger made two decisions—not only the one to hire Ray, but also the one to accept the court-approved settlement obtained after she employed Ray’s services.

Finger in essence seeks a refund because of Ray’s alleged misrepresentations, regardless of whether she sustained any loss from them.  And had Finger chose to pursue a claim for equitable fee forfeiture based on a “clear and serious” breach of fiduciary duty, upon proof of such a claim, a refund she could seek.  See Burrow v. Arce, 997 S.W.2d 229, 246 (Tex. 1999).  But Finger abandoned this claim in the trial court. She offered no evidence that the rate Ray charged or the hours he worked on her case were unreasonable, and she chose not to seek fee forfeiture based on wrongful conduct.  Given her net recovery of $17,200, after attorney’s fees, without expert testimony, the record contains no competent evidence that Ray’s alleged wrongful conduct caused her actual damages; thus, we uphold the trial court’s summary judgment.  See Alexander, 146 S.W.3d at 119 (“Breach of the standard of care and causation are separate inquiries, however, and an abundance of evidence as to one cannot substitute for a deficiency of evidence as to the other.”).

Mental Anguish Damages

In addition to actual damages, Finger seeks damages for mental anguish due to Ray’s alleged breach of fiduciary duty and DTPA violations.  The DTPA allows a plaintiff to recover mental anguish damages if the plaintiff can establish that the defendant committed the actionable conduct knowingly or intentionally.  Tex. Bus. & Com. Code Ann. § 17.50(b) (Vernon Supp. 2009); see also City of Tyler v. Likes, 962 S.W.2d 489, 496 (Tex. 1997) (“Mental anguish is also compensable as the foreseeable result of a breach of duty arising out of certain special relationships.”); Perez v. Kirk & Carrigan, 822 S.W.2d 261, 266–67 (Tex. App.—Corpus Christi 1991, writ denied) (holding client could recover mental anguish damages for attorney’s breach of duty of confidentiality).  In evaluating the record, “we apply traditional ‘no evidence’ standards to determine whether the record reveals any evidence of a ‘high degree of mental pain and distress’ that is ‘more than mere worry, anxiety, vexation, embarrassment, or anger’ to support any award of damages.”  Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex. 1995) (citing J.B. Custom Design & Bldg. v. Clawson, 794 S.W.2d 38, 43 (Tex. App.—Houston [1st Dist.] 1990, no writ)); El-Khoury v. Kheir, 241 S.W.3d 82, 87–88 (Tex. App.—Houston [1st Dist.] 2007, pet. denied).  Here, Finger does not allege that Ray caused a physical injury to her, but a financial one.  In such cases, although the law does not always require direct evidence of the nature, duration, or severity of mental anguish damages, “the absence of this type of evidence, particularly when it can be readily supported or procured by the plaintiff, justifies close judicial scrutiny . . . .”  Parkway Co., 901 S.W.2d at 444.

Finger attached excerpts from her deposition testimony to her summary judgment response to attempt to raise a genuine issue of material fact regarding the existence of mental anguish damages.  Finger testified:

Q:      Have you ever seen—and by “see,” I mean been treated by or evaluated by any psychiatrist, psychologist or mental healthcare provider for mental anguish that you say was caused by Mr. Ray or Weycer Kaplan?

A:      Not from the dates that you’re requesting.

. . . . 

Q:      Ms. Finger, have there been any physical manifestations of this mental anguish you say you suffered as a result of the conduct of Mr. Ray and Weycer Kaplan?

A:      Yes, sir.

Q:      What are those?

A:      I had anxiety, heart palpitations and loss of hair, stress, just went in for a stress test and had to get—couldn’t sleep.

Q:      All as a result of Weycer Kaplan and Mr. Ray?

A:      Well, I don’t really have a lot of other stress in my life.  I’m not a person that doesn’t handle stress.  I’ve lived through 9/11 in my industry.  I live it every day.  I’ve never been to any kind of therapists, doctors, help or anything else with any stress-related problems.

Q:      Did. Mr. Reitman maybe cause some of that stress?

A:      Oh, I’m sure he did but not something that I can’t handle because I think that I’m the type of person that if something ends and is okay by me, then it’s okay.  But if something ends to where I feel like it can’t be peaceful or without closure that has been totally mishandled, that’s where the stress comes in.

In Parkway, Woodruff testified that she was “hot,” “very disturbed,” “[the situation] was just upsetting,” and she was “just upset” and the Texas Supreme Court held that although Woodruff “felt anger, frustration, or vexation,” these emotions did not rise to the level of compensable mental anguish.  Id. at 445; see also Saenz v. Fid. & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex. 1996) (holding that plaintiff’s statement that she “worried . . . a lot” did not establish compensable mental anguish damages).  Similarly, Finger’s testimony establishes that she felt worry, anxiety, and stress due to Ray’s conduct.  Finger’s testimony does not, however, provide evidence of a “high degree of mental pain and distress” that is “more than mere worry, anxiety, vexation, embarrassment, or anger” and that caused a “substantial disruption in [her] daily routine.”  Parkway Co., 901 S.W.2d at 444.  We therefore hold that Finger fails to raise proof that supports the existence of mental anguish damages as the law defines it.  See id.

Conclusion

Because the causal connection between the alleged wrongful conduct and any actual damages sustained in this case is not within the common understanding of jurors, the law requires expert testimony to establish proximate and producing cause.  We hold that the summary judgment record contains no evidence to raise a fact issue that the alleged wrongful conduct caused actual damages or mental anguish. We therefore affirm the judgment of the trial court.

                                                          Jane Bland

                                                          Justice

Panel consists of Justices Jennings, Hanks, and Bland.

Justice Jennings, dissenting.

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[1] Section 17.46(b)(5) prohibits the representation that services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have.  See Tex. Bus. & Com. Code Ann. § 17.46(b)(5) (Vernon Supp. 2009).  Section 17.46(b)(7) prohibits the representation that services are of a particular standard, quality, or grade, when they are of another. Id. § 17.46(b)(7).  Section 17.46(b)(12) prohibits the representation that an agreement confers or involves rights, remedies, or obligations which it does not have or involve.  Id. § 17.46(b)(12).  Section 17.46(b)(24) prohibits the failure to disclose information concerning services which was known at the time of the transaction if the failure was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed.  Id. § 17.46(b)(24).  Additionally, Section 17.50(a)(3) prohibits unconscionable acts or courses of action.  Id. § 17.50(a)(3).

[2] Ray contended in the trial court that Finger’s claims are really ones for legal malpractice that she improperly has recast as claims for breach of fiduciary duty and DTPA violations.  See Murphy v. Gruber, 241 S.W.3d 689, 697 (Tex. App.—Dallas 2007, pet. denied) (“[C]haracterizing conduct as a ‘misrepresentation’ or ‘conflict of interest’ does not alone transform what is really a professional negligence claim into either a fraud or breach-of-fiduciary-duty claim.”); Greathouse v. McConnell, 982 S.W.2d 165, 172 (Tex. App.—Houston [1st Dist.] 1998, pet. denied). As such, he argues, Finger was required to produce evidence from an attorney that Ray’s conduct fell below a reasonable care standard.  Because we affirm the summary judgment on lack of competent evidence of causation for each of Finger’s theories, we do not reach Ray’s contention that expert testimony was necessary to prove liability.