Opinion
Civil Action No. 2:03-CV-314-C.
May 28, 2004
MEMORANDUM OPINION AND ORDER
On this date the Court considered GRACE EMILY ARCHER, M.D.'s ("Plaintiff") Motion to Remand and Brief in Support, filed April 8, 2004. The Court also considered Defendants THE MEDICAL PROTECTIVE COMPANY OF FORT WAYNE, INDIANA and MEDICAL PROTECTIVE INSURANCE SERVICES, INC., individually and d/b/a THE MEDICAL PROTECTIVE COMPANY OF FORT WAYNE, INDIANA ("MedPro"), and CHARLES E. MOSS and PETERSON, FARRIS, MOSS, PRUITT PARKER, P.C.'s ("Lawyer Defendants") (collectively "Defendants") Response to Plaintiff's Motion to Remand, filed April 9, 2004. The Court further considered Defendants' Supplemental Response to Plaintiff's Motion to Remand, together with its Appendix, filed without leave of the Court on April 27, 2004, and Plaintiff's Reply to same, also filed without leave of the Court on May 12, 2004. See http://www.txnd.uscourts.gov/judges ¶ II.B, Requirements for District Judge Sam R. Cummings. After considering all the relevant arguments and evidence, this Court is of the opinion that Plaintiff's Motion to Remand should be DENIED.
I. BACKGROUND
This lawsuit was originally filed in the 108th Judicial District Court in and for Potter County, Texas, on August 29, 2003, naming only MedPro as Defendant. On September 23, 2003, MedPro removed this action on the basis of diversity jurisdiction to the United States District Court for the Northern District of Texas, Amarillo Division, and filed its Answer in federal court on the same date. On September 24, 2003, Judge Mary Lou Robinson, presiding judge in the Amarillo Division, recused herself from this case, and on September 26, 2003, the case was reassigned to this Court. On March 8, 2004, Plaintiff sought and was granted leave of this Court to file her First Amended Complaint, in which she named the non-diverse Lawyer Defendants as additional parties.Plaintiff is a medical doctor who was sued in December 1996 by Anita K. and Bobby G. Warren for medical malpractice. At the time of that underlying suit ("the Warren suit"), Plaintiff was covered by an insurance policy issued by MedPro naming her as the person insured and promising to defend and indemnify her against claims for damages based on her professional services rendered. The policy had a limit of $200,000 for any one occurrence during the coverage period. Pursuant to its duty to defend Plaintiff, MedPro engaged the legal services of the Lawyer Defendants. Plaintiff alleges in her First Amended Complaint that, during the course of the malpractice trial, the plaintiffs in that trial made several Stowers demands to settle the case within the policy limits, which were communicated to the Lawyer Defendants and to MedPro, but that MedPro negligently or intentionally failed and refused to negotiate in good faith to settle the matter. At the conclusion of that trial, the court entered a judgment for $2,005,745.52 against Plaintiff.
Plaintiff appealed that judgment to the state Seventh Court of Appeals, which ultimately reversed and rendered a take-nothing verdict on July 15, 2003. During the pendency of the appeal, Plaintiff filed for bankruptcy under the threat of collection on the trial court's judgment. Also during the pendency of the appeal, the parties to the malpractice lawsuit settled the dispute on terms that Plaintiff pay $60,000.00 and MedPro pay $224,602.74 to the Warrens by March 6, 2002, and that Plaintiff pay an additional $180,000.00 should the judgment be upheld on appeal, Plaintiff made her $60,000.00 payment obligation as required by the agreement.
Plaintiff's lawsuit asserts claims against MedPro for breach of contract, unfair settlement practices, negligence for breach of its duty to negotiate a settlement, breach of its Stowers duty, and aiding and abetting the Lawyer Defendants' breaches of their fiduciary duty. Plaintiff asserts claims against the Lawyer Defendants for breach of fiduciary duty, breach of the duty of good faith and fair dealing, and legal malpractice.
On April 8, 2004, Plaintiff requested this Court to remand her cause of action to state court because the Court's permission to join the non-diverse Lawyer Defendants has destroyed this Court's diversity jurisdiction, making remand proper. In Defendants' Supplemental Response filed on April 27, 2004, they argue that removal was proper and the case should not be remanded because the Lawyer Defendants, all of whom are Texas citizens or incorporated in Texas, were fraudulently joined, in which case the Court should disregard their non-diverse citizenship for the purpose of establishing diversity jurisdiction. Defendants assert that there is no reasonable possibility of recovery against the Lawyer Defendants under Texas law.
II. STANDARD
Once a case has been removed, the removing party bears the burden of proving that jurisdiction exists. Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992) (citations omitted). Removal statutes are to be strictly construed and any uncertainty regarding jurisdiction is to be resolved in favor of remand Brown v. Demco, 792 F.2d 478, 482 (5th Cir. 1986). If the removing party alleges jurisdiction on the basis that non-diverse parties have been fraudulently joined, then the removing party must prove the existence of fraud. Carriere v. Sears, Roebuck and Co., 893 F.2d 98 (5th Cir.), cert. denied, 498 U.S. 817 (1990). To prove its allegation of fraud, the removing defendant "must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or that there has been outright fraud in the plaintiff's pleadings of jurisdictional facts." B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981). The Fifth Circuit has more recently held that "no possibility" means no " reasonable basis for predicting that state law would allow recovery in order to preclude a finding of fraudulent joinder." Badon v. RJR Nabisco Inc., 236 F.3d 282, 286 n. 4 (5th Cir. 2000) (italics in original); see also, Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003) ("If there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved, then there is no fraudulent joinder. This possibility, however, must be reasonable, not merely theoretical.") (italics omitted; citation omitted.)
In determining whether the joinder of parties is fraudulent, the district court must evaluate all unchallenged factual allegations, including those in the complaint, in the light most favorable to the plaintiff, resolving all contested issues of substantive fact and ambiguities in state law in favor of the plaintiff. Griggs v. State Farm Lloyds, 181 F.3d 694, 699-702 (5th Cir. 1999). Thus, the appropriate method for resolving a claim of fraudulent joinder is similar to that used for ruling on a motion for summary judgment under Rule 56(b) of the Federal Rules of Civil Procedure. Keating v. Shell Chem. Co., 610 F.2d 328, 333 (5th Cir. 1980). In order to find that joinder is fraudulent, the court must assume that all of the facts set forth by the plaintiff are true and that there is no possibility of a valid cause of action being set forth against the in-state defendant. B., Inc., 663 F.2d at 551, 554; Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1979).
However, the court must not "pre-try" substantive factual issues in order to answer the discrete threshold question of whether the joinder of an in-state defendant is fraudulent. B., Inc., 663 F.2d at 546. The court must not decide whether the plaintiff will actually or even probably prevail on the merits but must look only for a reasonable possibility that plaintiff may do so. Dodson, 951 F.2d at 42; Travis, 326 F.3d at 648. If the possibility exists that a plaintiff may prevail, then "a good faith assertion of such an expectancy in a state court is not a sham . . . and is not fraudulent in fact or in law." B., Inc., 663 F.2d at 550 (internal quotations and citations omitted). If, however, no possible claims exist against the non-diverse defendant, its presence must be disregarded for jurisdictional purposes. Tedder, 590 F.2d at 116-17. Because the defendant claiming fraudulent joinder bears the burden of establishing fraudulent joinder, he "must put forward evidence that would negate a possibility of liability" by the party alleged to be fraudulently joined. Travis, 326 F.3d at 650.
Even though a court's jurisdiction is generally determined by the facts as they exist at the time of removal, if a court permits the addition of a non-diverse party after removal and that party is not deemed to be fraudulently joined, then the addition of that non-diverse party will destroy the court's subject matter jurisdiction. FED. R. CIV. P. § 1447(e); Hensgens v. Deere Co., 833 F.2d 1179, 1181 (5th Cir. 1987), cert. denied, 493 U.S. 851, 110 S.Ct. 150, 107 L.Ed.2d 108 (1989).
III. DISCUSSION
The basis for Defendants' argument that removal is proper and Plaintiff's request for remand should be denied is their contention that the non-diverse Lawyer Defendants have been fraudulently joined, thus allowing the Court to ignore their citizenship for the purpose of establishing diversity jurisdiction. Defendants' contention of fraudulent joinder rests primarily on their assertion that there is no reasonable possibility of recovery under any state-law claims against the non-diverse Lawyer Defendants. As one ground for this assertion, Defendants argue that the Seventh Court of Appeals' decision in Plaintiff's favor precludes any possibility that a claim for legal malpractice or negligence could prevail against the Lawyer Defendants, and therefore they could not have proximately caused Plaintiff's damages.
Plaintiff objects that the standard is "no reasonable basis" rather than "no reasonable possibility," to which the Court responds that this is a distinction without a difference. See Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003) ("Any argument that a gap exists between the "no possibility" and "reasonable basis" of recovery language was recently narrowed, if not closed." (citing Badon v. RJR Nabisco, Inc., 236 F.3d 282, 286 n. 4 (5th Cir. 2000); Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.3d 305, 312 (5th Cir. 2002) ("[T]he court determines whether that party has any possibility of recovery against the party whose joinder is questioned. If there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved, then there is no fraudulent joinder. This possibility, however, must be reasonable, not merely theoretical.") (internal citation and quotations omitted).
A cause of action for legal malpractice accrues when the client sustains a legal injury. See Hughes v. Mahaney Higgins, 821 S.W.2d 154, 156 (Tex. 1991). "When an attorney is alleged to have committed malpractice during the representation of a matter in litigation, there is no injury to the client until the underlying suit becomes final, which generally occurs after the last appeal or when the appellate process terminates." Ayre v. J.D. Bucky Allshouse, P.C., 942 S.W.2d 24, 28 (Tex.App.-Houston [14th Dist.] 1996, pet. denied); see also Norwood v. Piro, 887 S.W.2d 177, 180 (Tex.App.-Texarkana 1994, writ denied) (same). This is so because the viability of a legal malpractice cause of action depends on the outcome of the initial litigation. See Hughes, 821 S.W.2d at 157. Where, as here, the appellate court reversed and rendered a take-nothing judgment in favor of Plaintiff, she has suffered no legal injury as a result of the Lawyer Defendants' representation of her in the initial Warren litigation and therefore has no viable claim for negligence or legal malpractice. Any such claim must necessarily fail as a matter of law.
However, Plaintiff also claims that the Lawyer Defendants breached their fiduciary duty to her. Defendants respond that Plaintiff should not be allowed to fracture her claim against the Lawyer Defendants which arises out of alleged legal malpractice into additional claims including one for breach of fiduciary duty. (Defs.' Supp. Resp. at 7-8). Defendants argue that the fractured claims are really just legal malpractice claims under a different name. As such, these claims fail for the same reason the malpractice claim fails — because of the appellate court decision.
Texas law does not allow the practice of fracturing legal malpractice claims where the additional claims constitute no more than claims for legal malpractice under another guise. See Gulf Ins. Co. v. Jones, 2003 WL 22208551, *15 (N.D. Tex. 2003) ("When the additional causes of action all arise from the same set of facts and circumstances as the alleged legal malpractice and when a defendant negates an element of the legal malpractice claim, summary judgment for the defendant is proper on the additional causes of action, as well."); Goffney v. Rabson, 56 S.W.3d 186, 194 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (fracturing not allowed where "allegations do not amount to self-dealing, deception, or misrepresentation . . . to support a separate cause of action for breach of fiduciary duty."); Greathouse v. McConnell, 982 S.W.2d 165, 172 (Tex.App.-Houston [1st Dist.] 1998, pet. denied) (fracturing not allowed where separate claims alleging negligence, breach of fiduciary duty, and breach of the duty of good faith and fair dealing are followed by identical paragraphs the crux of which was failure to provide adequate legal representation); Kahlig v. Boyd, 980 S.W.2d 685, 689 (Tex.App.-San Antonio 1998, pet. denied) (refusing to allow separate claim for fraud that related solely to alleged errors in representation); Klein v. Reynolds, Cunningham, Peterson Cordell, 923 S.W.2d 45, 49 (Tex.App.-Houston [1st Dist.] 1995, no writ) (concluding that claims of negligence, legal malpractice, breach of contract, and breach of fiduciary duty were all essentially "means to an end" to achieve one complaint alleging legal malpractice).
In order to determine whether Plaintiff has improperly fractured her claim for legal malpractice, the Court must examine the nature of her claims.
Attorneys have a fiduciary responsibility to their clients as a matter of law. Arce v. Burrow, 958 S.W.2d 239, 246 (Tex.App.-Houston [14th Dist.] 1997) (op. on reh'g), aff'd as modified, 997 S.W.2d 229 (Tex. 1999); Gen. Motors Acceptance Corp. v. Crenshaw, Dupree Milam, L.L.P., 986 S.W.2d 632, 636 (Tex.App.-El Paso 1998, pet. denied) (citing Cooper v. Lee, 75 Tex. 114, 120-21, 12 S.W. 483, 486 (1889)); Kimleco Petroleum, Inc. v. Morrison Shelton, 91 S.W.3d 921; 923 (Tex.App.-Ft. Worth 2002, pet. denied); Two Thirty Nine Joint Venture v. Joe, 60 S.W.3d 896, 905-06 (Tex.App.-Dallas 2001, pet. granted). The term "fiduciary" refers to "`integrity and fidelity.'" Arce, 958 S.W.2d at 246; see also Goffney, 56 S.W.3d at 193. The attorney-client relationship is essentially one of "good faith" requiring openness and honesty and devoid of any concealment or deception. See Rabson, 56 S.W.3d at 193; Perez v. Kirk Carrigan, 822 S.W.2d 261, 263-66 (Tex.App.-Corpus Christi 1991, writ denied). "As a fiduciary, an attorney is obligated to render a full and fair disclosure of facts material to the client's representation." Willis v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988). Further, "breach of the duty to disclose is tantamount to concealment." McClung v. Johnson, 620 S.W.2d 644, 647 (Tex.App.-Dallas 1981, writ ref'd n.r.e.).
Typically, breach of fiduciary duty by an attorney involves "the attorney's failure to disclose conflicts of interest, failure to deliver funds belonging to the client, placing personal interests over the client's interests, improper use of client confidences, taking advantage of the client's trust, engaging in self-dealing, and making misrepresentations." Goffney, 56 S.W.3d at 193; see also Aiken v. Hancock, 115 S.W.3d 26, 28 (Tex.App.-San Antonio 2003, pet. denied) (same). Consequently, the focus in a breach-of-fiduciary-duty claim is "whether an attorney obtained an improper benefit from representing a client, while the focus of a legal malpractice claim is whether an attorney adequately represented a client." Aiken, 115 S.W.3d at 28; see also Kimleco Petroleum, 91 S.W.3d at 923 (same). "Unlike a claim for breach of fiduciary duty, a legal malpractice claim is based on negligence and arises from an attorney's alleged failure to exercise ordinary care." Aiken, 115 S.W.3d at 28 (citing Cosgrove v. Grimes, 774 S.W.2d 662, 665 (Tex. 1989)). "A cause of action for legal malpractice arises from an attorney giving a client bad legal advice or otherwise improperly representing the client." Id. at 28. In the plainest terms,
[a]ttorneys may be liable for a breach of fiduciary duty, but such a claim requires allegations of self-dealing, deception, or misrepresentations that go beyond the mere negligence allegations in a malpractice action. If the gist of a client's complaint is that the attorney did not exercise that degree of care, skill, or diligence as attorneys of ordinary skill and knowledge commonly possess, then that complaint should be pursued as a negligence claim, rather than some other claim.McMahan v. Greenwood, 108 S.W.3d 467, 495 (Tex.App.-Houston [14th Dist.] 2003, pet. denied); see also Kimleco Petroleum, 91 S.W.3d at 924 ("Regardless of the theory a plaintiff pleads, as long as the crux of the complaint is that the plaintiff's attorney did not provide adequate legal representation, the claim is one for legal malpractice.").
When examined in light of these standards, Plaintiff's first two allegations in her claim for breach of fiduciary duty are plainly nothing more than claims for legal malpractice under a different guise. The allegations do not amount to self-dealing, deception, or express misrepresentations in Plaintiff's legal representation and do not support a separate cause of action for breach of fiduciary duty. They are merely complaints regarding the quality of the Lawyer Defendants' representation. However, Plaintiff's third allegation in her claim for breach of fiduciary duty is that the Lawyer Defendants "fail[ed] to represent Archer's interests notwithstanding the interest of Med-Pro in a situation in which the representation of Archer was adversely limited by Defendants Lawyers' own interests in keeping the business and favor of Med-Pro." (Pl's. First Am. Compl. at 11, ¶ 43). While Plaintiff's allegation invokes the prospect of a conflict of interest that would seem to lie at the heart of a claim for breach of fiduciary duty, she does not claim that this conflict of interest was not disclosed to her or otherwise unknown to her. MedPro's duty-to-defend obligation being the basis for its hiring of the Lawyer Defendants to represent Plaintiff, she was at all times aware of that potential conflict of interest and, according to her facts, apparently complained about it on several occasions. Plaintiff does not claim that she was unaware of or misled about her freedom at any time to seek independent counsel for herself in the matter in order to protect her own interests. Furthermore, Plaintiff's claims are totally lacking in reference to anything that could be characterized as deception or deliberate misrepresentation on the part of the Lawyer Defendants. Consequently, the Court concludes that Plaintiff's claims for breach of fiduciary duty are in reality claims for legal malpractice and Plaintiff will not be permitted to fracture her legal malpractice claim into a claim for breach of fiduciary duty.
Specifically, she alleges that the Lawyer Defendants breached their fiduciary duties
(a) by neglecting a legal matter entrusted to the Lawyer Defendants through inattentiveness involving a conscious disregard of the responsibilities owed to Archer; and (b) by failing to carry out completely the obligations that the Lawyer Defendants owed to Archer including but not limited to failing to adequately evaluate the case and failing to communicate to Archer the same information he communicated to Med-Pro.
(Pl's. First Am. Compl. at 11, ¶ 43).
Likewise, Plaintiff's claim for breach of the duty of good faith and fair dealing by the Lawyer Defendants does not raise any new factual issues but instead simply refers to "the particulars set forth above," i.e., in the previous claims for breach of fiduciary duty, and so does not make a claim that can be characterized as anything other than legal malpractice. This Court further finds it significant that Plaintiff's claim for negligence by the Lawyer Defendants, which is tantamount to her claim for legal malpractice, complains that they breached the duty of care that would have been exercised by a reasonably prudent attorney by "engaging in the conduct described in one or more of the particulars set forth above," i.e., again, in the previous claims for breach of fiduciary duty and breach of the duty of good faith and fair dealing. Although an allegation of the same facts for legal malpractice and breach of fiduciary duty may not be dispositive of the fracturing issue, see Deutsch v. Hoover, Bax Slovak, L.L.P., 97 S.W.3d 179, 190 (Tex.App.-Houston [14th Dist.] 2002, no pet.), this "repackaging" of her claims nevertheless supports this Court's conclusion that her claims should not be fractured because they are essentially one claim in several different guises. Ultimately, however, the claims remain, at their core, simply claims for breach of the duty of care that would have been exercised by a reasonably prudent attorney, or legal malpractice. Because that is the nature of all the claims, and because that claim for legal malpractice is barred by the appellate court decision reversing and rendering a take-nothing judgment in favor of Plaintiff, Defendants have carried their burden to show that Plaintiff has no reasonable possibility of recovery under any state-law claims against the non-diverse Lawyer Defendants.
Plaintiff argues in response that Defendants' contention of fraudulent joinder on this ground, however, fails by operation of the "common-defense rule." The common-defense rule was first outlined by the Supreme Court in Chesapeake O.R. Co. v. Cockrell, 232 U.S. 146, 34 S.Ct. 278, 58 L.Ed.2d 544 (1914), in which the Court made it clear that joinder is not shown to be fraudulent where "the showing manifestly [goes] to the merits of the action as an entirety, and not to the joinder; that is to say, it indicated that the plaintiff's case was ill founded as to all the defendants." Cockrell, 232 U.S. at 153. Under this rule,
when on a motion for remand a defendant's showing that there is no possibility of recovery against the local defendant equally discharges the non-resident defendant, there is no fraudulent joinder, only a lawsuit lacking in merit. In such a case, it makes little sense to single out the local defendants as "sham" defendants and call their joinder fraudulent.Smallwood v. Illinois Central R.R. Co., 352 F.3d 220, 223 (5th Cir. 2003).
This decision ( Smallwood II) denied a petition for panel rehearing of an earlier decision and affirmed the earlier decision, Smallwood v. Illinois Central R.R. Co. ( Smallwood I), 342 F.3d 400 (5th Cir. 2003), in which the non-diverse defendant argued that removal was appropriate based on fraudulent joinder, claiming that conflict with a federal act preempted the state cause of action against the non-diverse defendant. After dismissal of the non-diverse defendant, the diverse defendant then moved for summary judgment on the same basis. In Smallwood I, the Fifth Circuit determined that such a position was "contrary to the Supreme Court's century-old command . . . that the fraudulent joinder allegations be directed toward the joinder, not to the merits of the action as an entirety." Smallwood I, 342 F.3d at 407 (internal citations and quotation marks omitted). Consequently, Smallwood I held that the diverse defendant's attempt to argue fraudulent joinder on the basis of a common defense, however meritorious that defense might be, was not premised on a defense unique to the non-diverse party, and therefore was a merits determination that should be disposed of by the state court, making remand proper. Id. at 405, n. 35.
As Plaintiff points out, the Smallwood I decision has been approved for rehearing en banc, Smallwood v. Illinois Central R.R. Co., 02-60782, ___ F.3d ___ (5th Cir. Dec. 22, 2003), although the grounds appear to be on the issue of whether the decision conflated the removal rules applicable to federal question jurisdiction with those governing diversity removal. Were the instant case to involve any federal question issues, this Court would be reluctant to cite Smallwood I or II; but since it does not, this Court finds its interpretation of the Supreme Court's common-defense rule still generally applicable.
Plaintiff argues that the common-defense rule applies in the instant case because Defendants' claim regarding the preclusive effect of the Seventh Court of Appeals' decision in Plaintiff's favor applies equally to the diverse defendant, MedPro. Plaintiff contends that this is clear from Defendants' argument that the appellate court's decision not only negates the Lawyer Defendants' liability but also negates any Stowers claim against MedPro as a matter of law. The Court, however, is not convinced that Defendants have alleged a common defense. Defendants do cite to case law involving Stowers claims but do so only to apply the reasoning of those cases, not to the issue of MedPro's liability, but to the facts of the instant case involving the Lawyer Defendants' liability. (Defs.' Supp. Resp. at 8, "Although plaintiff is not making a Stowers claim against Moss and the Peterson firm, the same result should hold true under the facts of this case.") Furthermore, in its Answer, MedPro has not alleged any affirmative defense based on no possibility of liability because of the Seventh Court of Appeals' take-nothing judgment. Therefore, this Court cannot conclude that the common-defense rule is applicable to this case.
The Court finds that Defendants have carried their burden to show there is no reasonable possibility that Plaintiff's claims for breach of fiduciary duty against the non-diverse Lawyer Defendants might prevail on the merits in state court. This Court therefore concludes that the Lawyer Defendants have been fraudulently joined and that their citizenship should be ignored for the purpose of establishing diversity jurisdiction. Therefore, removal is proper and remand under these circumstances should be denied.
IV. CONCLUSION
For the foregoing reasons, the Court determines that Defendants have met their burden of proving fraudulent joinder as to the Lawyer Defendants. Therefore, this Court DENIES Plaintiff's Motion to Remand, with the parties to bear their own costs. Furthermore, the Court will entertain a motion to dismiss on behalf of Charles E. Moss and Peterson, Farris, Moss, Pruitt Parker, P.C.SO ORDERED.