In a case that came off the copier with a faint stink about it, the Houston [14th Court of Appeals] has affirmed a summary judgment for a law firm in its dispute with the medical factoring firm. The facts of the case are indicative of the murky state of affairs in at least some sector of the personal injury lawsuit industry. MedStar Funding, LC v. Frode Willumsen, Donal Hughs McRoberts, and Willumsen Law Firm, P.C. (No. 14-20-00312-CV) started with a car wreck and an alleged injury. The injured party sought medical care for several providers, with whom she entered agreements to pay them out of whatever settlement or recovery she received from her claim. Her attorney likewise signed the agreements under a Letter of Protection in which he promised to “honor such assignment” and “agree to withhold from any portion of the RECOVERY sufficient funds, after deduction of attorney’s fees and expenses . . . to pay any outstanding amounts owed to PROVIDER and/or its third party assignees.” Good grief.
Lo and behold, MedStar bought the providers’ interests in the recovery and notified the lawyer thereof. When the personal injury claim settled with the other driver, the plaintiff allegedly failed to pay MedStar under the agreements (we note with some Schadenfreude). MedStar then sued the settling plaintiff, her lawyer, and the law firm alleging that the plaintiff breached her contracts with the providers, that she or the law firm were liable under a quantum meruit theory, and that all defendants were liable for conversion, money had and received, and conversion. But for some reason, MedStar did not allege that the attorney or law firm breached its Letter of Protection. That mistake would turn out to be fatal.
The trial judge granted summary judgment to the lawyer and law firm on the basis that an attorney is “entitled to immunity when the conduct allegedly giving rise to liability is that the attorney placed settlement funds into a trust account and then disbursed the funds at his client’s discretion without considering a third party’s alleged interest in the funds.” MedStar responded that immunity does not apply to a breach of contract claim. But there breach of contract claim, so the trial court granted summary judgment for the attorneys. Subsequently, MedStar filed an amended pleading alleging breach of contract but failed to obtain leave of court, as required by the rules. Oops.
Based on these facts, the court of appeals, in an opinion by Justice Jewell, affirmed. MedStar did not timely plead a breach of contract claim and did not contest summary judgment on any of its other theories. It also failed to obtain leave of court to file an amended pleading, so that pleading was not before the court of appeals. You snooze, you lose, and MedStar lost. Justice Spain dissented on the basis that the trial court order being appealed was interlocutory and, consequently, the court of appeals lacked subject matter jurisdiction. The majority responded that the trial court created a final judgment pertaining to the law firm when it severed MedStar’s claims against the plaintiff in the underlying personal injury action from its claims against the firm. In any event, this is the kind of situation that makes us hold our collective noses. We suspect that this happens all the time, but just because it does doesn’t make it a good thing for the civil justice system. When third parties acquire an interest in litigation by whatever machinations they undertake, it introduces a profit motive and a conflict-of-interest where it doesn’t belong.