Court Opinion

ID: 14857
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:39:32+00
Date Added: 2024-06-11T12:32:33.797785
License: Public Domain

REVISED, June 17, 1998

              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT

                      _____________________

                           No. 97-10167
                      _____________________

     THE FIRST NATIONAL BANK OF DURANT,

                                    Plaintiff-Appellant,

                               versus

     TRANS TERRA CORPORATION INTERNATIONAL, ET AL.,

                                    Defendants,

     LANE & DOUGLASS and DON R. LANE,

                                    Defendants-Appellees.

                            No. 97-10914

     THE FIRST NATIONAL BANK OF DURANT,

                                    Plaintiff-Appellant,

                               versus

     MALCOLM C. DOUGLASS,

                                    Defendant-Appellee.

     _______________________________________________________

        Appeals from the United States District Court for
                  the Northern District of Texas
     _______________________________________________________
                           May 27, 1998

Before REAVLEY, JONES and BENAVIDES, Circuit Judges.

REAVLEY, Circuit Judge:
     The principal issue in this diversity case is whether a

lender can pursue a negligence claim against an attorney who, in

the course of representing a borrower, submits an inaccurate

title opinion to the lender.   Because we hold that Texas law

allows for such a claim under the facts presented, we reverse.

                            BACKGROUND

     Tim Epps was the president and owner of Trans Terra

Corporation International (Trans Terra).   Trans Terra owned

interests in six oil and gas wells known as the Ledrick wells,

located in Roberts County, Texas.    Attorney Malcolm Douglass, of

the firm of Lane & Douglass, prepared a lease on the Ledrick

wells for Epps in 1990.   In the course of preparing the lease and

a 1992 opinion letter, he personally went to the Roberts County

courthouse to examine title records on the wells.   Thereafter he

prepared numerous title opinions on the wells purporting to show

the ownership interests of Trans Terra.    In preparation of these

later opinions he did not examine courthouse records for the

documents affecting the title, but instead relied on information

provided to him by Epps and a landman, Chuck Robinson.

     In October of 1993 Epps approached appellant First National

Bank in Durant (the Bank), seeking a $2 million loan to Trans

Terra, to be secured by Trans Terra’s interest in the Ledrick

wells.   In considering the loan request, the Bank reviewed 1993

title opinions Douglass had prepared for Trans Terra.    These

title opinions were addressed to Epps and Trans Terra.

                                 2
     In November of 1993 the Bank agreed to loan Trans Terra $1.5

million, provided that the Bank receive an updated title opinion

addressed to the Bank.   Attorney Ben Munson documented the loan

transaction for the Bank by preparing all of the loan documents

except the title report.   He prepared a promissory note and a

deed of trust providing a description of the collateral derived

in part from Douglass’ title opinions.    The property descriptions

state that Trans Terra had a .33 net revenue interest in three of

the Ledrick wells and a .48761 net revenue interest in the other

three Ledrick wells.

     The loan was set for closing on November 19.    On November 18

Munson faxed Douglass a letter requesting a title opinion on the

Ledrick wells that was (1) “dated within 30 days of November 19,

1993,” and (2) addressed to the Bank.    Douglass had no prior

notice that he was to prepare such a title opinion.    Epps flew to

Oklahoma for the November 19 closing.    Bank officers and Munson

attended the closing on behalf of the Bank.    Epps did not bring

the title opinion the Bank expected.    Epps called Douglass and

requested the opinion.   This conversation was made on a speaker

phone in the presence of Munson and the Bank personnel.    Epps

told Douglass that he had promised the Bank a title opinion and

asked Douglass to prepare it.   Munson recalled that Epps told

Douglass he was in the process of closing a loan and needed a

title opinion directed to the Bank as soon as it could be

completed.   Douglass stated that he did not have time to prepare

the opinion that day.    Epps and the Bank agreed to sign the loan

                                  3
documents with the understanding that the loan would not fund

until the title report was received.

     On the following Monday, November 22, Douglass forwarded a

title opinion to the Bank.   As requested, this title opinion was

addressed to the Bank.   It states that the “title opinion is

rendered solely and exclusively for your benefit.”    It also

states that Douglass has “examined the Deed Records of Roberts

County, Texas, from inception of title to the date of this

opinion as to the captioned acreage.”   In fact, Douglass had not

examined records at the courthouse to the date of the opinion,

and had not received any new information from the landman,

Robinson.

     Trans Terra defaulted on the loan.   The Bank proceeded to

foreclose on the collateral, namely Trans Terra’s interests in

the Ledrick wells.   The November 22 title opinion and earlier

title opinions prepared by Douglass were incorrect.    For example,

Douglass later wrote the Bank in December of 1994, informing it

that Trans Terra’s net revenue interest on the Ledrick 55-1 well

was .039375, versus .33 as represented in the November 22 title

opinion, and the net revenue interest in the Ledrick 55-4 well

was .028150, versus .33 as represented.   In preparing the title

opinion Douglass failed to discover certain instruments which

caused Trans Terra’s interests in the Ledrick wells to be

substantially smaller that those represented in the title

opinion.    The Bank’s expert testified that Douglass was negligent

                                  4
in preparing the title opinion without having examined the

courthouse records.

     The Bank sued Trans Terra, Epps, Douglass, Lane & Douglass,

and Douglass’ law partner Don Lane.   Trans Terra and Douglass

filed for bankruptcy.   Proceedings against Trans Terra and

Douglass were severed and administratively closed.   The Bank and

Epps later entered into an agreed but uncollectible judgment.

The case proceeded to trial against the law firm and Lane, based

on theories of legal malpractice and negligent misrepresentation

on the part of Douglass.   The jury sided with the Bank, finding

an attorney-client relationship between Douglass and the Bank,

and negligence on the part of Douglass.   It awarded damages in

the amount of the deficiency on the loan.

     The district court granted a post-verdict motion for

judgment as a matter of law in favor of defendants Lane and the

law firm.   It concluded that under Texas law the Bank was not

Douglass’ client, and therefore could not recover against these

defendants.   Douglass then dismissed his bankruptcy case,

notified the district court that the automatic stay had been

terminated, and moved for summary judgment based on the court’s

judgment in favor of Lane and the law firm.   The court granted

summary judgment in favor of Douglass, consistent with its prior

ruling that the absence of attorney-client privity between the

Bank and Douglass precluded a recovery for the Bank.

     The Bank appeals the judgment in favor of Lane and the law

firm, and the separate judgment entered in favor of Douglass.

                                 5
Appellees concede that if the judgment as a matter of law in

favor of Lane and the law firm must be reversed, the summary

judgment in favor of Douglass cannot stand.

                              DISCUSSION

     A judgment as a matter of law is warranted if the facts and

inferences point so strongly and overwhelmingly in favor of one

party that reasonable people could not arrive at a verdict to the

contrary.1    In this diversity case, we must of course endeavor

to decide the case as the Texas Supreme Court would decide it.2

A.   Attorney-Client Privity and Negligent Misrepresentation

     The district court concluded that a reasonable jury could

not find an attorney-client relationship between Douglass and the

Bank.    The Bank argues that there was sufficient evidence to

support such a finding, and alternatively, that the Bank can

recover under a negligent misrepresentation theory irrespective

of an attorney-client relationship.    We find merit with the

latter argument.

     Texas law is clear that a legal malpractice claim requires

proof of an attorney-client relationship between the plaintiff

and the defendant attorney.    In Banc One Capital Partners

Corporation v. Kneipper, we explained:

     1
        Texas Farm Bureau v. United States, 53 F.3d 120, 123 (5th
Cir. 1995).
     2
        Texas Dep’t of Housing and Community Affairs v. Verex
Assurance, Inc., 68 F.3d 922, 928 (5th Cir. 1995); Jackson v.
Johns-Manville Sales Corp., 781 F.2d 394, 397-98 (5th Cir. 1986)
(en banc).

                                  6
     In order to establish liability for professional
     negligence or legal malpractice, the [plaintiffs] must
     show the existence of a duty owed to them by [the
     attorney], a breach of that duty, and damages arising
     from the breach. Under Texas law, there is no
     attorney-client relationship absent a showing of
     privity of contract, and an attorney owes no
     professional duty to a third party or non-client.3

     This principle was confirmed in Barcelo v. Elliott,4 where

the Texas Supreme Court held that an attorney who negligently

drafts a will or trust agreement owes no duty of care to the

beneficiaries of the will or trust.      The court noted that the

“potential tort liability to third parties would create a

conflict during the estate planning process, dividing the

attorney’s loyalty between his or her client and the third-party

beneficiaries.”5       It reasoned that “the greater good is served

by preserving a bright-line privity rule which denies a cause of

action to all beneficiaries whom the attorney did not represent.

This will ensure that attorneys may in all cases zealously

represent their clients without the threat of suit from third

parties compromising that representation.”6      It also expressed

concern that “[w]ithout this ‘privity barrier,’ the rationale

goes, clients would lose control over the attorney-client

     3
         67 F.3d 1187, 1198 (5th Cir. 1995) (citations omitted).
     4
         923 S.W.2d 575 (Tex. 1996).
     5
         Id. at 578.
     6
         Id. at 578-79.

                                    7
relationship, and attorneys would be subject to almost unlimited

liability.”7

     In support of the existence of an attorney-client

relationship between Douglass and the Bank, the Bank points out

that the November 22 title opinion was addressed to the Bank, and

states that it “is rendered solely and exclusively for [the

Bank’s] benefit.”      Appellees Douglass, Lane, and Lane & Douglass

(hereinafter the lawyers) point to evidence rebutting the

existence of an attorney-client relationship.     The Bank had its

own counsel, Munson.     Munson’s letter to Douglass requesting the

preparation of the title opinion states that “[i]t is my

understanding that you represent Trans Terra Corporation

International,” the borrower.     Douglass never billed the Bank for

his services, and consistent with lending practices, the borrower

paid all the closing costs, including the legal fees of Douglass

and Munson.    Douglass testified that his clients were Trans Terra

and Epps.   Further, the title opinion states in its opening

sentence that it was prepared at the request of Epps.

     We agree with the district court that the lawyers were

entitled to judgment as a matter of law on the legal malpractice

claim, because no attorney-client relationship existed between

Douglass and the Bank.     The mere fact that the November 22 letter

was addressed to the Bank, or states it was prepared for the

benefit of the Bank, is insufficient to establish an attorney-

client relationship.     In Bank One, the opinion letter in issue

     7
         Id. at 577.

                                    8
was addressed to the plaintiff investors, and stated that it was

furnished solely for their benefit, yet we held as a matter of

law that no attorney-client relationship existed between the

investors and the defendant law firm retained by the issuer of

the securities purchased by the plaintiffs.8    Further, the

statement in the opinion letter that it was rendered solely and

exclusively for the Bank’s benefit must be read in context.    The

next sentence states that “[i]t is not a representation of the

title to the subject acreage to any other party.”    The disclaimer

was plainly intended to protect Douglass from claims of reliance

by parties other than the Bank, rather than to manifest an

intention to create an attorney-client relationship.

     An attorney-client relationship can arise by express

agreement or by implication from the parties’ actions.9

However, courts will not readily find an implied relationship

“absent a sufficient showing of intent.”10    In Banc One, we held

as a matter of law that neither an expressed nor implied

attorney-client relationship existed based on a single letter

addressed to plaintiffs and purporting to give an opinion solely

for their benefit.

     Likewise, a rational jury could not find an implied

attorney-client relationship in this case based on the November

22 title opinion, where (1) Douglass did not bill the Bank for

     8
          Banc One, 67 F.3d at 1199 & n.21.
     9
          Id. at 1198.
     10
          Id.

                                  9
his services, (2) the Bank had its own counsel, (3) the Bank’s

counsel stated in his November 18 letter his understanding that

Douglass represented Trans Terra, not the Bank, (4) Douglass

testified without qualification that his clients were Epps and

Trans Terra, not the Bank, and (5) the title opinion states that

it was prepared at the request of Epps.11   The attorney-client

relationship is contractual in nature.12    Whether the contract is

express or implied, there must be a meeting of the minds that the

attorney will render professional services to the client.13    An

“implied” contract merely refers to the manner of proof; the

meeting of the minds is inferred from the conduct of the parties

or the circumstances.14   On these facts, a rational jury could

not infer a meeting of the minds that Douglass would serve as

attorney for the Bank.

     The Bank argues that the testimony of its attorney expert

supports a finding of an express or implied attorney-client

     11
       Cf. Kotzur v. Kelly, 791 S.W.2d 254, 258 (Tex. App.--
Corpus Christi 1990, no writ) (holding that fact issue precluded
summary judgment on issue of implied attorney-client relationship
where attorney admitted that he knew that plaintiffs did not have
a separate attorney, and charged plaintiffs for his services.)
     12
       Vinson & Elkins v. Moran, 946 S.W.2d 381, 405 (Tex. App.-
-Houston [14th Dist.] 1997, writ dism’d by agr.).
     13
       Id.; Hallmark v. Hand, 885 S.W.2d 471, 476 (Tex. App.--El
Paso 1994, writ denied) (holding that elements of a contract,
including element of meeting of minds, are the same whether the
contract is express or implied).
     14
       Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros.
Welding Co., 480 S.W.2d 607, 609 (Tex. 1972); Williford v.
Submergible Cable Servs., Inc., 895 S.W.2d 379, 384 (Tex. App.--
Amarillo 1994, no writ).

                                 10
relationship between Douglass and the Bank.        He testified that

when a lawyer addresses a title opinion to a lender, the lawyer

is “in effect” representing the Bank.     We agree with the lawyers

that the unqualified statement by the expert that the lawyer

always represents the addressee of a title opinion is a legal

conclusion that will not support the verdict, and is further an

incorrect statement of the law.      The designation of an addressee

in a title opinion letter, without more, does not establish a

meeting of the minds that the author of the title opinion will

serve as counsel to the addressee.

      Even though an attorney-client relationship did not exist

between Douglass and the Bank, we agree with the Bank that under

the facts presented Texas law allows it a cause of action under a

theory of negligent misrepresentation.        At the outset we note

that the Bank’s complaint asserted separate causes of action for

attorney malpractice and negligent misrepresentation.        Likewise,

the jury charge instructed the jury on both legal malpractice and

negligent misrepresentation (the former requiring proof of an

attorney-client relationship), and the jury found liability and

damages under both theories.

      The Texas Supreme Court, in Federal Land Bank Association of

Tyler v. Sloane,15 adopted the common law cause of action for

negligent misrepresentation as set out in the RESTATEMENT (SECOND)

OF TORTS   § 552 (1977).   Under § 552:

      15
           825 S.W.2d 439, 442 (Tex. 1991).

                                    11
     (1) One who, in the course of his business, profession
     or employment, or in any other transaction in which he
     has a pecuniary interest, supplies false information
     for the guidance of others in their business
     transactions, is subject to liability for pecuniary
     loss caused to them by their justifiable reliance upon
     the information, if he fails to exercise reasonable
     care or competence in obtaining or communicating the
     information.
     (2) Except as stated in Subsection (3), the liability
     stated in Subsection (1) is limited to loss suffered
       (a) by the person or one of a limited group of
     persons for whose benefit and guidance he intends to
     supply the information or knows that the recipient
     intends to supply it; and
       (b) through reliance upon it in a transaction that he
     intends the information to influence or knows that the
     recipient so intends or in a substantially similar
     transaction.

     Sloane expressly agreed with the Restatement’s definition,

and also set out its own elements of the negligent

misrepresentation cause of action:

     (1) the representation is made by a defendant in the
     course of his business, or in a transaction in which he
     has a pecuniary interest; (2) the defendant supplies
     “false information” for the guidance of others in their
     business; (3) the defendant did not exercise reasonable
     care or competence in obtaining or communicating the
     information; and (4) the plaintiff suffers pecuniary
     loss by justifiably relying on the representation.16

     Under either formulation of the elements of a negligent

misrepresentation claim, the evidence supports a finding of

liability against Douglass.

     The lawyers argue that a negligent misrepresentation cause

of action cannot be asserted against an attorney absent an

attorney-client relationship between the plaintiff and the

attorney.    In F.E. Appling Interests v. McCamish, Martin, Brown &

     16
          Sloane, 825 S.W.2d at 442.

                                  12
Loeffler,17 the Texarkana Court of Appeals recently held that

attorneys are subject to liability under the § 552 cause of

action for negligent misrepresentation, whether or not an

attorney-client relationship existed.    In Appling, decided after

the district court granted the motion for judgment, the plaintiff

sued a savings association, VSA, under a lender liability theory.

The parties worked toward a settlement, but the plaintiff was

concerned that the settlement agreement would not be enforceable

if VSA became insolvent and was taken over by the FSLIC.    To

complete the settlement, an attorney for the defendant law firm

signed a settlement agreement, stating that VSA and its counsel

represent that the agreement has been approved by the VSA board

of directors and otherwise meets the requirements of 12 U.S.C. §

1823(e).    Later, VSA did become insolvent, the FSLIC became the

receiver, and a federal court held that the settlement agreement

was unenforceable because it did not comply with § 1823(e).

After analyzing Barcelo and other authorities, the court held

that contractual privity between the plaintiff and the defendant

attorney is not required if the elements of a § 552 negligent

misrepresentation claim are otherwise met.18

     The Appling court reasoned that a negligent

misrepresentation claim is not premised on the breach of a duty a

professional owes his client or others in privity, but on an

independent duty based on the attorney’s manifest awareness of

     17
          953 S.W.2d 405 (Tex. App.--Texarkana 1997, writ denied).
     18
          Id. at 406-08.

                                  13
plaintiff’s reliance on the representation and intention that the

plaintiff so rely.19    It noted that its holding did not conflict

with Barcelo, since the plaintiffs in that case “would have no

negligent misrepresentation cause of action because the defendant

never made a representation to them.”20

     “[A] decision by an intermediate appellate state court ‘is a

datum for ascertaining state law which is not to be disregarded

by a federal court unless it is convinced by other persuasive

data that the highest court of the state would decide

otherwise.’”21     Although the lawyers correctly point out that

Appling is in conflict with earlier intermediate state appellate

court decisions,22 we are persuaded that the Texas Supreme Court

would agree with Appling.    It is the latest authority from the

Texas courts, and in our view is directly on point.    The Texas

Supreme Court denied review in Appling.    The Appling court had

the benefit of the Texas Supreme Court’s decisions in Sloane and

Barcelo, the most recent Texas Supreme Court decisions relevant

to the issue presented, and discussed both cases.    We further

     19
          Id. at 408.
     20
          Id. at 409.
     21
          Verex Assurance, 68 F.3d at 928 (citation omitted).
     22
       Thompson v. Vinson & Elkins, 859 S.W.2d 617, 623 (Tex.
App.--Houston [1st Dist.] 1993, writ denied); First Mun. Leasing
Corp. v. Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W.2d
410, 413-14 (Tex. App.--Dallas 1983, writ ref’d n.r.e.); Bell v.
Manning, 613 S.W.2d 335, 337-38 (Tex. Civ. App.--Tyler 1981, writ
ref’d n.r.e.).

                                  14
note that writing contrary to Appling in earlier Texas cases was

not essential to the holdings in those cases.23

     We also conclude that the Texas Supreme Court’s reasons for

requiring attorney-client privity in legal malpractice cases do

not compel a privity requirement in a negligent misrepresentation

case such as this one.     As discussed above, Barcelo reasoned that

the privity requirement is justified because: (1) “potential tort

liability to third parties would create a conflict during the

estate planning process, dividing the attorney’s loyalty between

his or her client and the third-party beneficiaries;”24 (2) the

privity requirement “will ensure that attorneys may in all cases

zealously represent their clients without the threat of suit from

third parties compromising that representation;”25 and (3)

“[w]ithout this ‘privity barrier’ . . . clients would lose

     23
       While Thompson rejects the application of § 522 to
lawyers, it is readily distinguishable from Appling and the
pending case because the evidence was undisputed that the law
firm defendant made no representations to the plaintiffs. 859
S.W.2d at 622. First Municipal Leasing imposed a privity
requirement in a negligent misrepresentation case, but also held
that even absent a privity requirement “the final result in the
present case would be the same . . . . [T]he non-client First
Municipal could not recover for the alleged negligence because it
did not rely upon the opinion of the Attorneys.” 648 S.W.2d at
413. Similarly, Bell requires privity between the attorney and
the plaintiff, but indicates that the result would have been the
same without a privity requirement because “we fail to see how
the [representation] could be classified as a negligent
representation . . . .” 613 S.W.2d at 339.
     24
          Barcelo, 923 S.W.2d at 578.
     25
          Id. at 578-79.

                                  15
control over the attorney-client relationship, and attorneys

would be subject to almost unlimited liability.”26

     These concerns are not present where the negligent

misrepresentation claim is premised on the facts presented in the

pending case.    There is no conflict of interest where, as here,

both the client borrower and the third party lender jointly ask

the attorney to prepare an opinion letter.   A conflict could only

arise if the client secretly hopes that the title opinion will

contain false information, and we see no reason to protect the

attorney from his own negligence with a privity barrier in such

circumstances.   We see no burden on zealous representation when

both the lender and client request a discrete service from the

attorney, namely the preparation of a title opinion.   Again,

barring sinister motives of the client, both   client and lender

seek only a accurate title opinion.   Further, where as here the

client directs the attorney to prepare a title opinion for a

single lender, and the attorney prepares the opinion disclaiming

liability to any party other than the lender, there is little

risk that the client will lose control over the attorney-client

relationship or the attorney will face unlimited liability.

B.   Other Issues

     The lawyers argue that the evidence does not show that the

inaccurate title opinion was the proximate cause of any injury to

the Bank, since the loan documents were signed before the title

opinion was received.   The evidence shows, however, that Epps and

     26
          Id. at 577.

                                 16
the Bank agreed that the loan would not fund, and indeed it did

not fund, until the title opinion was received.           The lawyers

argue that the Bank was legally obligated to fund the loan after

the loan documents were signed, whether or not the title opinion

was received.   A rational jury could conclude that, regardless of

the terms of the loan documents, Epps understood that no loan

proceeds would be forthcoming without the title opinion, and that

he would not have demanded the proceeds without the title

opinion.   Further, the loan agreement states that the borrower

agrees to furnish certain defined financial information and “such

other information from time to time as Bank may reasonably

request,” and the deed of trust requires Epps to furnish, at any

time upon request of the Bank, real estate documents, including

“instruments of further assurance . . . and other documents as

may in the sole opinion of the [Bank] be necessary or desirable

to effectuate, complete, perfect, continue or preserve” Trans

Terra’s loan obligations.

     The lawyers argue that the jury was incorrectly instructed

that the measure of damages is “the amount of money paid out by

the Bank, minus recoveries had on the loan.”        They argue that the

correct measure of damages is the difference between the true

value of the collateral and the value of the collateral as

represented in the title opinion.      We agree with the district

court’s instruction.   In Sloan, the court adopted the measure of

damages as set out in RESTATEMENT (SECOND)   OF TORTS   § 552B (1977).

     Under § 552B:

                                  17
     (1) The damages recoverable for a negligent
     misrepresentation are those necessary to compensate the
     plaintiff for the pecuniary loss to him of which the
     misrepresentation is legal cause, including
       (a) the difference between the value of what he has
     received in the transaction and its purchase price or
     other value given for it; and
       (b) pecuniary loss suffered otherwise as a
     consequence of the plaintiff’s reliance upon the
     misrepresentation.
     (2) the damages recoverable for a negligent
     misrepresentation do not include the benefit of the
     plaintiff’s contract with the defendant.27

     The evidence supports a measure of damages equal to the

entire amount of the loan, minus the amounts secured through note

payments and foreclosure, since such a measure reflects the

“pecuniary loss suffered otherwise as a consequence of the

plaintiff’s reliance upon the misrepresentation.”       The Bank’s

president testified that if the November 22 title opinion had

shown Trans Terra’s true interests in the Ledrick wells, the Bank

would not have made the loan at all, for two reasons.       First, the

Bank would not have made the loan if the interests set out in the

title opinion had been seriously at odds with earlier

representations of Trans Terra’s interests.    Second, the cash

flow expected from the true interests would not have been

sufficient to support the loan.28

     27
          Sloane, 825 S.W.2d at 442 (emphasis added).
     28
       While the jury instruction was correct, we note that
testimony regarding the amount of the Bank’s damages does not
appear to square with the correct measure of damages. The Bank’s
president testified that the Bank recovered $501,766 at
foreclosure, on a loan of $1.5 million. Yet he testified that
the amount still owing on the note was $1,214,260. This figure
apparently includes interest the Bank would have received under
the terms of the note. However, § 552B, as quoted above, does
not allow the plaintiff to recover the benefit of the plaintiff’s

                                  18
     The lawyers moved for a new trial in the alternative to

their motion for judgment.      The district court denied this

motion, which was mooted by the granting of the motion for

judgment.     The lawyers contend that if we reverse the judgments,

we should hold that they are entitled to a new trial rather that

entry of judgment against them on the jury verdict.

     The ground for the new trial motion was that the district

court allowed the Bank’s expert to testify about the November 22,

1993 title opinion.     The lawyers complain that the expert report

produced before trial did not reference that title opinion as a

document the expert had reviewed, as required by FED. R. CIV. P.

26(a).

     “The admission or exclusion of expert testimony is a matter

left to the discretion of the trial court, and that decision will

not be disturbed on appeal unless it is manifestly erroneous.”29

Further, the admission of expert testimony in violation of Rule

26(a) is subject to harmless error analysis.30

     The district court did not manifestly err in allowing the

expert to testify about the November 22 title opinion.      The

contract. Sloane explains that § 552B “allows for damages
suffered in reliance upon negligent misrepresentation, but not
for the failure to obtain the benefit of the bargain.” 825
S.W.2d at 443. Accordingly, the Bank is only entitled to recover
the amount of principal it originally loaned, minus the amounts
secured through pre-default loan payments and foreclosure, plus
any prejudgment and post-judgment interest Texas law might allow.
     29
       Eiland v. Westinghouse Elec. Corp., 58 F.3d 176, 180 (5th
Cir. 1995).
     30
          FED. R. CIV. P. 37(c)(1).

                                      19
expert report indicates that the expert had reviewed numerous

other title opinions Douglass had prepared, which provided

essentially the same opinions contained in the November 22 title

opinion.    The expert report goes on to give the opinion that

Douglass was negligent “in the preparation of the oil and gas

title opinions” insofar as the opinions represent that he had

reviewed the courthouse records when in fact he had not.    The

report assumed that Douglass had not reviewed the courthouse

records.    The lawyers knew or should have known that the expert

would have the same opinion as to the November 22 title opinion,

whether or not he had reviewed it prior to preparing the expert

report, and that the Bank would ask him about that title opinion

at trial.

     The judgments below are reversed, and the case is remanded

for further proceedings consistent with this opinion.

     REVERSED and REMANDED.

ENDRECORD

                                 20
EDITH H. JONES, Circuit Judge, dissenting.

                With due respect to my colleagues’ sensitivity to Texas

law, and with some sympathy for the result they reach, I feel I

must respectfully dissent from the portion of the majority

opinion discussing negligent misrepresentation under RESTATEMENT

(RECORD)   OF   TORTS § 552.

                Texas case law is without doubt unclear regarding

whether lawyers are liable for the tort of negligent

misrepresentation absent a privity relationship.        Two lines of

cases now directly conflict with each other in their statement of

the law.        Compare F.E. Appling Interests v. McCamish, Martin,

Brown & Loeffler, 953 S.W.2d 405 (Tex. App.—Texarkana 1997, pet.

denied) (permitting a negligent misrepresentation claim against

an attorney absent privity) with Thompson v. Vinson & Elkins, 859
S.W.2d 617, 622-23 (Tex. App.—Houston [1st Dist.] 1993, writ

denied); First Mun. Leasing Corp. v. Blakenship, Potts, Aikman,

Hagin & Stewart, 648 S.W.2d 410, 413-14 (Tex. App.—Dallas 1983,

writ ref’d n.r.e.); Bell v. Manning, 613 S.W.2d 335, 338 (Tex.

Civ. App.—Tyler 1981, writ ref’d n.r.e.) (all holding that a

negligent misrepresentation claim pursuant to § 552 cannot be

made absent an attorney-client relationship).        Although, as the

majority here notes, the “anti-negligent misrepresentation” cases

may be factually distinguishable such that their holdings could

(not must) rest on other grounds, their statement of the law

could not be more clear and forthright—and contradictory to

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Appling.   The Supreme Court’s unfortunate denial of review in

Appling affords no solution to the dilemma.

           But in a closely related case, the Texas Supreme Court

has strictly construed the privity requirement for a legal

malpractice claim wherein third-party beneficiaries of a trust

sue the lawyer and law firm that created the trust.   See Barcelo

v. Elliott, 923 S.W.2d 575 (Tex. 1996).   In doing so, the court

rejected the position of the vast majority of states, which have

relaxed the privity barrier in the estate planning context.      See

id. at 577-78; see also id. at 579 (Cornyn, J., dissenting) (“By

refusing to recognize a lawyer’s duty to beneficiaries of a will,

the Court embraces a rule recognized by only four states, while

simultaneously rejecting the rule in an overwhelming majority of

jurisdictions.”).   Interestingly, Appling, the case from which

the majority here infer that Texas will extend to lawyers the

potential liability for negligent misrepresentation, relies

entirely upon cases from other states in dispensing with privity.

Appling has to distinguish two contrary Texas appellate cases to

reach its conclusion.

           Judge Reavley’s opinion is certainly not wrong, as it

reflects a rule many other states have adopted.   The only

question is whether the Texas Supreme Court, having made such a

bright-line decision for privity in Barcelo, will cut back on it

to adopt Appling.   I do not think these two decisions are easily

reconcilable in principle, in equity, or in fact.   Thus, I am

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wary of making the majority’s Erie-guess that Appling will become

governing Texas law.   I respectfully dissent.

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