Fifth Court of Appeals addresses complex issues in appeal from summary judgment in suit by tort clients who sued their lawyers for barratry
CARL "STACEY" NEESE, INDIVIDUALLY AND AS NEXT FRIEND OF L.N., C.N., L.N., AND C.N., JAMES NEESE, DAVID NEESE, JENNIFER HUGHES, MITZI RENFROE, AND IRL HOOPER, Appellants, v. TED B. LYON, JR., MARQUETTE W. WOLF, TED B. LYON & ASSOCIATES, P.C., AND WILLIAM HEIDELBERG, Appellees.
In one of the first appellate opinions involving issues surrounding the statutory cause of action for barratry, the Dallas Court of Appeals recently reversed a final summary judgment in favor of a lawfirm, its attorneys, and an "investigator" who had procured a high-stakes and high-dollar pipeline explosion tort case for the firm.
The plaintiffs/clients were unaware of the barratry at the time they obtained legal representation, but later -- after settlement and disbursal of proceeds -- filed suit seeking to take away the lawfirm's substantial attorney's fees, which were based on a contingency fee agreement, as is common in tort cases. The nonattorney "investigator" had been paid $50,000 for soliciting the victims's family members as clients, and was also named as a defendant in the subsequent lawsuit over fees.
The clients brought their complaints under a variety of different legal theories, including the civil barratry statute (before it was amended to also authorize an award of statutory damages). Under the older version, which applied at the time, the clients sought fee forfeiture because the legal services contract had resulted from conduct that violated the law. But they brought other causes of action also.
The issues in the appeal were complicated and included questions regarding the time of accrual of the barratry claim and a disagreement over the applicable limitations period, the distinction between void and voidable contract, the interplay of the attorney disciplinary system with the civil justice system, and the ramifications of the rescission remedy for the litigant seeking it.
The clients raised a total of thirteen issues on appeal.
The panel opinion, which was issued in the name of only two justices (Lang and Brown) because the third one on the panel (FitzGerald) had resigned before it was handed down on July 31, 2015. It is best read in its entirety to appreciate the multiplicity of issues, and the procedural posture of the case in which they were raised.
STATUTE OF LIMITATIONS FOR CIVIL BARRATRY CLAIM TO VOID FEE AGREEMENT
Among other holdings, the two-member appellate panel concluded that the barratry cause of action was governed by the residual statute of limitations (4 years) because the statute itself did not contain a limitations period. Therefore, the defendants, who had argued that the limitations period was only two years, were not entitled to summary judgment based on limitations under the facts of the case. The clients also argued that the discovery rule applied because they did not learn of the improper "barratrous" conduct until some time after the fee agreement was made, but the justices did not find it necessary to reach that issue.
NOT THE LAST WORD ON THE MATTER
Because the appeal resulted in the reversal of a summary judgment in favor of the lawfirm defendants, the case will go back to the trial court for further litigation in light of the appellate court's resolution of the legal issues raised at the summary judgment stage.
Most significantly, the clients' causes of action for barratry under the original version of Texas Government Code § 82.065 may proceed in the trial court, as the court of appeals held that none of the multiple bases that the defendants had urged in their summary judgment motion merited dismissal.
Several alternative causes of action, but not all, were also reinstated, including breach of fiduciary duty, DTPA, and civil conspiracy. The ultimate outcome thus remains uncertain. Short of a trial on the merits, there could be additional motions for summary judgment, but there might also be a settlement.
POSSIBLE SUPREME COURT REVIEW
Barring a prompt resolution of the dispute by settlement, however, there is a good chance that the case will first be taken to the Texas Supreme Court, and if the high court agrees to hear it, it is likely that one or more of the legal issues might get decided differently by the court that has the last word on matters of Texas state law.
Grant of review is more likely in cases that present an unsettled legal issues, not to mention one that affects the practice of law in the State of Texas, which the Texas Supreme Court also oversees in its regulatory and administrative capacity. The high court has recently addressed other issues affecting the practice of law, including the enforceability of attorney-client arbitration agreements and attorney immunity to civil suits by opponents in prior litigation.
Even if this case gets resolved without supreme court involvement, it will hardly be the last one to reach the courts of appeals. Nor will future cases alleging barratry be limited to the original version of the barratry statute. Indeed, the more recent amendments, which authorized $10,000 in statutory damages, created an additional incentive for clients to turn on their attorneys, not to mention a profit motive for other attorneys -- those who do not shy away from suing a fellow member of the bar -- to take cases of alleged unlawful solicitation on a contingency basis.
Some observers even perceive the emergence of a new niche in the legal biz, though the firms jumping at this opportunity may not yet have branded themselves as "barratry boutiques".
Case style: Neese v. Lyon, No. 05-13-01597 (Tex.App. - Dallas July 2015) (summary judgment for defendants in civil suit by clients over illegal barratry under the original version of Texas Government Code § 82.065 reversed)
CARL "STACEY" NEESE, INDIVIDUALLY AND AS NEXT FRIEND OF L.N., C.N., L.N., AND C.N., JAMES NEESE, DAVID NEESE, JENNIFER HUGHES, MITZI RENFROE, AND IRL HOOPER, Appellants,
TED B. LYON, JR., MARQUETTE W. WOLF, TED B. LYON & ASSOCIATES, P.C., AND WILLIAM HEIDELBERG, Appellees.
Court of Appeals of Texas, Fifth District, Dallas.
Before Justices Lang and Brown.
ADA BROWN, Justice.
Appellants sued appellees on several theories of liability including barratry. The trial court granted a take-nothing summary judgment in favor of appellees. Appellants raise thirteen issues on appeal. We affirm the trial court's judgment in part, reverse it in part, and remand for further proceedings consistent with this opinion.
A. Factual allegations
Appellants alleged the following facts, which appellees assumed to be true solely for purposes of their summary-judgment motion. A natural-gas pipeline exploded in Johnson County, Texas, on June 7, 2010. The explosion seriously injured appellants Carl "Stacey" Neese and Irl Hooper. It also killed Neese's brother James Robert Neese. Appellant Mitzi Renfroe is James Robert Neese's mother, and the remaining appellants are James Robert Neese's children. We sometimes collectively refer to appellants as the "Clients."
Appellees Ted B. Lyon Jr. and Marquette W. Wolf are Texas lawyers. Lyon is the president and director of appellee Ted B. Lyon & Associates, P.C., and Wolf works for that law firm. Appellee William Heidelberg is a private investigator.
Although Lyon, Wolf, and the Lyon law firm had no prior relationship with the Neeses, they hired Heidelberg to solicit the Neese family to hire Lyon and his firm as their attorneys. Heidelberg traveled to Oklahoma and contacted Neese. He falsely told Neese that he was investigating the pipeline explosion for an organization called the Danielle Smalley Foundation and that he was not associated with any law firm. Heidelberg also told Neese that he should consider hiring Lyon, who had previously obtained a verdict of several hundred million dollars for a victim of a different pipeline explosion. On June 25, 2010, Lyon and Wolf flew to Tulsa and met with Neese and other Neese family members. The Neeses hired the Lyon firm to represent them in any pipeline-explosion litigation for a 40% contingency fee.
Heidelberg asked Neese if he knew anyone else who was injured in the explosion, and Neese referred him to Hooper. Heidelberg met with Hooper in the hospital and was introduced to Hooper as an investigator for the Danielle Smalley Foundation. According to Hooper's summary-judgment affidavit, Neese told Hooper that Heidelberg was not associated with any law firm. Heidelberg did not deny these statements, and he told Hooper that he should consider hiring Lyon, again because of Lyon's prior success. Another lawyer with the Lyon law firm later flew to Oklahoma and got Hooper to hire the Lyon law firm on a 40% contingency-fee basis. Hooper's affidavit indicates this meeting took place on or after July 5, 2010. Heidelberg was paid a $50,000 bonus by the other appellees for successfully soliciting the Neeses and Hooper.
Lyon, Wolf, and the Lyon law firm filed a lawsuit for the Neeses and Hooper. That lawsuit eventually settled. The Clients paid attorneys' fees and expenses to the Lyon appellees. The Clients later learned of Heidelberg's relationship with the Lyon appellees.
B. Procedural history
The Clients sued appellees, asserting the following claims and requesting the following remedies in their fifth amended petition: (1) barratry and fee forfeiture, (2) breach of fiduciary duty, (3) fraud by nondisclosure, omission, or concealment, (4) rescission, (5) unjust enrichment, (6) legal malpractice, (7) conspiracy, (8) violations of the Texas Deceptive Trade Practices Act, (9) suspension from the practice of law and revocation of license, and (10) an accounting. Appellees then filed a second amended summary-judgment motion, which was expressly a "traditional" motion under Rule 166a(c). The Clients timely responded and also timely filed a sixth amended petition in which they added a claim for "money had and received and/or quantum valebant." Appellees addressed the new claim in a "supplement" to their second amended motion for summary judgment, and the Clients filed a special exception and response to the supplement.
After a hearing, the trial judge signed a take-nothing summary judgment in favor of appellees. The Clients timely perfected this appeal.
II. STANDARD OF REVIEW
We review a traditional summary judgment under a de novo standard of review.Smith v. Deneve, 285 S.W.3d 904, 909 (Tex. App.-Dallas 2009, no pet.). When we review a traditional summary judgment for a defendant, we determine whether the defendant conclusively disproved an element of the plaintiff's claim or conclusively proved every element of an affirmative defense. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997). We must take evidence favorable to the nonmovant as true, and we must indulge every reasonable inference and resolve every doubt in the nonmovant's favor. Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 800 (Tex. 1994). A matter is conclusively established if ordinary minds could not differ as to the conclusion to be drawn from the evidence. In re Estate of Hendler, 316 S.W.3d 703, 707 (Tex. App.-Dallas 2010, no pet.).
Although appellees attached some evidence to their summary-judgment motion, such as the fee agreements and some evidence regarding the course of the underlying pipeline-explosion litigation, they relied principally on the averments in appellants' live petition, the truth of which appellees accepted solely for purposes of summary judgment. Although pleadings generally do not constitute summary-judgment evidence, a summary-judgment movant may rely on judicial admissions in the nonmovant's live pleading. See Commercial Structures & Interiors, Inc. v. Liberty Educ. Ministries, Inc., 192 S.W.3d 827, 835 (Tex. App.-Fort Worth 2006, no pet.) ("[I]f a plaintiff's pleadings contain judicial admissions negating a cause of action, summary judgment may properly be granted on the basis of the pleadings."); see also Tex. Dep't of Corr. v. Herring, 513 S.W.2d 6, 9 (Tex. 1974) ("It is recognized that a party may plead himself out of court; e.g., the plaintiff may plead facts which affirmatively negate his cause of action."). When we review a summary judgment against a plaintiff based on the pleadings, we view the facts in the pleadings in the light most favorable to the plaintiff. Murphy v. Gruber, 241 S.W.3d 689, 691 n.2 (Tex. App.-Dallas 2007, pet. denied).
The Clients attached evidence to their summary-judgment response, principally affidavits by Neese, Hooper, and an attorney who worked for the Lyon law firm from 2007 until 2012. These affidavits largely repeat and elaborate on the facts pleaded in the Clients' sixth amended petition.
The Clients raise thirteen issues on appeal. The first issue is a general averrment, without substantive argument, that the trial court erroneously granted summary judgment. Issues two and three concern their barratry claims. Issues four through thirteen concern their other liability theories and requested remedies. We proceed directly to their second and third issues.
1. Summary-judgment grounds and the Clients' arguments on appeal
Under the heading "Barratrous Conduct and fee forfeiture," the Clients alleged that appellees committed barratry in violation of the Texas Penal Code and the Texas Disciplinary Rules of Professional Conduct. They further asserted that appellees' barratry entitled the Clients to avoid their contingency-fee agreements and to recover all fees and expenses paid to appellees under the agreements.
Appellees raised several summary-judgment grounds regarding the Clients' barratry claims. They argued that Texas law did not recognize a private civil cause of action for barratry until the Texas Legislature statutorily recognized that cause of action effective September 1, 2011. They further argued that, under the civil barratry statute in effect in 2010, clients could invoke barratry only defensively as a basis for avoiding an obligation to pay as-yet-unpaid legal fees. Applying the law to the facts, appellees argued that the Clients had no viable barratry claim because the Clients alleged barratrous acts occurring only in 2010 and all legal fees due under the allegedly barratrous agreements had already been paid. Appellees also argued that the Clients' barratry claims were barred by a two-year statute of limitations and by ratification.
On appeal, the Clients argue that the civil barratry statute in effect before September 1, 2011, created a private cause of action for barratry and that they successfully pleaded a claim under that statute. They also argue that they alleged facts stating a claim for barratry under the version of the statute in effect from September 1, 2011, through August 31, 2013. The Clients also argue that limitations does not bar their barratry claims because the discovery rule delayed accrual of their claims and because the applicable statute of limitations is four years rather than two. Finally, they argue that they did not ratify the alleged barratry because they were not aware of it until after the underlying case had settled.
2. Applicable law
The ordinary meaning of barratry is vexatious incitement to litigation, especially by soliciting potential legal clients. See Barratry, BLACK'S LAW DICTIONARY (10th ed. 2014). It has long been a crime in Texas. See Ackerman v. State, 61 S.W.2d 116 (Tex. Crim. App. 1933) (affirming barratry conviction). The criminal prohibition of barratry is now found in Chapter 38 of the Texas Penal Code. See TEX. PENAL CODE ANN. § 38.12 (West Supp. 2014) (entitled "Barratry and Solicitation of Professional Employment"). The rules of professional conduct also address barratry.See TEX. DISCIPLINARY RULES PROF'L CONDUCT R. 7.03 (entitled "Prohibited Solicitations and Payments"), reprinted in TEX. GOV'T CODE ANN., tit. 2, subtit. G, app. A (West 2013).
In 1989, the legislature enacted a new statute, § 82.065 of the Texas Government Code, addressing contingent-fee contracts and barratry:
(a) A contingent fee contract for legal services must be in writing and signed by the attorney and client.
(b) A contingent fee contract for legal services is voidable by the client if it is procured as a result of conduct violating the laws of this state or the Disciplinary Rules of the State Bar of Texas regarding barratry by attorneys or other persons.
Act of May 27, 1989, 71st Leg., R.S., ch. 866, § 3, 1989 Tex. Gen. Laws 3855, 3857 (amended 2011 and 2013) (current version at TEX. GOV'T CODE ANN. § 82.065 (West Supp. 2014)).
In 2011, the legislature amended § 82.065 and enacted § 82.0651. The 2011 amendments to § 82.065 are not relevant to this appeal. New § 82.0651 contained the following provisions:
(a) A client may bring an action to void a contract for legal services that was procured as a result of conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons.
(b) A client who prevails in an action under Subsection (a) shall recover from any person who committed barratry:
(1) all fees and expenses paid to that person under the contract;
(2) the balance of any fees and expenses paid to any other person under the contract, after deducting fees and expenses awarded based on a quantum meruit theory as provided by Section 82.065(c);
(3) actual damages caused by the prohibited conduct; and
(4) reasonable and necessary attorney's fees.
. . . .
(e) This section shall be liberally construed and applied to promote its underlying purposes, which are to protect those in need of legal services against unethical, unlawful solicitation and to provide efficient and economical procedures to secure that protection.
(f) The provisions of this subchapter are not exclusive. The remedies provided in this subchapter are in addition to any other procedures or remedies provided by any other law, except that a person may not recover damages and penalties under both this subchapter and another law for the same act or practice.
Act of May 5, 2011, 82d Leg., R.S., ch. 94, § 2, 2011 Tex. Sess. Law Serv. 535, 535-36 (amended 2013) (current version at TEX. GOV'T CODE ANN. § 82.0651 (West Supp. 2014)).
Section 82.0651, as adopted in 2011, and the 2011 amendments to § 82.065 do not apply to events occurring before September 1, 2011. Act of May 5, 2011, 82d Leg., R.S., ch. 94, § 3, 2011 Tex. Sess. Law Serv. 535, 536.
3. Application of original § 82.065(b) to the facts
In their second issue, the Clients argue that original § 82.065(b) allows them to avoid their fee agreements and recover the consideration appellees received under them. Appellees respond that original § 82.065(b) does not create a cause of action allowing barratry victims to sue for legal fees and expenses paid after the legal services have been fully or substantially performed. The proper interpretation of original § 82.065(b) appears to be a question of first impression for this Court.
Our objective in construing a statute is to effectuate the legislature's intent. We look first to the statutory words' plain and common meaning. City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003). If the statute is unambiguous, we enforce it according to its plain meaning, unless doing so would produce an absurd result. In re Curry, 407 S.W.3d 376, 379 (Tex. App.-Dallas 2013, orig. proceeding). We read the statute as a whole and interpret it to give effect to every part. City of San Antonio,111 S.W.3d at 25.
We may also consider, among other things, the circumstances under which the statute was enacted, the common law, former statutory provisions, and laws on the same or similar subjects. TEX. GOV'T CODE ANN. § 311.023(2), (4) (West 2013). We may thus consider that barratry has long been a crime in Texas and that barratry is also proscribed by the ethical rules applicable to attorneys. See TEX. DISCIPLINARY RULES PROF'L CONDUCT R. 7.03. We have found no authority that Texas recognized a private cause of action for barratry in favor of an improperly solicited client before the adoption of original § 82.065 in 1989. See Moiel v. Sandlin,571 S.W.2d 567, 571 (Tex. Civ. App.-Corpus Christi 1978, no writ) ("The offense of barratry as defined in the penal code is a public remedy and not a private one."); cf.Pelton v. McClaren Rubber Co., 120 S.W.2d 516, 517 (Tex. Civ. App.-Waco 1938, writ ref'd) (allowing assertion of barratry as a defense and holding that claim-collector's contract secured by illegal solicitation was "void and unenforceable"). See generally Metro. Reg'l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 948 F. Supp. 2d 538, 568-69 (D. Md. 2013) ("[M]ost courts that have examined that issue . . . have concluded that a private cause of action for barratry cannot be implied from a criminal statute.").
Original § 82.065(b) states only one civil consequence for barratry—a contingent-fee contract procured by barratry "is voidable by the client." With respect to contracts, "voidable" means that a contract is valid and effective unless and until the party entitled to avoid it takes steps to disaffirm it. See Cole v. McWillie, No. 11-12-00265-CV, 2015 WL 3485269, at *2 (Tex. App.-Eastland May 29, 2015, no pet. h.) ("[A] voidable contract continues in effect until active steps are taken to disaffirm the contract. . . ."); Mason v. Abel, 215 S.W.2d 377, 381-82 (Tex. Civ. App.-Dallas 1948, writ ref'd n.r.e.) (contract voidable under statute of frauds is valid unless avoided by a party); see also RESTATEMENT (SECOND) OF CONTRACTS § 7 (AM. LAW INST. 1981) ("A voidable contract is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.").
Grounds that can make a contract voidable include fraudulent inducement, mistake, duress, and breach by the other party. Lee v. Rosen, Newey & Von Blon, P.C., No. 14-00-00759-CV, 2002 WL 1953791, at *3 (Tex. App.-Houston [14th Dist.] Aug. 22, 2002, pet. denied) (mem. op., not designated for publication); see also Wilhite v. Davis, 298 S.W.2d 928, 932 (Tex. Civ. App.-Dallas 1957, no writ) (deed by insane person is voidable). By enacting original § 82.065(b), the legislature added barratry as a reason that makes a contract voidable.
b. Original § 82.065(b) is not purely defensive
We agree with the Clients that original § 82.065(b) is not purely defensive but also entitles a client to sue to avoid a barratrous contingency-fee agreement. By saying that the contract is voidable "by the client," the legislature plainly meant that the client may act to have the contract voided. That is, the client may sue to have a court declare the contract voided and canceled. Nothing in the statute restricts this plain meaning. Cf. In re Myers, No. 07-06-0050-CV, 2006 WL 305033, at *2 (Tex. App.-Amarillo Feb. 9, 2006, orig. proceeding) (noting that rescission can be asserted either defensively or offensively).
By providing that barratrous contracts are voidable by the client, the legislature plainly intended that an affected client can act to cancel the agreement if necessary. We conclude that in cases brought under original § 82.065(b), the client may sue to avoid a barratrous contingency-fee agreement.
c. Original § 82.065(b) also authorizes the remedy of rescission and restitution.
The next question is whether the Clients are entitled to a monetary remedy under original § 82.065(b). Weighing against the Clients is the fact that the legislature did not expressly mention such a remedy in the statute. That fact contrasts with the legislature's approach in other contexts. For example, the Texas Deceptive Trade Practices Act (DTPA) expressly allows a prevailing consumer to obtain orders restoring consideration acquired in violation of the DTPA. See TEX. BUS. & COM. CODE ANN. § 17.50(b)(3) (West 2011). Likewise, the Texas Property Code permits certain purchasers "to cancel and rescind" executory contracts and recover a "full refund" of amounts paid under certain circumstances. E.g., TEX. PROP. CODE ANN. §§ 5.069(d)(2), 5.070(b)(2) (West 2014).
Moreover, the San Antonio Court of Appeals has opined that § 82.065(b) does not allow a plaintiff to avoid a barratrous contingency-fee agreement after the attorney has performed his legal services. See In re Estate of Arizola, 401 S.W.3d 664 (Tex. App.-San Antonio 2013, pet. denied). After a traffic accident left three people dead and one person severely injured, a probate court approved the employment of certain attorneys by the administrator for the estate of one of the decedents. Id. at 667. That decedent's father, who was not the administrator, later moved to set aside the contingent-fee agreement based on barratry. Id. at 668-69. The probate court denied that motion, and the movant appealed. The court of appeals rejected the father's argument for three reasons: (1) it was inadequately briefed, (2) the father was not the client, and (3) the attorneys had fully performed the contingent-fee agreement before the movant filed his motion to set aside. Id. at 671-72. On the last point, the court of appeals explained as follows:
The client may void a contingent fee contract that violates section 82.065 by expressing his intent to do so before the attorney has fully or substantially performed. . . . After the attorney has fully performed the contract, however, the client is estopped from voiding the contract.
Id. Although the Estate of Arizola case supports appellees' position, it does so without analyzing § 82.065(b)'s language. Moreover, that court's discussion of § 82.065(b) follows its holding that the father waived the issue by failing to brief it. Id. at 671. Accordingly, Arizola's persuasive value is limited.
On the other hand, rescission and restitution is a well-established remedy when a party sets aside a voidable contract. See Gentry v. Squires Constr., Inc., 188 S.W.3d 396, 410 (Tex. App.-Dallas 2006, no pet.) ("Rescission is an equitable remedy that operates to extinguish a contract that is legally valid but must be set aside due to fraud, mistake, or for some other reason to avoid unjust enrichment.");Lowrey v. Univ. of Tex. Med. Branch at Galveston, 837 S.W.2d 171, 174 (Tex. App.-El Paso 1992, writ denied) (same); see also Holt v. Robertson, No. 07-06-0220-CV, 2008 WL 2130420, at *5 (Tex. App.-Amarillo May 21, 2008, pet. denied) (mem. op.) ("After performance of the contract, the transaction remains voidable, and rescission remains a viable option, so long as the status quo of the parties prior to entry of the contract can be restored."); Neill v. Pure Oil Co., 101 S.W.2d 402, 404 (Tex. Civ. App.-Dallas 1937, writ ref'd) (voidable deed is effective "until set aside in a suit for rescission or cancellation"). That is, a suit to set aside a contract is one for rescission and cancellation of the contract. See Lowrey, 837 S.W.2d at 174 (citingBullock v. Tex. Emp'rs Ins. Ass'n, 254 S.W.2d 554, 556 (Tex. Civ. App.-Dallas 1952, writ ref'd); Tex. Emp'rs Ins. Ass'n v. Kennedy, 143 S.W.2d 583, 585-86 (Tex. 1940)).
"[W]e presume that the Legislature acted with knowledge of the common law and court decisions." Phillips v. Beaber, 995 S.W.2d 655, 658 (Tex. 1999). Moreover, we interpret a statute to abrogate common-law principles only when the statute's express terms or necessary implications clearly indicate such an intent by the legislature. Bruce v. Jim Walters Homes, Inc., 943 S.W.2d 121, 122-23 (Tex. App.-San Antonio 1997, writ denied). Because rescission and restitution is an established common-law remedy for a voidable contract, we conclude that the legislature intended for that remedy to be available when it made barratrous contingency-fee contracts voidable under original § 82.065(b).
The next question is whether appellees' full performance of the fee agreements bars the Clients' claims for rescission under original § 82.065(b), as the court held inEstate of Arizola. In answering this question, we find guidance in two recent Texas Supreme Court cases, Cruz v. Andrews Restoration, Inc., 364 S.W.3d 817 (Tex. 2012), and Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013). In both cases, the supreme court interpreted statutes that make rescission-like remedies available, and the court relied heavily on common-law rescission and restitution as explained in theRestatement (Third) of Restitution and Unjust Enrichment. These cases help us conclude that appellees' full performance of the fee agreements does not bar the Clients' claims for rescission under original § 82.065(b).
In Cruz, a contractor sued a homeowner, Cruz, for breach of contract, and Cruz counterclaimed under the DTPA. 364 S.W.3d at 821. Although Cruz obtained a partial summary judgment on DTPA liability, the jury returned a zero damages finding. Id. The court of appeals and supreme court affirmed the resulting judgment awarding Cruz nothing on his DTPA claim. A principal question on appeal was whether Cruz was entitled to the DTPA remedy of restoration of the consideration that had been paid to the contractor. Id. at 824-27. To answer this question, the supreme court turned to the common law of rescission and restitution. See id. The supreme court observed that under the common law, a rescission claimant generally must return the parties to the status quo ante by returning whatever the claimant has received from the defendant—what the court called "counter-restitution." Id. at 825-26. However, a defendant's wrongdoing may excuse the claimant from this obligation when counter-restitution is not feasible. Id. at 826. The supreme court concluded these principles apply to the DTPA remedy of restoration of consideration, but the claimant need not make or tender counter-restitution as a prerequisite to relief as long as the award to the claimant can be reduced accordingly. Id. at 826-27. Because Cruz had not deducted the value he received from the contractor, or proved how much he rather than his insurer had paid the contractor, the court held that Cruz had failed to prove conclusively that he was entitled to the sum he claimed as restoration of consideration under the DTPA. Id. at 827.
Morton involved a property code provision giving certain real estate buyers the right to cancel the contract and receive a full refund of payments made. 412 S.W.3d at 507-08. The question presented was whether the buyer seeking such a remedy is obliged to make counter-restitution for the value of his occupation of the property.See id. at 510. Relying on Cruz and the Restatement, the supreme court held that a prevailing buyer must make such counter-restitution. Id. at 510-12.
To summarize, then, rescission is generally limited to cases in which counter-restitution by the claimant—that is, the return to the defendant of whatever the claimant received in the transaction—will restore the defendant to the status quo ante. See Cruz, 364 S.W.3d at 825-26 (relying on RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 54 (AM. LAW INST. 2011)). However, as stated in Cruz, "rescission is not a one-way street. It requires a mutual restoration and accounting, in which each party restores property received from the other." Id. at 825.
Cases show that counter-restitution can be effectuated in various ways, even after full performance of a contract. This is exemplified by Sudderth v. Howard, 560 S.W.2d 511 (Tex. Civ. App.-Amarillo 1977, writ ref'd n.r.e.). The Sudderths executed documents purporting to sell land to the Howards for $17,400, and they then successfully sued to rescind the deed on the ground that the transaction was in substance a forbidden home-equity loan. Id. at 513-14. The trial court's judgment rescinded the deed, but it also awarded the Howards a recovery of $17,400 plus interest. Id. at 514. The Sudderths complained on appeal that this recovery was not supported by the pleadings, but the court of civil appeals rejected the argument because the duty to return benefits was inherent in the Sudderths' claim for rescission. Id. at 516. The court wrote, "[O]ne seeking cancellation of an instrument cannot repudiate it and retain the benefits received therefrom; he should offer or tender a restoration and the court can accomplish that result by its judgment. . . . By its judgment rendered here, the court did so." Id. (citation omitted).
Thus, having reviewed the common law of rescission, we find no absolute rule that a defendant's full performance of a contract, without more, is a defense to an otherwise proper claim for avoidance and rescission of a contract. See Holt, 2008 WL 2130420, at *5; see also City of Corpus Christi v. S.S. Smith & Sons Masonry, Inc., 736 S.W.2d 247, 251 (Tex. App.-Corpus Christi 1987, writ denied) ("[Rescission] is also not a remedy for a completed contract in the absence of fraud." (emphasis added)).
Finally, nothing in § 54 of the new Restatement, relied on heavily by the supreme court in Cruz, indicates that a defendant's full performance of a voidable contract, without more, defeats a claim for rescission and restitution. See generallyRESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 54 (AM. LAW INST. 2011). Rather, the relevant considerations are whether the claimant can make counter-restitution of benefits received and, if not, whether the defendant's conduct is such that it is appropriate for it to bear an uncompensated loss. See generally Cruz, 364 S.W.3d at 826. Here, appellees did not undertake to prove conclusively that it is impossible for the Clients to make acceptable counter-restitution.
For the foregoing reasons, we conclude that original § 82.065(b) authorizes the Clients to sue to avoid contingency-fee agreements procured by barratry and seek the remedy of rescission and restitution. By reaching this conclusion, we disagree with the Clients to the extent they contend that original § 82.065(b) entitles them to total fee forfeiture—that is, the automatic recovery of all fees paid to appellees, with no counter-restitution at all—rather than traditional rescission and restitution. As we discuss more fully in Part III.D of this opinion, rescission is not forfeiture. We further conclude that the bare fact that the parties have fully performed an agreement that is voidable under original § 82.065(b) is not a bar to a claim for rescission and restitution. To the extent it concludes to the contrary, we disagree with In re Estate of Arizola, 401 S.W.3d 664 (Tex. App.-San Antonio 2013, pet. denied).
(1) Harmonizing original § 82.065(b) with subsequent enactments
We disagree with appellees' suggestion that construing original § 82.065(b) to authorize rescission renders the legislature's 2011 adoption of § 82.0651(a) a superfluous act. Unlike original § 82.065(b), § 82.0651(a) expressly authorizes clients to recover not only fees and expenses paid under a barratrous contract to any person who committed barratry, but also actual damages caused by the barratry and reasonable and necessary attorneys' fees incurred in prosecuting the barratry action. Act of May 5, 2011, 82d Leg., R.S., ch. 94, § 2, 2011 Tex. Sess. Law Serv. 535, 535-36 (amended 2013) (current version at TEX. GOV'T CODE ANN. § 82.0651 (West Supp. 2014)). Moreover, § 82.0651(b)(1) and amended § 82.065(b) together clarify quantum-meruit protection for innocent lawyers working on the case.
By adding new remedies such as actual damages and attorneys' fees, the legislature changed existing law when it adopted § 82.0651. Accordingly, our interpretation of original § 82.065(b) does not make the adoption of § 82.0651 a meaningless act.
(2) Legislative history
We also reject appellees' reliance on certain legislative history regarding the 2011 amendments. A bill analysis of those amendments contained the following statements under the heading "Author's/Sponsor's Statement of Intent":
Under Section 38.12, Penal Code, "barratry" is generally defined as the illegal solicitation of professional employment. The Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas prohibit these solicitations as well. Adding a civil enforcement option would help curtail this practice.
S.B. 1716 adds a cause of action for a client who has been unlawfully solicited to void the contract and recover any actual damages and any fees and expenses paid.
Sen. Comm. on State Affairs, Bill Analysis, Tex. S.B. 1716, 82d Leg., R.S. (2011). This statement does not reflect any analysis of original § 82.065, which the legislature had adopted over twenty years earlier. One session of the legislature does not have the power to construe the acts or declare the intent of a past session.Rowan Oil Co. v. Tex. Emp't Comm'n, 263 S.W.2d 140, 143 (Tex. 1953).
Moreover, the bill analysis speaks conjunctively when it says that the statute "adds a cause of action for a client who has been unlawfully solicited to void the contract and recover any actual damages and any fees and expenses paid." (Emphases added.) That is, § 82.0651 provides a cause of action with additional remedies not available under the prior law. The client's ability to void the barratrous contingent-fee contract was not new, but the remedies of actual damages and attorneys' fees were added to the already-existing cancellation action.
For these reasons, the legislative history relied on by appellees does not support construing original § 82.065(b) to exclude the remedy of rescission and restitution.
We conclude that the Clients pleaded a viable claim under original § 82.065(b) to void the fee agreements and obtain rescission and restitution.
4. Affirmative defenses
Appellees argued that any barratry claim the Clients possessed accrued in the summer of 2010 and was barred by the two-year statute of limitations when the Clients sued in 2013. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.003(a) (West Supp. 2014). The Clients, on the other hand, argue that a four-year statute of limitations and the discovery rule apply. We conclude that the four-year statute applies and thus do not reach the discovery-rule issue.
With some exceptions not relevant here, a two-year limitations period applies to suits "for trespass for injury to the estate or to the property of another, conversion of personal property, taking or detaining the personal property of another, personal injury, forcible entry and detainer, and forcible detainer." Id. Under the residual statute of limitations, a four-year period applies to "[e]very action for which there is no express limitations period." Id. § 16.051 (West 2015).
A statutory claim to avoid and rescind an agreement for barratry does not fall into any of the categories of claims governed by the two-year statute of limitations found in § 16.003(a). Nor is such a claim identified in another statute of limitations. We thus conclude that a claim under original Government Code § 82.065(b) is a claim not covered by another express limitations period, and thus the four-year residual statute of limitations applies to the Clients' claims under original § 82.065(b). Cf. Lowrey, 837 S.W.2d at 174 (holding that four-year residual statute of limitations applied to claim for common-law rescission).
Because the applicable limitations period is four years, we conclude that appellees did not conclusively prove that limitations bars the Clients' claims under original § 82.065(b).
Appellees also argued that ratification barred any barratry claim because the Clients approved the underlying settlement. The Clients contend that ratification does not apply because they did not know of the alleged barratry when they authorized the settlement and fee payment. We agree with the Clients that appellees did not conclusively prove ratification.
Ratification is an affirmative defense. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 344 (Tex. 2011). Its elements are (1) approval by act, word, or conduct, (2) with full knowledge of the facts of the earlier act, and (3) with the intent to validate the earlier act. White v. Harrison, 390 S.W.3d 666, 672 (Tex. App.-Dallas 2012, no pet.). "A party ratifies an agreement when—after learning all of the material facts—he confirms or adopts an earlier act that did not then legally bind him and that he could have repudiated." Id.
The Clients argue there is no evidence that they had full knowledge of appellees' allegedly wrongful conduct before appellees finished their work on the underlying case, and appellees thus failed to conclusively prove the essential full-knowledge element of their ratification defense. Appellees counter that even if the Clients did not know that Heidelberg was secretly working for the other appellees when he solicited them, the Clients were still "aware of the facts they allege to constitute barratry by the Lawyers." But appellees do not explain what these "facts" were, nor do they provide any record citations showing that the Clients knew appellees had committed barratry even if they did not know about Heidelberg's deceit. At oral argument, appellees explained that the Clients knew that Heidelberg had solicited them on the other appellees' behalf and that this was sufficient knowledge. We disagree.
Ratification requires full knowledge of the facts of the earlier act allegedly ratified.See id. Although the Clients obviously knew that Heidelberg had recommended appellees, there is no conclusive proof that they knew any of the additional facts that would make his recommendation a barratrous solicitation, such as Heidelberg's financial interest in soliciting the Clients for the other appellees. Furthermore, for summary-judgment purposes appellees accepted as true the allegations in the Clients' live petition, which state that the Clients "were not aware that the Lyon Defendants had solicited their representation and paid Heidelberg to solicit their representation for the Lyon Defendants . . . until shortly before the filing of this lawsuit."
Moreover, there is no evidence that the Clients committed any conduct manifesting approval of the alleged barratry after they learned all the pertinent facts. They instead sued appellees shortly after learning of the alleged barratry.
In sum, appellees did not conclusively prove ratification's "full knowledge" element. We thus conclude that ratification does not support appellees' summary judgment.
5. Application of original § 82.0651 to the facts
In their third issue, the Clients argue that original § 82.0651 also supports their barratry claims. Appellees contend that § 82.0651 was enacted after the alleged barratry occurred and thus as a matter of law does not apply. We agree with appellees.
As stated above, § 82.0651(a) was enacted in 2011 and provided as follows from September 1, 2011, through August 31, 2013:
A client may bring an action to void a contract for legal services that was procured as a result of conduct violating the laws of this state or the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas regarding barratry by attorneys or other persons.
Act of May 5, 2011, 82d Leg., R.S., ch. 94, § 2, 2011 Tex. Sess. Law Serv. 535, 535-36 (amended 2013) (current version at TEX. GOV'T CODE ANN. § 82.0651 (West Supp. 2014)). Original § 82.0651(b) expressly authorizes a client who prevails in an action under subsection (a) to recover all fees and expenses paid under the barratrous contract to the person who committed barratry, plus other remedies such as actual damages and attorney's fees. Id.
Original § 82.0651 does not apply to conduct that occurred before September 1, 2011. Id. §§ 3-4, 2011 Tex. Sess. Law Serv. at 536. The Clients nonetheless argue that they have a claim under original § 82.0651 because (1) appellees committed conduct after August 31, 2011 that allegedly violated Texas's barratry laws, or (2) the November 2011 settlement agreements in the underlying pipeline-explosion case constituted "contracts for legal services" within the meaning of the original version of § 82.0651(a). We reject both arguments.
First, the Clients argue that they have a viable § 82.0651 claim because they alleged that appellees violated several rules of professional conduct regarding barratry after August 31, 2011:
• appellees continued their employment by the Clients, procured through barratry, in violation of Rule 7.06;
• appellees committed criminal barratry, in violation of Rule 8.04(a)(2);
• appellees committed barratry, in violation of Rule 8.04(a)(9); and
• appellees charged for and collected a fee for professional employment obtained in violation of the barratry rules, in violation of Rule 7.03(d).
But the cause of action created by original § 82.0651 requires a client to prove more than that the defendant violated the laws or disciplinary rules regarding barratry after August 31, 2011. The client must also prove that the lawyer "procured" a legal-services contract due to such conduct. Here, the Clients do not support any of the four alleged rule violations listed above with factual allegations showing that appellees procured a contract for legal services by barratry committed after August 31, 2011. Thus, the Clients' first argument fails.
The Clients argue alternatively that the November 2011 settlement agreements in the underlying case were "contracts for legal services" procured by barratry within the meaning of original § 82.0651(a). The settlement agreements themselves are not in the record. Rather, the Clients filed affidavits by Neese and Hooper stating the following facts:
• the pipeline-explosion case settled at mediation on or about September 20, 2011; and
• on or about November 1, 2011, Neese and Hooper were required to sign documents whereby Lyon, Wolf, and the law firm charged them attorneys' fees and expenses and required them to state that they were satisfied with the results of the distribution of the settlement proceeds, including the payment of attorneys' fees.
This is the only evidence the Clients provided regarding the settlement agreements.
The question is whether those documents constitute contracts for legal services "procured" by barratry as required by original § 82.0651(a). We conclude they do not. The plain meaning of the statutory term "contract for legal services" is a contract whereby an attorney agrees to provide legal services to a client for a fee or other consideration. Cf. Contract for services, BLACK'S LAW DICTIONARY (10th ed. 2014) (defining "contract for services" as "[a] contract for a job undertaken by an independent contractor, as opposed to an employee"). The November 2011 documents, as described by Neese and Hooper, involved no promises by appellees to provide legal services. Rather, they addressed the division of settlement proceeds and the payment of fees and expenses for legal services already performed. As such, the November 2011 documents were not contracts for legal services within the meaning of original § 82.0651(a).
The trial court properly granted summary judgment against the Clients on their barratry claims based on the 2011 version of § 82.0651. We thus reject the Clients' third appellate issue.
We conclude that the trial court erred by granting summary judgment on the Clients' barratry claims based on the original version of Government Code § 82.065. The trial court did not err by granting summary judgment on the Clients' barratry claims based on the original version of § 82.0651.