In a suit involving an alleged breach of an oral agreement, the Fourteenth Court of Appeals has reversed a trial court order dismissing the suit under the Texas Citizens Participation Act (TCPA). M.A. Mills, P.C. v. John P. Notts and Boumatic, LLC (No. 14-20-00395-CV) arose from an oral agreement between an attorney (Mills) and an investor (Kott) under which Mills provided management services for the investor’s business (Boumatic) in return for a monthly salary and annual incentive bonus based on the business’s performance. After the first year (2015), in which Mills turned a profit for Boumatic, Kott declined to pay the bonus. Mills discovered that Kott manipulated Boumatic’s books to show a loss. When confronted, Kott agreed to pay the bonus, but in the subsequent three years, Kott refused to pay bonuses even though Boumatic grew in market share, revenue, and profitability. Mills resigned in 2019 and filed suit against Kott and Boumatic for breach of the oral agreement. Kotts moved to dismiss under the TCPA. The trial court granted the motion, and Mills appealed.

The court of appeals’ analysis was governed by the TCPA as it existed prior to the 2019 amendments. Kott contended that Mills’ suit came within the TCPA because it related to “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests” (right of association). The court of appeals agreed that the communications between Mills and Kott formed the basis of the oral agreement at issue in the case, rejecting Mills argument that the suit was based on Kott’s conduct, not the communications. We should note that the court of appeals relied on the nexus phrase “relates to” in order to reach that conclusion. As we have previously noted, that phrase was removed from the statute in 2019, so if this case had been brought subsequently, the court of appeals would have had to find that the legal action was “based on” or “in response to” the communications.

Once the court of appeals determined that the TCPA applied to Mills’ claim, the burden shifted to Mills to establish by clear and specific evidence a prima facie case for each essential element of his claim. The court of appeals first set out the four elements of a breach of contract claim (valid contract exists, plaintiff performed or tendered performance, defendant breached by failing to perform or tender performance, and plaintiff sustained damages). As the parties stipulated that Mills’ pleadings satisfied his TCPA burden as to elements two, three, and four, the court of appeals had to determine whether Mills established by clear and specific evidence a prima facie case that a valid contract existed. The court of appeals had no problem doing so.

Kott argued that because he, a client, orally contracted with his lawyer, the presumption of invalidity applies under Keck, Mahin & Cate v. National Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 699 (Tex. 2000). Under Keck, to sustain a valid contract the attorney must show that the terms of the oral agreement were fair and reasonable. The court of appeals rejected this argument on the basis that the Keck presumption is not an essential element of a breach of contract claim. Even if it was, the court of appeals added, Mills satisfied his burden by showing that the bonus was fair and reasonable because it was based on performance. The court further pointed out that Kott had consulted two other law firms about the deal before he agreed to it, and that Kott, an experienced and sophisticated investor, agreed that the contract was fair and reasonable.

The burden then shifted back to Kott to prove an affirmative defense. Kott asserted that the oral agreement was illegal, void, and unenforceable as against public policy because it violated Rule 1.08(a), Texas Disciplinary Rules of Professional Conduct. This rule requires an attorney who enters into a business relationship with a client to assure that the transaction and terms are fair, reasonable, and fully disclosed, the client is given a reasonable opportunity to seek independent advice, and the client consents in writing. Noting that Texas law does not require courts to void contracts in technical violation of Rule 1.08(a), the court rejected Kott’s argument. Rule 1.08(a), like other disciplinary rules, are enforced through disciplinary proceeds, and in general the disciplinary rules should not be used as “procedural weapons.” Here the court of appeals clearly believed that Kott’s substantial business experience as a sophisticated investor far precluded the notion that Mills had taken advantage of him in the deal, as Rule 1.08(a) contemplates. In response to Kott’s statute of frauds defense failed because the agreement fixed no specific time for performance, so performance was still possible within one year (citing Miller v. Riata Cadillac Co., 517 S.W.2d 773 (Tex. 1974)). SCOTX has also held that an employment contract for an indefinite term is considered performable within one year and does not fall within the statute of frauds.

Finding that Kott had not established a defense, the court of appeals reversed the trial court and remanded for additional proceedings. Even though this case was decided based on the broader nexus standard of the pre-2019, TCPA, it indicates to us that relatively straightforward breach of contract claims should not be subject to the TCPA in most cases. The fact that Mills was on the hook for Kott’s costs and attorney’s fees simply because he sought a legal remedy to enforce his contract does not seem to us very sound public policy. We hope that intermediate courts of appeals, like the Fourteenth Court did here, continue to scrutinize TCPA appeals to ensure that the statute does not chill or deter legitimate claims that have nothing to do with suppressing a party’s constitutional liberties.

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