AUSTIN, Texas (CN) — The Texas Supreme Court heard arguments Tuesday in the case of a financial services company that claims a Dallas-based law firm cost it $1.2 million by not asking for damages in a default judgment motion.
Winstead PC and its attorney James Ruiz represented USA Lending Group, a small Austin-based company that provides business and home loans, in a federal lawsuit it filed in 2017 against its former employee, Mike Ahmari.
Alleging breach of fiduciary duty, USA Lending said it had hired Ahmari to lead marketing for a new home mortgage program for which it asked him to acquire domain names and toll-free telephone numbers.
Ahmari abruptly resigned and USA Lending learned he had acquired the domain names and phone numbers for a competing business he had launched shortly before his resignation.
Ahmari did not answer the lawsuit, so Winstead’s Ruiz, in consultation with USA Lending’s CEO Jim Isaacs, prepared a motion for default judgment.
The federal judge signed the default judgment in October 2017 and Winstead helped USA Lending recover the assets Ahmari had swiped.
But USA Lending was not completely happy with Winstead’s and Ruiz’s work.
It sued them for legal malpractice in January 2020, arguing their decision not to request damages from Ahmari in the default judgment motion cost it $1.2 million.
Winstead asked for dismissal per the Texas Citizens Participation Act, an anti-SLAPP bill meant to deter speech-chilling litigation. It allows for expedited dismissal of lawsuits based on a defendant exercising their First Amendment free speech rights.
The trial court refused to dismiss the lawsuit, but the 12th Texas Court of Appeals in Tyler sided with Winstead and tossed the case.
USA Lending appealed to the Texas Supreme Court, which heard arguments Tuesday.
Central to the dispute is the TCPA’s definition of communication, which includes "the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic.”
Though the statute shields defendants from liability for communications made in judicial proceedings, USA Lending’s counsel, Dylan Russell with the Houston office of Hoover Slovacek, argued the company’s lawsuit is not about what Winstead communicated in the motion for default judgment.
“We’re not complaining about what was said in that motion, we’re complaining about what was not said,” Russell stated.
Justice Evan Young asked Russell if he believes USA Lending would also have a viable legal malpractice case if Winstead had not failed to request any damages from Ahmari but had asked for them “so poorly” the motion was denied.
Russell said if there was an actual communication it would be tougher for USA Lending to overcome Winstead’s TCPA defense, but he stressed that Winstead’s omission of a damages request was not a communication.
“If they forgot to add some zeros when we were hoping for $1 million,” Russell said, “and they only gave us $1,000, that would be a complaint about an actual communication made that was defective, because they didn’t ask for it with enough zeros.”
“But here there was no communication whatsoever that said to the district court judge, federal court, please give us money damages. Here is our proof. Here’s the legal reasons to support that,” he added.
Winstead’s counsel, Robin O’Neil with Fogler, Brar, O’Neil & Gray of Houston, opened her arguments with a disclaimer: “To be clear we are not contending the TCPA requires automatic dismissal of every claim against a lawyer.”
She said she believes Texas appeals courts have correctly held attorneys cannot use the TCPA as a defense when they totally fail to act – for instance, if their client’s case is dismissed because they missed a statute of limitations deadline.
“Here there is no way to interpret USA Lending’s claim other than that it is based on Winstead’s making and submission of a document,” O’Neil argued, “which is specifically referenced as a communication in the TCPA. It is essentially a criticism of Winstead’s communication with the court.”
Playing devil’s advocate of USA Lending’s position, Justice Jane Bland pressed O’Neil to explain why the TCPA shields Winstead.
“So if the document or statement doesn’t contain something, in other words there’s a failure to communicate, how does that trigger the definition of communication in the TCPA?” the judge asked.
O’Neil, circling back to the statute’s language, replied, “Because the claim itself is based on a document which the TCPA defines as a communication.”
The firm's attorney also noted the Texas Legislature is considering an amendment that would bar attorneys and law firms from invoking the anti-SLAPP defense against legal malpractice allegations.
Laying out his House Bill 527 in a recent legislature committee hearing, Representative Gene Wu, a Houston Democrat and former prosecutor now in private practice, said, “Essentially we’re trying to stop people from doing something with the law that was never intended. And that was to use the anti-SLAPP laws that we passed as a sword to basically bat away legal malpractice claims.”
The Texas Supreme Court’s nine justices did not say when they would rule on the case.
As of April 2022, 32 U.S. states and the District of Columbia had anti-SLAPP laws, according to the Reporters Committee for Freedom of the Press.
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