The Texas Supreme Court has reversed a Tyler Court of Appeals opinion dismissing a legal malpractice claim under the Texas Citizens Participation Act (TCPA).

USA Lending Group, Inc. v. Winstead PC and James Ruiz (No. 21-0437; delivered May 19, 2023) arose from an underlying federal lawsuit brought by USA against a former employee for breach of fiduciary duty. USA retained Winstead and Ruiz to handle the matter. When the employee did not answer the suit, Winstead prepared a motion for default judgment, which passed through several drafts. Unfortunately, the final draft filed with the court omitted a claim for lost income, which the previous drafts had identified as over $1 million. The court issued a default judgment in favor of USA but did not award money damages. USA subsequently sued Winstead and Ruiz for legal malpractice and claimed damages in excess of $1 million. Defendants moved to dismiss under the TCPA. The trial court denied the motion. The Tyler Court of Appeals reversed and dismissed the suit. USA sought review.

In an opinion by Justice Bland, SCOTX reversed and remanded to the trial court. The opinion focused on whether USA made a prima facie case for the essential elements of a legal malpractice claim: “that the defendant breached a duty it owed to the plaintiff and proximately caused the plaintiff an injury.” Further, “[i]f the plaintiff asserts that an attorney’s negligence resulted in the denial of actual damages, then the plaintiff must also prove, in reasonable probability, that it would have collected those damages in the underlying case.” The court of appeals held that although USA adduced some evidence that it suffered actual damages as a result of the malpractice, it concluded that USA had shown nothing to suggest a “reasonable probability” that it would have collected those damages from the employee, a California resident. Defendants did not contest that they breached a duty owed to USA.

Reviewing the evidence, which consisted of affidavits by USA’s CEO and three experts (a retired Texas judge, a California lawyer, and a Texas attorney), the Court found that: (1) USA’s causation expert established that the federal district court would more likely than not have awarded at least some damages in the default judgment if defendants had asked for them; (2) USA presented records showing that USA “suffered some specific, demonstrable injury attributable to Winstead’s conduct; (3) USA’s California expert established that USA’s damages could be collected under California law; and (4) USA’s Texas attorney expert showed that the employee’s wife owned a rival home mortgage lending company with potentially sufficient net worth to pay a judgment. Although defendants challenged USA’s expert affidavits as conclusory, the Court found enough circumstantial evidence in the record to make a prima facie case on the essential elements of its claim. As Justice Bland observed, “[a] prima facie case eventually may be controverted. At this stage, however, a claim survives [TCPA dismissal] if the evidence is ‘legally sufficient to establish a claim as factually true if it is not controverted.” Moreover, she added, “[t]he motion to dismiss stage is not a battle of evidence; it is the clearing of an initial hurdle. The Act does not select for plaintiffs certain to succeed; it screens out plaintiffs certain to fail—those who cannot support their claims with clear and specific evidence.”

It is interesting to note something else Justice Bland said at the beginning of the opinion. “Assuming that the Act covers the claim at issue, we hold that the client presented prima facie evidence sufficient to survive a motion to dismiss.” If you have been perusing our tracked bill lists on a more or less regular basis, you will have noticed HB 527, which adds legal malpractice claims to the list of actions exempted from the TCPA. It looks probable that the bill will pass, resolving the question Justice Bland alluded to.

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