Charles W. Burnett v. David Sharp ( 2010 )

Affirmed in Part; Reversed and Remanded in Part; Majority and Concurring and Dissenting Opinions filed October 21, 2010.

In The

Fourteenth Court of Appeals

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NO. 14-09-00420-CV

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Charles W. Burnett, Appellant

V.

David Sharp, Appellee

On Appeal from the 412th District Court

Brazoria County, Texas

Trial Court Cause No. 51711

MAJORITY OPINION[1]

This is an appeal from a case in which a client sued his former lawyer alleging that the lawyer refused to return the unearned part of a fee retainer.  The main issue is whether, under a de novo standard of review, the trial court erred in concluding that each of the client’s claims is based on an “indisputably meritless legal theory.”  The client’s claims for breach of fiduciary duty, money had and received, and conversion are not based on indisputably meritless legal theories, but the client’s negligence and intentional-misrepresentation claims are based on indisputably meritless legal theories.  Accordingly, the trial court’s judgment is affirmed in part and reversed and remanded in part.

I.  Factual and Procedural Background

Appellant Charles W. Burnett is an inmate housed in the Texas Department of Criminal Justice, Institutional Division.  He filed suit in forma pauperis against appellee David Sharp, a Texas lawyer.  In his petition, Burnett alleges that Sharp represented him in a criminal case and that he gave Sharp a $3,000 retainer for legal services. Burnett alleges that Sharp refused to return the unearned part of the retainer after Burnett replaced Sharp with another lawyer.  Before service of process was accomplished, and without a hearing, the trial court signed an order dismissing Burnett’s case with prejudice on grounds that Burnett “failed to state a cause of action as a matter of law.”  Burnett appeals from the trial court’s dismissal order.

II. Analysis

A.        Did the trial court dismiss the claims under Chapter 14 of the Texas Civil Practice and Remedies Code? 

In its dismissal order the trial court states that Burnett “failed to state a cause of action as a matter of law,” without citing to any case, statute, or other legal authority.  As a threshold matter, we consider whether, in dismissing Burnett’s claims, the trial court was acting under Chapter 14 of the Texas Civil Practice and Remedies Code, which governs inmate in forma pauperis lawsuits.[2] See Tex. Civ. Prac. & Rem. Code Ann. §§ 14.001–.014 (Vernon 2009).  A trial court may dismiss an inmate’s claims under Chapter 14, “either before or after service of process, if the court finds that . . . the claim is frivolous or malicious[.]” Id. § 14.003(a)(2).  The court “may” hold a hearing “before or after service of process,” and may do so “on motion of the court, a party, or the clerk of the court.”  Id. § 14.003(c).  In Minix v. Gonzales, this court determined that an order substantially similar to the one under review constituted an order dismissing the claims as frivolous under sections 14.003(a)(2) and (b)(2) because the claims had “no arguable basis in law.” See Tex. Civ. Prac. & Rem. Code Ann. § 14.003 (a), (b); Minix v. Gonzales, 162 S.W.3d 635, 637 (Tex. App.—Houston [14th Dist.] 2005, no pet.).  In other opinions this court has followed Minix and has equated a determination that an inmate “failed to state a cause of action as a matter of law” with a determination that an inmate’s claim “has no arguable basis in law” under sections 14.003(a)(2) and (b)(2).  See Ramon v. Dow, No. 14-07-01024-CV, 2009 WL 508427, at *1 (Tex. App.—Houston [14th Dist.] Mar. 3, 2009, no pet.) (mem. op.); Gardner v. Tex. Dep’t of Crim. Justice, No. 14-07-00992-CV, 2009 WL 87594, at *1 (Tex. App.—Houston [14th Dist.] Jan. 15, 2009, pet. denied) (mem. op.).  But, in two other post-Minix opinions, without citing Minix, this court has concluded that an order dismissing an inmate’s claim because the inmate “failed to state a cause of action as a matter of law” was not a dismissal under Chapter 14.  See Anthony v. Owens, No. 14-07-01077-CV, 2009 WL 4250762, at *1 (Tex. App.—Houston [14th Dist.] July 7, 2009, no pet.) (mem. op.); Cooper v. Tex. Dep’t of Crim. Justice, No. 14-07-00741-CV, 2009 WL 1312944, at *1 (Tex. App.—Houston [14th Dist.] May 12, 2009, no pet.) (mem. op.).  The Anthony and Cooper courts, after noting that the respective appellants had not challenged the trial court’s dismissal without a hearing and for a basis not stated in Chapter 14, addressed the appellants’ complaints premised on a Chapter 14 dismissal and concluded that the complaints would lack merit even if the trial court had dismissed the claims under Chapter 14. See Anthony, 2009 WL 4250762, at *1–3; Cooper, 2009 WL 1312944, at *1–3. 

In part of his appellate brief, Burnett asserts that the trial court erred by dismissing his claims for “failure to state a claim” because this is not a proper basis for dismissal under Chapter 14.  Under Minix, the trial court’s dismissal based on a determination that Burnett “failed to state a cause of action as a matter of law” is equivalent to a dismissal based on a determination that Burnett’s claims are frivolous because they have “no arguable basis in law.”  Minix, 162 S.W.3d at 637.  The panels in Anthony and Cooper did not distinguish or purport to apply Minix.  See Anthony, 2009 WL 4250762, at *1; Cooper, 2009 WL 1312944, at *1. Research does not reveal a decision from a higher court or this court sitting en banc that is on point and contrary to this part of Minix, nor is there an intervening and material change in the statutory law.  Therefore, we are bound by this prior holding in Minix rather than the decisions in Anthony and Cooper.  See Chase Home Fin., L.L.C. v. Cal W. Reconveyance Corp., 309 S.W.3d 619, 630 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (stating that, absent a decision from a higher court or this court sitting en banc that is on point and contrary to the prior panel holding or an intervening and material change in the statutory law, this court is bound by the prior holding of another panel of this court); see also Lucky-Goldstar Int’l (America), Inc. v. Philbro Energy Int’l, Ltd., 958 F.2d 58, 60 (5th Cir. 1992) (stating that, if one panel of a court of appeals fails to apply or distinguish a prior panel holding that is on point, a third panel of that court is bound by the holding of the first panel rather than the second panel). Under the Minix holding, we construe the trial court’s determination that Burnett “failed to state a cause of action as a matter of law” to be a determination that Burnett’s claims have “no arguable basis in law” under sections 14.003(a)(2) and (b)(2).  See Minix, 162 S.W.3d at 637.

B.        What claims did Burnett plead? 

In determining the nature of claims in a petition to which the trial court sustained no special exceptions, this court must construe the pleading liberally in the pleader’s favor and construe the petition to include all claims that reasonably may be inferred from the language used in the petition, even if the petition does not state all the elements of the claim in question.  See London v. London, 192 S.W.3d 6, 13 (Tex. App.—Houston [14th Dist.] 2005, pet. denied) (concluding that if trial court has not sustained any special exceptions as to a petition, then it should be liberally construed).  The author of the concurring and dissenting opinion urges a departure from this rule, arguing that it should not be applied to petitions subject to Chapter 14 that are dismissed before service of process is effected.  Carving out such an exception would contravene longstanding policy that courts should read pleadings liberally to reach the merits of the claims asserted rather than passing on the merits at the pleading stage. The application of the liberal-construction-of-pleadings rule is not based on whether a defendant has had an opportunity to assert special exceptions; rather, this rule is based on the general policy of liberally construing a pleading except to the extent that the trial court has ordered the pleader to cure specific defects in the pleading.[3]  For this reason, courts construing inmate petitions dismissed before service of process also construe the inmate petitions liberally.[4] See Lagaite v. Boland, 300 S.W.3d 911, 913 (Tex. App.—Amarillo 2009, no pet.) (stating court must liberally construe inmate petition dismissed before service of process); Presiado v. Sheffield, 230 S.W.3d 272, 275 (Tex. App.—Beaumont 2007, no pet.) (construing liberally inmate petition dismissed before service of process based on trial court’s failure to sustain special exceptions); Perales v. Kinney, 891 S.W.2d 731, 732 (Tex. App.—Houston [1st Dist.] 1994, no pet.) (same as Lagaite). There is no legal authority to support a departure from the liberal-construction-of-pleadings rule in this context and no compelling reason to create or apply a different rule.

Under a liberal construction of the petition, Burnett alleges the following:

●         In June 2006, Burnett retained Sharp, a lawyer, to represent him in a criminal matter.

●         Burnett gave Sharp a $3,000 retainer.

●         Sharp had Burnett’s case reset five times but did not provide any other legal services before Burnett replaced Sharp with another lawyer.

●         Burnett called Sharp’s office once, and Burnett’s family called Sharp many times on behalf of Burnett, requesting a refund of the unearned portion of the retainer.

●         Burnett served Sharp with a written demand for the return of the unearned portion of the retainer. Sharp did not respond to this demand, nor did Sharp return any part of the unearned retainer to Burnett. 

●         Sharp breached his fiduciary duty to Burnett by refusing to return the unearned part of Burnett’s retainer.

●         Sharp committed legal malpractice, negligence, and “deception.”

●         Burnett is seeking compensatory damages in the amount of $10,000.

            Under a liberal construction of his petition, Burnett has pleaded claims for breach of fiduciary duty, money had and received, conversion, negligence, and intentional misrepresentation.[5]  See London, 192 S.W.3d at 13 (holding that pleading was sufficient to assert a claim for money had and received, under which the only thing that needs to be proved “‘is that defendant holds money which in equity and good conscience belongs to [the plaintiff]’”) (quoting Staats v. Miller, 243 S.W.2d 686, 687 (Tex. 1951)); Vickery v. Texas Carpet Co., Inc., 792 S.W.2d 759, 763 (Tex. App.—Houston [14th Dist.] 1990, writ denied) (stating that conversion is the unauthorized exercise of dominion and control over property inconsistent with or to the exclusion of another’s superior rights in that property); Avila v. Havana Painting Co., 761 S.W.2d 398, 399–400 (Tex. App.—Houston [14th Dist.] 1988, writ denied) (holding that lawyer breached his fiduciary duty by refusing to return to former client funds in his possession which the former client was entitled to receive).  The next question is whether the trial court erred in concluding that these claims have no arguable basis in law. 

C.        Do Burnett’s claims have an arguable basis in law?

Whether a claim has an arguable basis in law is a legal question to be reviewed de novo.  In re Humphreys, 880 S.W.2d 402, 404 (Tex. 1993); Retzlaff v. Tex. Dep’t of Crim. J., 94 S.W.3d 650, 653 (Tex. App.—Houston [14th Dist.] 2002, pet. denied).  A claim has no arguable basis in law only if it is based on (1) wholly incredible or irrational factual allegations; or (2) an indisputably meritless legal theory.  See Nabelek v. Dist. Attorney of Harris County, 290 S.W.3d 222, 228 (Tex. App.—Houston [14th Dist.] 2005, pet. denied).  An inmate’s claim may not be dismissed merely because the court considers the allegations “unlikely.” See Nabelek, 290 S.W.3d at 228.  If Burnett’s claims have an arguable basis in law, then the trial court erred in dismissing them as frivolous.  See Retzlaff, 94 S.W.2d at 654. Burnett’s claims are not based on wholly incredible or irrational factual allegations.  Therefore, the main issue on appeal is whether each of Burnett’s claims is based on an indisputably meritless legal theory.

1.         Breach-of-Fiduciary-Duty Claim

This court noted in Avila that, under a provision of the former Code of Professional Responsibility, a lawyer was required to promptly pay or deliver to the client all funds in the possession of the lawyer which the client was entitled to receive.  See Avila, 761 S.W.2d at 400.  The Avila court concluded that a lawyer’s failure to promptly pay or deliver such funds constitutes a breach of fiduciary duty.  See id.  In Avila, this court held that a lawyer breached his fiduciary duty by refusing to tender funds recovered for the client in a collection suit until after the client sued the lawyer for return of the funds.  See id. at 399–400.  By the time the client sued the lawyer, the lawyer’s representation must have been terminated.  See Stephenson v. LeBoeuf.  See 16 S.W.3d 829, 836 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (stating that “[i]ndeed it cannot be said there was any attorney-client relationship when Stephenson sued LeBoeuf for his unpaid attorney’s fees”).  Therefore, the Avila court concluded that the lawyer had a fiduciary duty even after the lawyer’s representation of the client in the collection suit had ended. See Avila, 761 S.W.2d 399–400.  A lawyer who refuses to pay or deliver funds belonging to his former client upon termination of the representation has breached a fiduciary duty owed to the former client.[6] See id.

            The word fiduciary “‘refers to integrity and fidelity.’” Goffney v. Rabson, 56 S.W.3d 186, 193 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (quoting Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 512 (1942)).  A breach of fiduciary duty occurs when a lawyer benefits improperly from his representation of the client by, among other things, a “failure to deliver funds belonging to the client.”[7]   Watkins v. Plummer, No. 14-08-01040-CV, 2010 WL 2195459, at *6 (Tex. App.—Houston [14th Dist.] June 3, 2010, no pet. h.); Duerr v. Brown, 262 S.W.3d 63, 70–71 (Tex. App.—Houston [14th Dist.] 2008, no pet.); Trousdale v. Henry, 261 S.W.3d 221, 230 (Tex. App.—Houston [14th Dist.] 2008, pet. denied); Goffney, 56 S.W.3d at 193.  This court repeatedly has affirmed that a lawyer breaches his fiduciary duty if he refuses to give a client funds belonging to the client, and this court has never stated that this duty ceases if the client discharges the lawyer.  See Watkins, 2010 WL 2195459, at *6; Duerr, 262 S.W.3d at 70–71; Trousdale, 261 S.W.3d at 230; Goffney, 56 S.W.3d at 193.  Indeed, given that a client may be discharging his lawyer for good cause based on prior breaches by the lawyer of his fiduciary duty to the client, there are compelling reasons why this fiduciary duty should continue until the lawyer returns the client funds in his possession. 

The author of the concurring and dissenting opinion concludes that a lawyer has a duty to return a client’s property upon demand during and after the representation but that  this duty loses its fiduciary character when the client terminates the representation.  In reaching this conclusion, the author relies upon a single case, Stephenson v. LeBoeuf.  See 16 S.W.3d 829, 836 (Tex. App.—Houston [14th Dist.] 2000, pet. denied), which, unlike the case under review, did not involve a lawyer’s failure to return the unearned portion of the retainer.

            In Stephenson, the lawyer’s representation of the client terminated in 1983.  See id. Six years later, in 1989, the lawyer obtained a judgment against the former client for unpaid attorney’s fees.  See id. at 834.  In 1992, the lawyer was seeking to enforce his judgment lien by pursuing proceeds from the sale of the former client’s real property.  See id.  The former client asserted that the lawyer owed her a fiduciary duty in 1992 based on the representation that ended in 1983.  See id.  The former client contended that the lawyer breached this fiduciary duty by asserting a claim against the proceeds from the sale of her real property.  See id.  This court held that the lawyer owed no fiduciary duty based on the representation that had terminated more than eight years earlier.  See id.  In Stephenson, there was no unearned part of a retainer, and the former client did not allege that the lawyer failed to return any unearned retainer.  See id. at 834–36.

            The author of the concurring and dissenting opinion concludes that Sharp’s fiduciary duty and his attorney-client relationship with Burnett ceased when Burnett replaced Sharp with another lawyer, relying upon the Stephenson court’s statement that “[i]n the absence of an agreement to the contrary, an attorney-client relationship generally terminates upon the completion of the purpose of the employment.”  Id. at 836.  There is no sound reason why refusing to return client funds during the representation should be a breach of fiduciary duty but that refusing to return the same funds after the representation should not be a breach of fiduciary duty.  Under Texas Disciplinary Rule of Professional Conduct 1.15(d), entitled “Declining or Terminating Representation,” upon termination of a representation, the attorney shall, to the extent reasonably practical, surrender property that the client is entitled to receive to the client and shall refund any advance payment of attorney’s fees that has not been earned.[8] See Tex. Disciplinary R. Prof’l Conduct 1.15(d), reprinted in Tex. Gov’t Code, tit. 2, subtit. G, app. A (Tex. State Bar R. art. X, § 9. (Vernon 2005).  Given that, upon termination of the representation, a lawyer has a duty to return any unearned part of the retainer and any other client property to which the client is entitled, the return of such property to the client would appear to be one of the purposes of the representation and therefore would be part of the attorney-client relationship under the statement in Stephenson.  See Stephenson, 16 S.W.3d at 836. But even if the return of unearned retainer did not fall within the scope of the Stephenson court’s statement, the Stephenson court’s statement was not absolute; rather, the court spoke to what was “generally” the case.  See id.  The Stephenson court did not address whether a lawyer has a fiduciary duty to return to the client any unearned retainer upon termination of the representation.  See id. at 834–36. 

            For the reasons stated above, if, as alleged, Sharp refused to return unearned retainer belonging to Burnett, then Sharp breached his fiduciary duty.  Therefore, Burnett’s breach-of-fiduciary duty claim is not based on an indisputably meritless legal theory, and the trial court erred in dismissing this claim as frivolous under section 14.003(a)(2). 

2.         Claims for Money Had and Received and Conversion

If, as alleged, Sharp refused to return unearned retainer belonging to Burnett, then Sharp holds money which in equity and good conscience belongs to Burnett, and Sharp could be found to have exercised dominion and control over the unearned retainer in an unauthorized manner, inconsistent with or to the exclusion of Burnett’s superior rights in this property.  See London, 192 S.W.3d at 13 (holding that under claim for money had and received, the only thing that needs to be proved “‘is that defendant holds money which in equity and good conscience belongs to [the plaintiff]’”) (quoting Staats, 243 S.W.2d at 687); Vickery, 792 S.W.2d at 763 (stating that conversion is the unauthorized exercise of dominion and control over property inconsistent with or to the exclusion of another's superior rights in that property).  Therefore, Burnett’s claims for money had and received and conversion are not based on indisputably meritless legal theories, and the trial court erred in dismissing these claims as frivolous under section 14.003(a)(2).

3.         Negligence Claim

Burnett also alleged in a conclusory manner that Sharp was negligent.  But, notably, Burnett has not alleged that Sharp failed to exercise care, skill, or diligence or that Sharp exercised less care, skill, or diligence than would be exercised by lawyers of ordinary skill and knowledge.  See Deutsch v. Hoover, Bax & Slovacek, L.L.P., 97 S.W.3d 179, 189 (Tex. App.—Houston [14th Dist.] 2002, no pet.) (stating that “[i]f the gist of a client’s complaint is that the lawyer did not exercise that degree of care, skill, or diligence as lawyers of ordinary skill and knowledge commonly possess, then that complaint should be pursued as a negligence claim”).  If, as alleged, Sharp refused to return unearned retainer belonging to Burnett, this conduct would be actionable but it would not constitute professional negligence.  See id.  Therefore, we conclude that, to the extent Burnett asserted a negligence claim, the trial court did not err in dismissing this claim as frivolous under section 14.003(a)(2).

4.         Intentional Misrepresentation Claim

Burnett also alleged in a conclusory manner that Sharp engaged in “deception.”  Notably, however, Burnett has not alleged that Sharp made any material misrepresentation or that Sharp intended that Burnett act on any such misrepresentation or that Burnett acted in reliance on such a misrepresentation. See Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001) (stating elements of intentional-misrepresentation claim).  If, as alleged, Sharp refused to return unearned retainer belonging to Burnett, this conduct would be actionable but it would not constitute intentional misrepresentation.  Therefore, to the extent Burnett asserted an intentional-misrepresentation claim, the trial court did not err in dismissing this claim as frivolous under section 14.003(a)(2).

III.  Conclusion

Burnett’s petition, liberally construed, contains claims for breach of fiduciary duty, money had and received, conversion, negligence, and intentional misrepresentation.  The first three claims are not based on (1) wholly incredible or irrational factual allegations; or (2) indisputably meritless legal theories.  Therefore, the trial court erred in dismissing these three claims as frivolous under section 14.003(a)(2).[9] However, Burnett’s negligence and intentional-misrepresentation claims are based on indisputably meritless legal theories, and the trial court did not err in dismissing these claims as frivolous.[10] Accordingly, to the extent the trial court dismissed with prejudice Burnett’s negligence and intentional-misrepresentation claims, the trial court’s judgment is affirmed.  The remainder of the judgment is severed, reversed, and remanded for further proceedings consistent with this opinion.

                                                                        /s/        Kem Thompson Frost

                                                                                    Justice

Panel consists of Justices Frost, Boyce, and Sullivan. (Boyce, J., concurring and dissenting) (Sullivan, J., concurring without opinion).

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[1] This is a majority opinion as to sections I., II.A., and II.C.3. and a plurality as to the remainder.

[2] All statutory references in this opinion are to the Texas Civil Practice and Remedies Code, unless otherwise specified.

[3] The author of the concurring and dissenting opinion also states that it was not possible for Sharp to file special exceptions because he had not been served. In fact, defendants who have not been served with citation sometimes learn of the suit against them and file answers and special exceptions without ever having been served with process. See Tex. R. Civ. P. 121. In any event, for the reasons noted above, the liberal-construction-of pleadings rule is applied regardless of whether the defendant has been served or has responded to the suit.

[4] Though neither the assertion nor sustaining of special exceptions is required before a trial court has the power to dismiss an inmate’s claims under Chapter 14, this does not impugn application of the rule that petitions should be liberally construed absent the sustaining of special exceptions.  In a non-Chapter 14 case, defendants are not required to file special exceptions before seeking dismissal of a plaintiff’s claims, yet the plaintiff’s claims are liberally construed except to the extent that special exceptions have been sustained. See London, 192 S.W.3d at 13.

[5] According to the author of the concurring and dissenting opinion, the conclusion that Burnett has pleaded conversion and money had and received is based on one sentence of his petition, which the author finds insufficient to plead these claims.  See post at p. 5, 7.  This analysis is not based on one sentence of the petition.  Instead, the analysis is based on a liberal construction of the entire petition, including the pleaded facts upon which Burnett bases his claims.  See Abraham & Co. v. Smith, No. 14-03-00163-CV, 2004 WL 210570, at *2 (Tex. App.—Houston [14th Dist.] Feb. 5, 2004, no pet.) (mem. op.) (liberally construing a petition to include a claim for breach of an orally modified contract based on factual allegations in the petition).

[6] The author of the concurring and dissenting opinion asserts that Avila is not on point because Burnett’s breach-of-fiduciary-duty claim is based completely on conduct occurring after the representation ended.  Presuming this distinction is valid, Burnett’s claim is based on Sharp’s acceptance of the retainer while representing Burnett, and Sharp’s earning some but not all of the retainer during the representation. Therefore, Burnett’s claim is not based completely on conduct occurring after the representation ended.  

[7] Though the author of the concurring and dissenting opinion asserts that this analysis would effect a significant change in the law, in light of this court’s opinions in Avila, Watkins, Duerr, Trousdale, and Goffney, this analysis is instead an application of existing law. 

[8] The Avila court used a somewhat similar provision under the former Code of Professional Responsibility as a standard for liability. See Avila, 761 S.W.2d at 400. There is no need to adopt Rule 1.15(d) as a standard for civil liability in this case to conclude that Burnett’s breach-of-fiduciary duty claim is not based on an indisputably meritless legal theory. Instead, the cases cited in this opinion provide the basis for this conclusion.

[9] Though the trial court erred in dismissing these three claims as frivolous under Chapter 14, the extent to which Burnett has evidence to support the allegations in his petition is not an issue before this court.

[10] Because the problems with these two claims cannot be remedied, the trial court’s dismissal with prejudice as to these two claims was proper.  See Hickman v. Adams, 35 S.W.3d 120, 124 (Tex. App.—Houston [14th Dist.] 2000, no pet.).