1 NO. 07-08-0450-CV IN THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL E FEBRUARY 2, 2010

__________________ ____________ CORNWALL PERSONAL INSURANCE AGENCY, INC., RONALD J. HETTLER, AND ROBIN HETTLER, APPELLANTS

v. ROBERT N. NEBB, MICHAEL CARPER, AND THE LAW

OFFICES OF MICHAEL CARPER, P.C., APPELLEES

__________________ ______________ FROM THE 237 TH DISTRICT COURT OF LUBBOCK COUNTY; NO. 2006-537,428; HON. SAM MEDINA, PRESIDING

__________________ _____________ Before CAMPBELL and PIRTLE, JJ., and BOYD, S.J. 1
MEMORANDUM OPINION This appeal arises from a take-nothing summary judgment in favor of appellees Robert N. Nebb (Nebb), Michael H. Carper, and the Law Offices of Michael H. Carper, P.C. (Carper), in a suit filed by appellant s Cornwall Personal Insurance Agency, Inc. (CPI), and Ronald J. Hettler and Robin Hettler against appellees. In the suit, appellants alleged that Nebb was guilty of legal malpractice and violati ons of the Texas Deceptive

1 John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by assignment. Tex. Gov = t Code Ann. ' 75.002(a)(1) (Vernon).2 Trade Practices Act (DTPA) fo r which Carper was vicariously liable because at all relevant times Nebb was employed by Carper. Appellees initially responded to the suit by a general denial and by asserting affirmative defenses including res judicata and judicial estoppel. Subsequent to the filing of their answer, appellees filed a motion seeking summary judgment. As grounds for that motion, they argued: 1) res judicata , as a matter of law, barred all claims; 2) judicial estoppel, as a matter of law, barred all clai ms; 3) the statute of limitations and the prof essional services exemption ba rred the DTPA claims; 4) as a matter of law, Nebb was not negligent with regar d to certain alleged failures to object to jury questions; and 5) as a matter of law, there was no proximate cause on appellants = allegations that Nebb fa iled to preserve error on matters relating to a Daubert/Robinson challenge to expert witness testimony and to jury questions submitted in the course of that trial. Prior to the time the summary judgment motion wa s set for hearing, appellants non-suited their DTPA claims. After the hearing, and without specifying its reasons for doing so, the trial court gr anted the motion and rendered a take-nothing summary judgment. Background In the 1997 suit underlying the one giving rise to this appeal, William David Brenholtz filed suit against CPI and the Hettler s (the Brenholtz suit) seeking the recovery of various damages suffered as the result of an alleged wrongful termination of his employment relationship with them. The ensuing jury trial resulted in a March 22, 2002 judgment against the Hettlers and CPI.3 Subsequent to the judgmen t, and on April 12, 2002, CPI filed a Chapter 11 bankruptcy proceeding, as did the Hettlers on April 15, 2002. In doing so, they were assisted by Nebb in the selection and employm ent of their bankruptcy counsel. In those proceedings, appellees filed a proof of cl aim for the unpaid balance of Nebb = s fees for representing appellants in the Br enholtz suit which resulted in the payment of those fees. In the bankruptcy schedules listing all of appellants = assets and liabilities, although they included a potential legal malpractice cl aim against another attorney who had represented them in the Br enholtz suit prior to Nebb = s employment in that suit, they did not list any potential claim against any appel lees. Ultimately, the bankruptcy court approved reorganization plans submitted by appe llants which resulted in the payment of the Brenholtz judgment and the ultimate closure of the Hettlers = bankruptcy on July 26, 2006, and that of CPI on June 24, 2004. In July of 2005, with pleadings signed by Nebb, appellants filed a bill of review proceeding in the 364 th District Court of Lubbock County in which they sought a review of the Brenholtz suit on the basis that, in a re lated lawsuit against the Travelers Insurance Company, they had discovered information th at had not been revealed by Brenholtz, and which, they alleged, would have made a differ ence in the original suit. Appellee Nebb represented appellants in that proceedi ng. In that suit, despite Nebb = s testimony that such an imposition was not just ified, sanctions were assessed against appellants on the basis that appellants had not exercised due diligence in bringing the newly discovered evidence to the attention of the court. The suit against appellees, which gives rise to this appeal, was filed on December 12, 2006, over four years after the trial of the Brenholtz suit, two years after the close of4 the CPI bankruptcy, and some six months after the close of the Hettler bankruptcy. Appellants assert the suit could not have been f iled sooner because it was not until the fall of 2006, when they consulted a nother attorney, that they t hen learned that some of the alleged acts and omissions of Nebb in the Brenhol tz suit might constitute malpractice. They also argue that until that time , they had reasonably relied upon Nebb = s representations that he had done nothing that led to t he adverse judgment in the Brenholtz case but that they might have a ma lpractice claim against another attorney who earlier represented them in the suit. Discussion In pursuing their appeal, appellants present si x issues for our review. However, because it is determinative of this appeal, it is only necessary for us to discuss their first issue. In that issue, appellants argue the tr ial court erred in rendering summary judgment on the basis of res judicata. The standards by which summary judgments are reviewed are by now axiomatic. When reviewing a summary judgm ent, the reviewing court takes as true all evidence favorable to the nonmovant, and resolves any doubts and indulges any reasonable inferences in the nonmovant = s favor. South Plains Switching, Ltd. v. BNSF Ry. Co., 255 S.W.3d 690, 699 (Tex. App.

B Amarillo 2008, pet. denied). The summary judgment is reviewed de novo , and when the trial court = s order does not specif y the ground or grounds relied upon for its ruling, it will be affirmed if any of the theories advanced are meritorious. Id. Res Judicata5 Appellees argue that any le gal malpractice claim again st them because of Nebb = s representation of appell ants in the Brenholtz suit is barred by the res judicata doctrine. In doing so, they point out that they filed a proof of claim in the bankruptcies seeking to collect unpaid legal fees for services rendered by Nebb in the Brenholtz suit. That being true, they argue, any claims for legal malpract ice were compulsory counterclaims in those bankruptcies, and appellants = failure to assert any such claim in response to Nebb = s quest for payment of legal services rendered in those suits precludes t hem from making any such claim now. Parenthet ically, appellees acknowledge that inasmuch as they presented a traditional summary judgment moti on, they carried the burden of proving each element of res judicata as a matter of law. Joachim v. Travelers Ins. Co., 279 S.W.3d 812, 815 (Tex. App.

B Amarillo 2008, pet. granted). Res judicata , sometimes referred to as A claim preclusion, @ prevents parties and their privies from relit igating a cause of action that has been fully adjudicated as well as any claims or defenses that through diligen ce should have been litigated but were not. The doctrine is intended to prevent causes of action from being split, thus curbing vexatious litigation and prom oting judicial economy. Ingersoll-Rand Co. v. Valero Energy Corp. , 997 S.W.2d 203, 206-07 (Tex. 1999). Even so, the doctrine does not bar a former defendant who did not assert an affirmati ve claim for relief in an earlier action from stating a claim in a later action that could have been filed as a cross-claim or counterclaim in the earlier action, unless the cl aim inclusion was compulsory in the earlier action. Id . at 207. In supporting their claim that res judicata is applicable, appellees point to the undisputed facts that a proof of claim for unpaid attorney = s fees was filed in the6 bankruptcies, that th ose unpaid attorney = s fees related to work performed by Nebb in defending the Brenholtz lawsuit, that no contest was made to the payment of that claim, that the bankruptcy court author ized the payment of those f ees, and that they were paid by appellants. Noting the Fifth Circuit C ourt of Appeals holding In re Intelogic Trace, Inc., 200 F.3d 382 (5 th Cir. 2000), appellants recognize that res judicata of a compulsory counterclaim may apply to clai ms made in bankruptcy. Howeve r, in doing so they point out that court = s caveat: Even if the two actions are the sa me under the transactional test, res judicata does not bar this action unless [plaintiff] could and should have brought its malpractice claims in the former proceedings.
* * * In reaching our determination, we c onsider whether and to what extent [plaintiff] had actual or imputed awarene ss prior to the fee hearing of a real potential for claims against Ernest & Y oung such as those asserted by the Trustee and whether the bankruptcy court possessed procedural mechanisms that would have allowed [p laintiff] to assert such claims. Id. at 388. In considering the Intelogic court = s teaching, appellants ar gue that while the bankruptcy court did possess procedural mechani sms that would have allowed them to assert malpractice claims against appellees, they had presented fact issues as to whether they had actual or implied notice of a real potential for claims against appellees prior to the bankruptcy court = s plan confirmations in Oc tober 2003. Thus, it was necessary to determine those fact questions bef ore it could be determined if their claim against appellees for legal malpractice was a compulsory counterclaim in the bankruptcy7 proceeding. That being so, they contend, any application by the trial court of the res judicata doctrine would constitute reversible error

. Appellants = argument requires us to examine in some deta il the implications of Texas Rule of Civil Procedure 97 (a), the compulsory countercl aim rule. A counterclaim is compulsory if 1) it arises out of the transact ion or occurrence that gives rise to the opposing party = s claim; 2) it is mature and owned by the counter-claimant; 3) it is against an opposing party in the same capac ity; 4) it does not require third parties who cannot be brought into the suit; 5) it is within the court = s jurisdiction; and 6) it is not pending elsewhere. Tex. R. Civ. P. 97(a); Wyatt v. Shaw Plumbing Co., 760 S.W.2d 245, 247 (Tex.1988); South Plains Switching, Ltd. v. BNSF Ry. Co., 255 S.W.3d at 699. If a claim meets those elements, it must be asserted in the initial action and cannot be later raised. Id. In the seminal case of Ogletree v. Crates , 363 S.W.2d 431, 435 (Tex. 1963), the court instructed that A [t]he rule of res judicata in Texas bars all litigation of all issues connected with a cause of action or defense which, with the ex ercise of diligence, might have been tried in a former trial, as well as those that were actually tried. @ Appellants argue that even if their legal malpractice claim would otherwise have been a compulsory counterclaim to appellees = bankruptcy court claim for atto rney fees, because they have raised fact issues concerning when they knew , or in the exercise of reasonable diligence should have known that they had a c ause of action against appellees, the A Ogletree rule @ required determination of that question before the compulsory counterclaim rule would have come into play. They also contend that they had raised fact issues as to whether8 their cause of action against appellees accrued long after appellees = claims for attorney’s fees had been approved by the bankruptcy court. Thus, they argue, the compulsory counterclaim rule was not applicable and prevented any application of the res judicata doctrine to bar their legal malpractice claims. In deciding appellants = due diligence and accrual argu ments, we note the court = s decision in Bailey v. Travis , 622 S.W.2d 143 (Tex. App.

B Eastland 1981, writ ref = d n.r.e.). In that case, as we are her e, the court was also consid ering three underlying cases 2 and questions as to implications of the compul sory counterclaim rule and imposition of res judicata by the trial court. Because that court = s reasoning and disposition of those questions is instructive and determinative here, we must discuss that case at some length.

2 The three cases involved here are: 1) the Brenholtz case during which the alleged malpractice occurred; 2) the bankruptcies in which the attorney = s fees were approved; and 3) this case involv ing alleged legal malpractice.9 In Bailey, the court opined that the question fo r its determination was whether a legal malpractice claim had A matured @ so as to be a compulsory counterclaim in an earlier suit filed by an attorney against a former client for attorney = s fees. Like the case before

us, Bailey involved three underlying cases. In Bailey 1, Bailey had been represented by attorney William Travis (Travis) and the case had resulted in a judgment adverse to Bailey. Following the trial, Bailey employed a different atto rney to prosecute an appeal. Travis then sued Bailey (Bailey II), and recovered a judgment for attorney = s services performed by him in Bailey I. Bailey did not f ile a counterclaim urging legal malpractice in the Bailey II suit. Subsequently, Bailey sued Travis (Bailey III) seeking damages for alleged legal malpractice during the trial of Bailey I. The trial court rendered summary judgment against Bailey in Ba iley III which gave rise to the appeal discussed by the appellate court. In its discussion, the appellate court noted th at the narrow issue to be decided by it was whether Bailey = s malpractice claim was A mature @ when he was sued by Travis for attorney = s fees in Bailey II. If it was, t he court observed, than the summary judgment was proper because Bailey had failed to file a compulsory counterclaim under Texas Rule of Civil Procedure 97(a). Id. at 143-44. In pursuing his appeal, Bailey contended that the malpractice claim was not mature at the time he answered in Bailey II, because Bailey I was on appeal and it was therefore unsettled as to what damages, if any, he might have suffered as a result of Travis = malpractice. Id. That argument and the facts under lying it are significantly similar to those advanced here by appellants.10 In affirming the trial court = s summary judgment, the appella te court opined that the maturity of a counterclaim was not A necessarily equivalent to > accrual = of a malpractice cause of action for statut e of limitations purposes. @ Id. at 144. Even so, it continued, Bailey had A clearly @ suffered harm when the trial cour t judgment was entered against him in Bailey I and he was forced to appeal that decis ion, and it was not necessary that the full extent of the damages be known at that time. Id . Thus, the court concluded, it was apparent at the time he filed his answer in Bailey II, Bailey had been damaged or harmed as a result of the alleged malpractice and his claim for damages resulting from that alleged legal malpractice had ripened into an enforceable cause of action even though the full extent of his damages might not have been known. Id. Likewise, in the case before us, appell ants had clearly suffered harm when they suffered the adverse judgment in the Brenholtz suit. Thus, any right of action against appellees for legal malpractice had accrued at the time appellees made claims in the bankruptcy court for attorney = s fees rendered in the Brenholtz suit. That being so, any legal malpractice claim by appellants became a compulsory counterclaim at that time. The failure to assert that compulsory counterclaim timely prevents it being raised again in the suit underlying this appeal. Thus, the trial court correctly concluded that res judicata was applicable to appellants = claims here. That decision requires us to overrule appellants = first issue, and, because res judicata was properly applicable, it supports the trial court = s judgment and obviates the necessity for discussion of appellants = other issues. The judgment of the trial court must be, and is, hereby affirmed.11 John T. Boyd Senior Justice