DIXON FINANCIAL SERVICES LTD AND HYPERDYNAMICS CORPORATION v. JAMES CHANG NICK JOHNSON RILEY BURNETT JR JOHNSON AND BURNETT CHANG

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Court of Appeals of Texas, Houston (1st Dist.).

DIXON FINANCIAL SERVICES, LTD. AND HYPERDYNAMICS CORPORATION, Appellants v. JAMES CHANG, NICK H. JOHNSON, RILEY L. BURNETT, JR., JOHNSON, AND BURNETT & CHANG, L.L.P., Appellees

NO. 01-07-00233-CV

Decided: February 18, 2010

Panel consists of Justices Jennings, Keyes, and Higley.

OPINION

DISSENTING IN PART

The majority errs in holding that an attorney, “based on qualified immunity,” cannot be held liable, as a matter of law, for fraudulently misrepresenting to a stock transfer agent that the attorney's client, pursuant to an arbitration award, had ownership rights to shares of stock which were, in fact, wholly owned by another.   The majority's holding extends qualified immunity for attorneys beyond its logical bounds and contradicts the Texas Supreme Court's express holding that an attorney may be held liable for negligent misrepresentations made to a non-client.   See McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 788-95 (Tex.1999) (applying Restatement (Second) of Torts § 552).

Accordingly, I respectfully dissent from the portion of this Court's judgment affirming the trial court's summary judgment against appellant, Dixon Financial Services, Ltd. (“Dixon”), in its lawsuit against appellees, James Chang, Nick Johnson, Riley Burnett, and Johnson, Burnett & Chang, L.L.P. (“JBC”).  I otherwise join the remainder of the majority opinion and this Court's judgment.

Factual and Procedural Background

In their third amended original petition, appellants, Dixon and Hyperdynamics Corporation (“Hyperdynamics”), allege that appellees, Chang, Johnson, Burnett, and JBC, while representing Erin Oil Exploration, Inc. (“Erin Oil”), contacted Fidelity Transfer Company (“Fidelity”) and misrepresented that “574,500 shares of Hyperdynamics stock ․ [were] in fact the property of [Erin Oil] and the subject of an arbitration award.”   However, Chang knew that “at most, only 60,000 shares of Hyperdynamics stock ․ could be owned by any of the parties to that litigation.”

Relying on Chang's misrepresentations, Fidelity placed a “hold” on all 574,500 shares of Dixon's Hyperdynamics stock, which prevented Dixon “from exercising any ownership rights to the stock, including its ability to sell the stock at a time when the stock was trading large volume at a higher price.”   Specifically, Dixon and Hyperdynamics allege that Dixon had intended to sell its Hyperdynamics stock in January 2000, when the stock was worth approximately $4.45 million.   Dixon was able to sell its stock only after “Chang and his co-conspirators admitted to Fidelity that the stock truly belonged to Dixon” and its value had dropped to less than $1.15 million.

In their summary judgment motion, Chang, Johnson, Burnett, and JBC asserted that all of Dixon's “causes of action should be dismissed as barred by absolute privilege:  an attorney's conduct undertaken in the context of litigation is not actionable.”   The trial court granted summary judgment against Dixon and in favor of Chang, Johnson, Burnett, and JBC.1

Qualified Immunity

In its first issue, Dixon argues that the trial court erred in granting summary judgment in favor of Chang, Johnson, Burnett, and JBC because they do not, as a matter of law, enjoy qualified immunity for fraudulently misrepresenting to Fidelity that Dixon's shares of Hyperdynamics stock were subject to an arbitration award.

When a party moves for summary judgment based solely on the nonmovant's pleadings, we “must accept all facts and inferences in the pleadings as true in the light most favorable to” the nonmovant.  Positive Feed, Inc. v. Guthmann, 4 S.W.3d 879, 882 (Tex.App.-Houston [1st Dist.] 1999, no pet.).

In support of its holding that Chang, Johnson, Burnett, and JBC enjoy qualified immunity, the majority relies upon, “as law of the case,” Dixon Fin. Servs., Ltd. v. Greenberg, Peden, Siegmyer & Oshman, P.C., No. 01-06-696-CV, 2008 WL 746548 (Tex.App.-Houston [1st Dist.] Mar. 20, 2008, pet. denied).   In Greenberg, this Court reasoned:

Construing the pleadings and summary judgment evidence liberally in favor of appellants, the acts alleged by appellants constitute conduct undertaken by attorneys to assist a client in securing and recovering an arbitration award.   Such conduct is the kind of conduct in which an attorney engages in discharging his duties to his client.   Labeling the conduct as fraudulent does not automatically make it actionable and the attorneys liable for tort damages.   We conclude that Greenberg[,] Peden, Siegmeyer, [R.F. Bearden Associates,] and Bearden were, as a matter of law, not liable for the conduct alleged in this case.

Id. at *11 (emphasis added).   This Court held that the trial court did not err in granting summary judgment in favor of Greenberg, Peden, Siegmeyer, R.F. Bearden Associates, and Bearden against Dixon, on its fraudulent misrepresentation claim, and against Hyperdynamics, on its negligent misrepresentation claim.  Id.

It is true that, generally, Texas case law has discouraged lawsuits against an opposing counsel if the lawsuit is based on the fact that counsel represented an opposing party in a judicial proceeding.  Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398 (Tex.App.-Houston [1st Dist.] 2005, no pet.).   As we explained in Alpert,

An attorney has a duty to zealously represent his clients within the bounds of the law․  In fulfilling this duty, an attorney has the right to interpose defenses and pursue legal rights that he deems necessary and proper, without being subject to liability or damages․  If an attorney could be held liable to an opposing party for statements made or actions taken in the course of representing his client, he would be forced constantly to balance his own potential exposure against his client's best interest․  Thus, to promote zealous representation, courts have held that an attorney is “qualifiedly immune” from civil liability, with respect to non-clients, for actions taken in connection with representing a client in litigation.

Id. at 405 (citations omitted).

In determining whether an attorney enjoys such immunity, the focus is on the “type of conduct” engaged in by the attorney.  Id. at 406.   For example, if a lawyer participates in independently fraudulent activities, his action is “foreign to the duties of an attorney.”  Id. at 406.   Thus, a lawyer “cannot shield his own willful and premeditated fraudulent actions from liability simply on the ground that he is an agent of his client.”  Id. (emphasis added).   Moreover, even when acting in a representative capacity, attorneys are not immune from liability when they engage in conduct that a non-attorney could have performed.   See Miller v. Stonehenge/FASA-Tex., JDC, L.P., 993 F.Supp. 461, 464-65 (N.D.Tex.1998) (discussing development of qualified immunity for attorneys in Texas courts and synthesizing various holdings).

In Greenberg, this Court erred in holding that the attorney defendants, “based on qualified immunity,” could not be held liable, as a matter of law, for fraudulently misrepresenting to Fidelity that Erin Oil, pursuant to an arbitration award, had ownership rights to shares of Hyperdynamics stock which were, in fact, wholly owned by Dixon.   Here, likewise, the majority so errs.   Taking the pleadings of Dixon and Hyperdynamics as true, as we must, Chang knowingly misrepresented to Fidelity that Erin Oil had an ownership interest in shares of stock which were wholly owned by Dixon.   In making the misrepresentation to Fidelity, Chang was not engaged in an adversarial relationship with Fidelity.   As alleged, his fraudulent action, “foreign to the duties of an attorney,” is not subject to qualified immunity.

Under Texas law, an attorney may be liable to a non-client for making a false statement of material fact to a known person who justifiably relies on the false statement, even if the attorney's purpose is to advance his client's interests.  McCamish, 991 S.W.2d at 794-95.   In McCamish, the McCamish law firm represented Victoria Savings Association (“VSA”).  Id. at 788.   VSA was attempting to reach a settlement agreement with Boca Chica Development Company, but the managing partner of Boca Chica refused to sign the settlement agreement unless the law firm affirmed that the settlement agreement had “been approved by the Board of Directors of [VSA]․”  Id. Ralph Lopez, a McCamish attorney, assured Boca Chica's managing partner that the VSA Board of Directors had approved the settlement agreement.  Id. In fact, VSA's Board of Directors had not approved the agreement.  Id. As a result of Lopez's misrepresentation, Boca Chica did not receive the benefit of the settlement agreement and sued McCamish for negligent misrepresentation.  Id. at 789-90.   Similarly, here, Chang's misrepresentation prevented Dixon from selling its stock, causing Dixon to realize a loss of over $3 million.

Conclusion

This Court's erroneous holding in Greenberg and the panel's similarly erroneous holding in the instant case are contrary to the Texas Supreme Court's reasoning and ultimate holding in McCamish.   Accordingly, I would overrule Greenberg, sustain the first issue of Dixon, and hold that the trial court erred in granting summary judgment in favor of Chang, Johnson, Burnett, and JBC on Dixon's claims.   I would, in regard to the claims of Dixon against Chang, Johnson, Burnett, and JBC, reverse the judgment of the trial court and remand for further proceedings.

FOOTNOTES

FN1. Other defendants-Greenberg, Peden, Siegmyer & Oshman, P.C., Gerald Siegmyer, Ron Bearden, and R.F. Bearden Associates, Inc.-also filed summary judgment motions.   See Dixon Fin. Servs., Ltd. v. Greenberg, Peden, Siegmeyer & Oshman, P.C., No. 01-06-696-CV, 2008 WL 746548, at *6 (Tex.App.-Houston [1st Dist.] Mar. 20, 2008, pet. denied).   Dixon had alleged that the Greenberg law firm, Siegmyer, Bearden, and R.F. Bearden Associates were jointly and severably liable for Chang's fraudulent misrepresentations based on theories of conspiracy, agency, and concert of action.   See id. at *5. The Greenberg law firm and Siegmyer contended in their summary judgment motion that Dixon had no cause of action against them, as a matter of law, for conduct undertaken by Chang in the representation of a client.  Id. at *6. Bearden and R.F. Bearden Associates contended that they could not be liable for the conduct of their attorneys.  Id. The trial court granted the defendants' motions for summary judgment.  Id..  FN1. Other defendants-Greenberg, Peden, Siegmyer & Oshman, P.C., Gerald Siegmyer, Ron Bearden, and R.F. Bearden Associates, Inc.-also filed summary judgment motions.   See Dixon Fin. Servs., Ltd. v. Greenberg, Peden, Siegmeyer & Oshman, P.C., No. 01-06-696-CV, 2008 WL 746548, at *6 (Tex.App.-Houston [1st Dist.] Mar. 20, 2008, pet. denied).   Dixon had alleged that the Greenberg law firm, Siegmyer, Bearden, and R.F. Bearden Associates were jointly and severably liable for Chang's fraudulent misrepresentations based on theories of conspiracy, agency, and concert of action.   See id. at *5. The Greenberg law firm and Siegmyer contended in their summary judgment motion that Dixon had no cause of action against them, as a matter of law, for conduct undertaken by Chang in the representation of a client.  Id. at *6. Bearden and R.F. Bearden Associates contended that they could not be liable for the conduct of their attorneys.  Id. The trial court granted the defendants' motions for summary judgment.  Id.

Justice Jennings, dissenting in part.

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