Court Opinion

ID: 9363283
Source: CourtListenerOpinion
Date Created: 2023-01-13 19:00:30.672423+00
Date Added: 2024-06-11T17:15:30.411336
License: Public Domain

Case: 21-51234        Document: 00516609920             Page: 1      Date Filed: 01/13/2023

             United States Court of Appeals
                  for the Fifth Circuit
                                                                                United States Court of Appeals
                                                                                         Fifth Circuit

                                                                                       FILED
                                                                                January 13, 2023
                                       No. 21-51234                                  Lyle W. Cayce
                                                                                          Clerk

   In the Matter of Champion Printing & Copying, L.L.C.;
   formerly doing business as Jerry Hayes Photography

                                                                                     Debtor,

   John Patrick Lowe,

                                                                               Appellant,

                                            versus

   William B. Gammon; Gammon Law Office,

                                                                                Appellees.

                     Appeal from the United States District Court
                          for the Western District of Texas
                               USDC No. 1:21-MC-636

   Before Stewart, Willett, and Oldham, Circuit Judges.
   Per Curiam:*
         Jerry Hayes and United States Trustee John Patrick Lowe (the
   “Trustee”) appeal the district court’s order holding that William Gammon

         *
             This opinion is not designated for publication. See 5th Cir. R. 47.5.
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                                         No. 21-51234

   did not commit legal malpractice in filing what a Texas district and appellate
   court eventually declared a “groundless” suit. Because we hold that no
   reasonably prudent attorney could have filed this suit, and it caused his client
   to be sanctioned, we REVERSE and REMAND to the district court for the
   calculation of damages.
                                  I.      Background
                             A.        State Court Proceedings
          Hayes worked as a high-end wedding photographer at a company he
   co-owned, Champion Printing & Copying LLC (“Champion”). Champion
   was usually retained by wedding vendors, such as florists, to take photos of
   their work exclusively at weddings. Jennifer Nichols and Jennifer Lindberg
   worked as photographers at the same type of weddings as Hayes, except they
   functioned as traditional wedding photographers taking photos of the entire
   event. Nichols and Lindberg had exclusivity clauses in their contracts,
   preventing other photographers from taking pictures at weddings they
   worked. After some disputes with Nichols and Lindberg over enforcement of
   the exclusivity clauses—including at least one instance in which Hayes
   accused them of forcing a client to fire him—Hayes contacted William
   Gammon of Gammon Law Office about potentially representing Champion
   in a suit against Nichols and Lindberg.
          After their consultation, Gammon agreed to take Hayes’ case and
   sued Nichols and Lindberg on behalf of Champion in Travis County district
   court, alleging claims of conspiracy to restrain trade under Texas Business
   and Commerce Code § 15.05 (a) and (c) and tortious interference with
   existing and prospective contracts. The state court ultimately granted
   summary judgment in favor of Nichols and Lindberg. Shortly thereafter,
   Nichols and Lindberg filed a motion for sanctions against: (1) Champion,
   (2) Hayes, (3) the attorneys that filed suit on their behalf from Gammon,
   and (4) the Gammon Law Office. The state court granted the motion for

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   sanctions, but only as to Champion, holding that Champion “knew or should
   have known that it was groundless to assert that . . . two local photographers,
   control [the] worldwide high-end wedding industry about which he pled.”
   Furthermore, it held that Hayes’ social media activity 1 evidenced “that he
   authorized the lawsuit and . . . pleadings and motion in bad faith and for the
   improper purpose of discrediting [Nichols and Lindberg] to gain a
   competitive advantage over them.” (citing Tex. Civ. Prac. & Rem.
   Code § 10.001; Tex. R. Civ. P. 13).
          Champion appealed the judgment and sanctions to the Texas Court of
   Appeals. The appellate court upheld the judgment and imposition of
   sanctions, holding that Champion “(1) made groundless assertions of facts,
   and (2) brought the lawsuit for improper purposes.” The appellate court
   similarly observed that Champion knew “Nichols and Lindberg did not
   control a significant market share of the international . . . wedding industry
   and that an antitrust cause of action based on this fact situation was
   groundless.” Champion filed Chapter 7 bankruptcy in federal court after the
   Texas Supreme Court denied its petition for review of the appellate decision.
                             B.     Bankruptcy Proceedings
          Nichols and Lindberg filed the only proof of claim in Champion’s
   bankruptcy case, based on their $41,518.75 sanction award. In response, the
   Trustee filed suit in bankruptcy court against Gammon on behalf of
   Champion, alleging legal malpractice among other things. All claims except
   legal malpractice were successfully dismissed. The Trustee argued that
   Gammon knew or should have known that Champion’s lawsuit was
   groundless and his decision to file the lawsuit constituted legal malpractice.

          1
           Hayes’ social media activity included defamatory Facebook posts about Nichols
   and Lindberg and public advertisement of his pending suit against the photographers,
   which went on to garner public reaction.

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   The Trustee urged the bankruptcy court to adopt the holdings of the state
   trial and appellate courts, which had already held that the pleadings were
   groundless. He maintained that the bankruptcy court lacked authority to
   depart from the state courts on this issue. The bankruptcy court, nonetheless,
   held proceedings on the Trustee’s malpractice claim against Gammon.
           In accordance with Texas law, both the Trustee and Gammon brought
   competing experts on their respective malpractice theories. 2 The bankruptcy
   court concluded that the Trustee’s expert relied substantially on the state
   court holdings to demonstrate that Gammon negligently filed the complaint
   which led to Champion’s eventual sanctioning. It concluded that Gammon’s
   expert provided independent analysis on all the claims, their elements,
   selected case law, and the original state court petition in arguing that a
   reasonably prudent attorney could have filed Champion’s lawsuit.
   Ultimately, it noted that the Trustee’s expert, in reliance on the original state
   courts’ holdings, failed to demonstrate “the standard of care or produce an
   opinion based on what could have or should have been known to [Gammon]
   when the state court suit was filed.” It explained that “[b]ecause Texas law
   could be read to require expert testimony on causation and the standard of
   care in a malpractice case, the Trustee has failed to carry his burden and
   cannot succeed on a malpractice claim.”
           Because the malpractice action was not a “core proceeding” arising
   under Title 11, the bankruptcy court was unable to enter a final judgment. 3

           2
             See Cantu v. Horany, 195 S.W.3d 867, 873 (Tex. App.—Dallas 2006, no pet.)
   (noting that “a plaintiff in a legal malpractice suit is required to present expert testimony
   regarding causation and the standard of skill and care ordinarily exercised by an attorney”).
           3
             See 28 U.S.C. § 157(c)(1) (permitting bankruptcy courts to “hear a proceeding
   that is not a core proceeding,” but requiring that it “submit proposed findings of fact and
   conclusions of law to the district court”).

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   Instead, it submitted its findings of fact and conclusions of law to the district
   court to aid in its review.
                             C.        District Court Review
          At the district court proceedings, the Trustee argued that the
   bankruptcy court: (1) “used an inconsistent standard of review,”
   (2) “mischaracterized the Trustee’s legal theory,” (3) “mischaracterized
   certain portions of the expert testimony,” (4) “erroneously ‘re-tried the
   merits of the underlying state court action,’” and (5) “failed to evaluate the
   claim under the ‘obvious-negligence’ standard.” The district court disagreed
   and adopted the bankruptcy court’s findings of facts and conclusions of law.
   In doing so, it held that the bankruptcy court correctly: (1) identified and
   applied the proper objective standard to the case, (2) held that the state court
   proceedings did not bind it on the issue of malpractice, and (3) concluded
   that the Trustee failed to establish that Gammon breached his duty and
   caused the Trustee’s injury. In accord with the bankruptcy court’s
   determination, the district court ordered that the Trustee take nothing.
          On appeal, the Trustee argues that the district court erroneously
   applied a subjective duty of care standard—instead of the objective standard
   that Texas law requires—when evaluating Gammon’s decision to file
   Champion’s suit. Should we hold in his favor regarding duty and breach, he
   also contends that the district court erred in concluding that he failed to
   establish that Gammon caused the imposition of sanctions against
   Champion. Finally, he argues that damages were correctly calculated in the
   bankruptcy court’s proposed findings and conclusions, and asks that we
   award that amount on appeal.
                                 II.   Standard of Review
          Generally, “[w]e review the decision of a district court, sitting as an
   appellate court, by applying the same standards of review to the bankruptcy

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   court’s findings of fact and conclusions of law as applied by the district
   court.” Matter of Monge, 826 F.3d 250, 254 (5th Cir. 2016). Here, however,
   “the bankruptcy court submitted only proposed findings of fact and
   conclusions of law to the district court pursuant to 28 U.S.C. § 157(c)(1).”
   Id. (emphasis in original). “Unlike the district court, then, this court does not
   review the bankruptcy court’s proposed findings of fact and conclusions of
   law de novo but, instead, we review the district court’s findings of fact for
   clear error and its conclusions of law de novo.” Id. Clear error occurs where a
   finding is “not supported by substantial evidence.” Parkcrest Builders, LLC
   v. Liberty Mut. Ins. Co., 26 F.4th 691, 695 (5th Cir. 2022).
                                 III.      Discussion
          Under Texas law, “[a]n attorney malpractice action . . . is based on
   negligence.” Cosgrove v. Grimes, 774 S.W.2d 662, 664 (Tex. 1989). To
   prevail, the client must prove three basic elements: “(1) the lawyer owed a
   duty of care to the client; (2) the lawyer breached that duty; and (3) the
   lawyer’s breach proximately caused damage to the client.” Rogers v. Zanetti,
   518 S.W.3d 394, 400 (Tex. 2017). “A plaintiff must generally present expert
   testimony to establish the breach and causation elements.” Edwards v.
   Dunlop-Gates, 344 S.W.3d 424, 432 (Tex. App.—El Paso 2011) (citing
   Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 117, 119–20 (Tex. 2004)
   (“Turtur”). Although “breach of the standard of care and causation are
   separate inquiries, . . . an abundance of evidence as to one cannot substitute
   for a deficiency of evidence as to the other.” Id.
          In analyzing breach, courts hold lawyers “to the standard of care
   which would be exercised by a reasonably prudent attorney.” Cosgrove, 774
   S.W.2d at 664. “The standard is an objective exercise of professional
   judgment, not the subjective belief that his acts are in good faith.” Id. at 665.
   Put simply, courts must consider whether the allegedly negligent attorney
   made “a reasonable inquiry in the legal and factual basis of the claim at the

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   time the suit was filed.” Loeffler v. Lytle Indep. Sch. Dist., 211 S.W.3d 331, 348
   (Tex. App.—San Antonio 2006); see also Barnes v. Kinser, 600 S.W.3d 506,
   510 (Tex. App.—Dallas 2020) (“Sanctions may not be imposed based on the
   legal merit of a pleading or motion . . . The question is whether, using an
   objective standard, the party and its counsel made a reasonable inquiry into
   the legal and factual basis of the claim before filing it.”).
                           A.     Expert Testimony at Trial
          We first address whether the district court correctly concluded that
   the Trustee’s expert, James McCormack, failed to put forward a theory on
   Gammon’s breach of the duty he owed to Champion and Hayes. If true, that
   error proves fatal in a Texas legal malpractice action. See Edwards, 344
   S.W.3d at 432; Cantu, 195 S.W.3d at 873. Accordingly, the district court
   halted further analysis regarding the elements of legal malpractice after
   concluding that McCormack failed to meet his burden. We disagree with the
   district court’s conclusion that McCormack merely relied on prior state court
   proceedings, and instead recognize that he provided an opinion
   regarding: (1) the duty of care owed by Gammon; and (2) the subsequent
   breach of that duty by Gammon.
          As to the duty element, McCormack testified that “[i]t is undisputed
   that [Champion] and Gammon had an attorney-client relationship . . . during
   all relevant times. As such, Gammon owed legal duties under Texas law.”
   Regarding breach, he explained that “Gammon breached the duty of
   care . . . by filing and pursuing a frivolous suit against the Nichols and
   Lindberg defendants . . . Further, Gammon subjected his client to
   unreasonable attorneys’ fees and litigation-related expenses.” He further
   stated that the state trial court’s omission of Gammon from the sanctions is
   not relevant to whether he should have been sanctioned in the first place:

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              Regardless of whether the trial court would have or
              should have included Gammon as a party subject to its
              monetary sanction, Gammon was not excused by that
              omission for responsibility under the duty of care (or
              other Texas law, including Rule 3.01 and the statutes
              governing sanctions for frivolous actions) in initiating
              and pursuing what the courts concluded was a
              groundless lawsuit.
          Because McCormack proffered an expert opinion on the duty and
   breach elements for the Trustee’s legal malpractice claim, we hold that the
   Trustee met his burden under Texas law. We now evaluate whether the
   record demonstrates that Gammon committed legal malpractice when he
   filed Champion’s suit.
                              B.      Duty and Breach
          At issue is whether the district court erroneously concluded that
   Gammon did not breach his duty when he filed a suit that ultimately led to
   Champion’s sanctions. The Trustee contends that Gammon “knew or
   should have known” that the initial filing was groundless and asserts that no
   “reasonably prudent” attorney would have done the same. He argues that,
   in conducting routine research on antitrust actions, a reasonably prudent
   attorney would have discovered that an antitrust cause of action requires
   pleading facts of significant market control and injury. He also maintains that
   no amount of research or investigation would have driven a reasonably
   prudent attorney to conclude that Nichols and Lindberg had the type of
   control over the wedding photography market that would potentially support
   an antitrust lawsuit. We agree.
          Preliminarily, we note that Gammon conceded that he owed a duty to
   Champion because he accepted Champion’s case and filed the initial
   pleading in state court. So, we next gauge whether a reasonable attorney
   could have filed this suit with what Gammon had at his disposal when he

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   initially filed it. See Cosgrove, 774 S.W.2d at 664 (“The jury must evaluate [an
   attorney’s] conduct based on the information the attorney has at the time of
   the alleged act of negligence.”). More specifically, we consider whether a
   reasonable attorney could have filed this suit after a reasonable factual and
   legal inquiry into what it would require. See Barnes, 600 S.W.3d at 610.
          Gammon filed claims under Texas Business and Commercial
   Code § 15.05(a) and (c). Those causes of action required him to
   consider: (1) the size of the relevant market and (2) the degree of control that
   the alleged violators exercised in that market. Texas law also provides that
   plaintiffs cannot “demonstrate the unreasonableness of a restraint merely by
   showing that it caused [one person] economic injury.” Regal Entm’t Grp. v.
   iPic-Gold Class Entm’t, LLC, 507 S.W3d 337, 348 (Tex. App.—Houston [1st
   Dist.] 2016, no pet.); see also Coca-Cola Co. v. Harmar Bottling Co., 218
   S.W.3d 671, 689 (Tex. 2006) (holding that to prevail in a Texas antitrust suit,
   “there must be evidence of demonstrable economic effect, not just an
   inference of possible effect” (internal quotation and citation omitted)
   (emphasis in original)). Lastly, Texas law explains that “[i]n order to
   successfully allege injury to competition, a . . . claimant may not merely recite
   the bare legal conclusion that competition has been restrained unreasonably.
   At a minimum, the claimant must sketch the outline of the antitrust violation
   with allegations of supporting factual detail.” In re Memorial Hermann Hosp.
   Sys., 464 S.W.3d 686, 709–10 (Tex. 2015).
          Here, Gammon breached his duty to Champion by filing a state
   antitrust claim that no reasonable attorney could have filed after a cursory
   inquiry into Texas law. As previously stated, we consider whether a
   reasonable attorney would have pursued this case after a reasonable factual
   and legal inquiry. See Barnes, 600 S.W.3d at 610. We begin with Gammon’s
   factual inquiry. He had the following information at his disposal in deciding
   whether to sue: (1) the details of the disputes between Hayes, Nichols, and

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   Lindberg, (2) letters from the various vendors and a meeting with them
   discussing the effect of Nichols and Lindberg’s exclusivity clauses on the
   Austin event-planning industry, (3) a letter from Nichols and Lindberg’s
   attorney, and (4) Hayes’ statements.
          As for Gammon’s legal inquiry, he never testified to personally
   conducting significant research into the antitrust cause of action, but his
   associate, Read, attested to having researched at least one case: Apani Sw.,
   Inc. v. Coca-Cola Enter., 300 F.3d 620 (5th Cir. 2002). When opposing
   counsel asked Read what stuck out about Apani, he highlighted a quote about
   the geographic requirements for an antitrust cause of action. At the very least,
   Read’s testimony indicates that a reasonable attorney would have had the
   guidance of Apani in deciding whether there was enough of a factual and legal
   basis to file a state antitrust suit against Nichols and Lindberg.
          In Apani, we held that plaintiffs alleging restraint of trade based on
   exclusivity must: (1) identify the relevant product market; (2) identify the
   relevant geographic market; and (3) demonstrate that the “competition
   foreclosed by the arrangement constitutes a substantial share of the relevant
   market.” Apani, 300 F.3d at 625 (internal quotations and citation omitted).
   Here, no reasonable attorney could have concluded that each element was
   satisfied based on the facts Gammon accumulated before suing. Specifically,
   the third element—demonstrating that a substantial share of the relevant
   market was foreclosed—was a nonstarter as the evidence he had just
   suggested the fear of a “negative impact” by the exclusivity clauses at issue.
   Furthermore, the record fails to support that there was a factual or legal basis
   for a reasonably prudent attorney to reason that, in an antitrust cause of
   action, the relevant geographic market can be as small as Austin, Texas, or

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   that the relevant product market can be as specific as high-end wedding
   photography. 4
           True, what Gammon had in filing Champion’s lawsuit was more than
   nothing. But it still fails to approach what a reasonable attorney would have
   needed to file a complex state antitrust lawsuit based on the behavior of two
   local photographers in Austin, Texas. At best, he could have successfully
   proven that Nichols and Lindberg interfered with his business. But that is
   inadequate to support an antitrust cause of action under Texas law. See
   Harmar Bottling Co., 218 S.W.3d at 689. Ultimately, a reasonable inquiry into
   the evidence he had and the law that governed a state antitrust action would
   have stopped a reasonably prudent attorney in his tracks before suing.
   Because Gammon pressed on with a groundless suit, we hold that he
   breached the duty he owed to Champion. We move on to assessing whether
   Gammon’s breach was the proximate cause of Champion’s sanctions.
                                       C.       Causation
           Texas law provides two elements for proximate cause: cause in fact
   and foreseeability. See Akin, Gump, Strauss, Hauer & Feld, LLP v. Nat’l Dev.
   & Research Corp., 299 S.W.3d 106, 122 (Tex. 2009). “Cause in fact is
   established when the act or omission was a substantial factor in bringing about
   the injuries, and without it, the harm would not have occurred.” IHS Cedars
   Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 799 (Tex.
   2004). While foreseeability “asks whether the harm incurred should have

           4
             We note Gammon’s reliance on Star Tobacco, Inc. v. Darliek, 298 F. Supp. 2d 436
   (E.D. Tex. 2003), where we held that plaintiffs could prevail on a § 15.05(c) antitrust claim
   if they established that there was an “agreement not to deal with any single competitor.”
   Id. at 443. However, that case featured alleged bad-faith dealings among large tobacco
   companies, each with a significant share of the respective market. That simply is not
   reasonably analogous here, where Champion, Nichols, and Lindberg are three small
   businessowners with no clearly established geographic or product market.

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   been anticipated and whether policy considerations should limit the
   consequences of a defendant’s conduct.” Rogers, 518 S.W.3d at 402. To
   satisfy this element, plaintiffs must prove that “the harm incurred should
   have been anticipated” by the defendant. Id.
          Gammon argues that the Trustee cannot establish cause in fact
   because: (1) the Trustee’s expert failed to do so and (2) Hayes’ social media
   activity was an intervening cause in the state court’s decision to sanction
   Champion. We disagree. Gammon fails to explain why this court requires
   expert testimony on causation in these circumstances. After reviewing Texas
   case law, it clarifies that expert testimony is only necessary to discern difficult
   causation questions during a jury trial. See, e.g., Rogers, 518 S.W.3d at 405
   (noting that expert testimony for the causation element is only required
   where “the causal link is beyond the jury’s common understanding”);
   Turtur, 146 S.W.3d at 120 (requiring expert testimony where “the errors
   allegedly     made . . . in     the      preparation . . . of   the    admittedly
   complex . . . underlying proceeding were not so obviously tied to the adverse
   result as to obviate the need for expert testimony”). Here, Gammon’s alleged
   error is “so obviously tied” to the adverse result at issue that we do not
   require an expert to explain the causal link. Turtur, 146 S.W.3d at 120. Put
   differently, without Gammon filing this suit, Champion would never have
   been sanctioned. Our conclusion is also supported by the fact that the
   sanctioning court relied on the groundless pleading as one of the primary
   grounds for sanctioning Champion.
          Gammon’s remaining argument is that Hayes’ social media activity
   was the actual cause in fact for Champion’s sanctions. The record does not
   support Gammon’s contention. In its findings in support of sanctions, the
   state trial court clarified that:

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                Sanctions are also appropriate against Plaintiff under
                Chapter 10 and Rule 13 because Plaintiff knew or
                should have known that it was groundless to
                assert . . . that Defendants, two local photographers,
                control worldwide high-end wedding industry about
                which he pled and because his pronouncements online
                about the lawsuit are evidence that he authorized the
                lawsuit . . . in bad faith and for the improper purpose
                of discrediting Defendants to gain a competitive
                advantage over them.
   The trial court’s explanation proves that Champion’s sanctions stemmed
   from both the groundless pleading and Hayes’ social media activity—not
   simply one or the other. Put another way, Gammon’s filing of the groundless
   suit “was a substantial factor in bringing about [Champion’s] injuries, and
   without it, the harm would not have occurred.” IHS Cedars, 143 S.W.3d at
   799. Therefore, we conclude that Gammon is the cause in fact of Champion’s
   sanctions.
          On foreseeability, the Trustee contends that the trial court erred in
   concluding that he must prove that Gammon had “knowledge of the future
   outcome of” Champion’s state court case. Instead, he asserts that Texas law
   “does not require that [Gammon] anticipate the precise consequences of
   [his] actions—only that the injury be of such a general character as might
   reasonably have been anticipated by reasonable attorneys.” We agree. Here,
   Texas law expressly provides for sanctions when attorneys file groundless
   pleadings. See Tex. Civ. Prac. & Rem. Code § 10.001. In accordance
   with state law, Gammon should have anticipated that sanctions could stem
   from his filing of a clearly frivolous state antitrust suit. Because Gammon
   satisfies the cause in fact and foreseeability elements, we hold that he was the
   proximate cause for Champion’s sanctions. We address damages next.

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                                  D.       Damages
          The Trustee agrees with the damages calculation provided in the
   bankruptcy court’s alternate conclusions. However, the district court never
   adopted that part of the bankruptcy court’s conclusions because it agreed
   with the bankruptcy court’s primary conclusion. Therefore, the district court
   never ruled on damages. Because the district court was not sitting as an
   appellate court, our jurisdiction is limited to the district court’s order. See
   Matter of Monge, 826 F.3d at 254. Accordingly, we remand to the district
   court to rule on what damages the Trustee should be awarded.
                                IV.      Conclusion
          For the foregoing reasons, we REVERSE the judgment and
   REMAND to the district court to calculate damages.

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