Court Opinion

ID: 9396315
Source: CourtListenerOpinion
Date Created: 2023-05-21 14:06:28.476403+00
Date Added: 2024-06-11T17:19:16.058687
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 21-0437
                           ══════════

                     USA Lending Group, Inc.,
                              Petitioner,

                                   v.

                   Winstead PC and James Ruiz,
                             Respondents

   ═══════════════════════════════════════
               On Petition for Review from the
      Court of Appeals for the Twelfth District of Texas
   ═══════════════════════════════════════

                       Argued March 21, 2023

      JUSTICE BLAND delivered the opinion of the Court.

      The Texas Citizens Participation Act’s stated objective is to
safeguard constitutional rights while permitting meritorious lawsuits to
go forward. To achieve this, the Act requires early dismissal of
qualifying legal actions when the plaintiff lacks evidence of any
essential element of its claim. The Act describes this evidence as the
“prima facie case.” The prima facie case is the measurement the
Legislature selected to distinguish genuine claims from suits brought to
harass or silence. It is not a high hurdle. Rather, it is that minimum
quantity of evidence necessary to rationally infer that an allegation is
true.
        In this legal malpractice case, a client sued its former law firm,
claiming that the law firm neglected to request monetary damages in a
motion for default judgment. The failure to do so, the client claims,
proximately caused it the loss of those damages. Assuming that the Act
covers the claim at issue, we hold that the client presented prima facie
evidence sufficient to survive a motion to dismiss. Because the court of
appeals held differently, we reverse its judgment and remand the case
to the trial court.
                                      I
        Petitioner    USA   Lending       Group,   Inc.   hired   Respondent
Winstead PC to sue USA Lending’s former employee for breach of
fiduciary duty. In its complaint to the United States District Court for
the Western District of Texas, USA Lending alleged that it directed
Mike Ahmari to acquire domain names and toll-free phone numbers for
USA Lending to support its new home-mortgage program. When
Ahmari resigned, USA Lending discovered that he had acquired the
assets in his own name rather than in USA Lending’s.1 USA Lending’s
chairman and CEO avers that Ahmari used the assets to benefit a
competitor, All Home Lending, Inc., controlled by Ahmari or his wife. In
the federal court lawsuit, USA Lending sought a declaratory judgment

        Though USA Lending’s complaint references multiple domain names
        1

and telephone numbers, in its motion for default judgment USA Lending
sought a declaration of its ownership of only the www.usalend.com domain
name and the 800-USA-LEND toll-free phone number.

                                      2
that it is the rightful owner of the assets and “actual and exemplary
damages.”
      Ahmari failed to answer USA Lending’s suit. As a next step,
Winstead drafted a motion for default judgment and prepared an
accompanying affidavit for USA Lending’s CEO. The draft affidavit
included a blank for USA Lending to supply a figure representing lost
profits attributable to Ahmari’s wrongful conduct. The CEO filled in the
blank with “$1,000,000.00.” Winstead and USA Lending later revised
the affidavit to create a table showing lost income attributable to the
wrongfully acquired domain name and phone number over four years,
with total lost income alleged to be $1,285,000.
      Winstead eventually revised the affidavit a third time. Unlike
earlier versions, the final version omits a claim for lost income, a
revision that USA Lending denies approving. Winstead attached this
version to the motion for default judgment. It requested no relief other
than a declaration that USA Lending owns the domain name and phone
number. The federal district court entered judgment for USA Lending
accordingly. It did not award money damages.
      Upon discovering the omission of money damages from the
judgment, USA Lending sued Winstead and its attorney James Ruiz in
Harris County state court, seeking over $1,000,000 in damages. USA
Lending alleges that Winstead’s malpractice caused USA Lending to
forfeit its claim for monetary damages against Ahmari in the federal
court suit:
      In the process of securing a default judgment against
      Ahmari, Ruiz and Winstead without authority, permission,
      or with the knowledge of [USA Lending], dropped from

                                   3
         their motion any claim for monetary relief. As a result,
         [USA Lending] was caused to lose a damage claim in excess
         of $1,000,000 that would more likely than not been
         included in and ordered by the judgment.

         Winstead moved to dismiss USA Lending’s malpractice claim
under the Texas Citizens Participation Act, stating that USA Lending’s
suit is based on Winstead’s exercise of the right to petition. USA Lending
responded that (1) the Act does not apply to Winstead’s communications;
(2) if the Act applies, then the commercial-speech exemption precludes
dismissal; and (3) in any event, prima facie evidence supports each
essential element of USA Lending’s malpractice claim. The district court
denied Winstead’s motion, and Winstead appealed.
         The court of appeals reversed.2 First, it held that Winstead’s
motion for default judgment qualifies as a protected “communication”
under the Act.3 Second, the court held that the commercial-speech
exemption does not apply because the motion for default judgment “did
not arise out of the sale or solicitation of Winstead’s legal services or a
commercial transaction.”4 Finally, the court held that USA Lending
failed to establish a prima facie case for legal malpractice. Though the
court of appeals agreed that prima facie evidence exists that the alleged
malpractice caused some damage, it rejected USA Lending’s evidence
that it could have collected a judgment against Ahmari as “not based on

         2   ___ S.W.3d ___, 2021 WL 1047208, at *1 (Tex. App.—Tyler Mar. 18,
2021).
         3   Id. at *3.
         4   Id. at *4.

                                        4
demonstrable, reasonable facts.”5 We granted USA Lending’s petition
for review.
                                        II
                                        A
       Under the Act, a trial court “shall dismiss a legal action against
the moving party if the moving party demonstrates that the legal action
is based on or is in response to . . . the party’s exercise of: (A) the right
of free speech; (B) the right to petition; or (C) the right of association.”6
The Act defines each of these rights expansively.7
       A plaintiff survives a motion to dismiss under the Act if it
“establishes by clear and specific evidence a prima facie case for each
essential element of the claim in question.”8 Prima facie means “at first
sight,”9 and under the Act, is the “minimum quantum of evidence
necessary to support a rational inference that the allegation of fact is
true.”10 Evidence is “clear and specific” if it provides enough detail to

       5   Id. at *8–9.
       6   Tex. Civ. Prac. & Rem. Code § 27.005(b).
       7Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127,
133–34 (Tex. 2019).
       8   Tex. Civ. Prac. & Rem. Code § 27.005(c).
       9   Prima facie, Garner’s Dictionary of Legal Usage (3d ed. 2011).
       10S&S Emergency Training Sols., Inc. v. Elliott, 564 S.W.3d 843, 847
(Tex. 2018) (quoting In re Lipsky, 460 S.W.3d 579, 590 (Tex. 2015)).

                                        5
show the factual basis for the claim.11 Such evidence need not be
conclusive, uncontroverted, or found credible.12
       In ruling on a motion to dismiss under the Act, the trial court
must consider evidence that a party could proffer in connection with a
summary judgment motion, as well as “supporting and opposing
affidavits stating the facts on which the liability or defense is based.”13
The Act does not contemplate extensive discovery.14 In this case, none
has occurred. Given the very preliminary stage of the case, “[n]either the
court’s ruling on the motion nor the fact that it made such a ruling shall
be admissible in evidence at any later stage of the case, and no burden
of proof or degree of proof otherwise applicable shall be affected by the
ruling.”15

       11   In re Lipsky, 460 S.W.3d at 590–91.
       12 Id. at 590 (observing that a prima facie case “refers to evidence
sufficient as a matter of law to establish a given fact if it is not rebutted or
contradicted”).
       13 Tex. Civ. Prac. & Rem. Code § 27.006(a) (“In determining whether a
legal action is subject to or should be dismissed under this chapter, the court
shall consider the pleadings, evidence a court could consider under Rule 166a,
Texas Rules of Civil Procedure, and supporting and opposing affidavits stating
the facts on which the liability or defense is based.”). Though the court shall
consider the pleadings, they are not a substitute for clear and specific evidence
of “each essential element of the claim in question.” In re Lipsky, 460 S.W.3d
at 590–91 (quoting Tex. Civ. Prac. & Rem. Code § 27.005(c)).
       14  See Tex. Civ. Prac. & Rem. Code § 27.003(c) (halting discovery upon
filing of a motion to dismiss under the Act); but see id. § 27.006(b) (permitting
the court to allow “specified and limited discovery relevant to the motion” on a
showing of good cause within the allotted time frame).
       15   Id. § 27.0075.

                                        6
         We review de novo whether the Act applies, and if so, whether
prima facie evidence exists to support each element of the claim.16
Because we conclude that USA Lending has adduced sufficient prima
facie evidence to support its malpractice claim, we need not determine
whether its legal action was based on Winstead’s exercise of the right to
petition. We express no views on that aspect of the court of appeals’
opinion.
                                          B
         A plaintiff claiming legal malpractice must prove that the
defendant breached a duty it owed to the plaintiff and proximately
caused the plaintiff an injury.17 If the plaintiff asserts that an attorney’s
negligence resulted in the denial of actual damages, then the plaintiff
must also prove, in reasonable probability, that it would have collected
those damages in the underlying case.18
         Winstead challenges two elements of USA Lending’s prima facie
case: causation and damages. It argues that the prima facie evidence
does not show that a breach of the standard of care caused USA Lending
actual damages. Further, Winstead contends that USA Lending
provided insufficient evidence that it would have collected a money
judgment from Ahmari even if the court had awarded actual damages.
The court of appeals held that prima facie evidence supports USA

         16   Landry’s, Inc. v. Animal Legal Def. Fund, 631 S.W.3d 40, 45–46 (Tex.
2021).
         Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. & Rsch.
         17

Corp., 299 S.W.3d 106, 112 (Tex. 2009).
         18   Id.

                                          7
Lending’s claim that a breach caused it some damages but not that it
would have collected that amount from Ahmari.19
        In response to Winstead’s motion to dismiss, USA Lending
proffered an affidavit from its CEO, as well as three expert affidavits.
These affidavits address the standard of care, breach, damages, and
collectibility. USA Lending’s CEO avers that he retained Winstead to
sue Ahmari for diverting ownership of USA Lending’s domain name and
telephone number for Ahmari’s personal use or for the use of “other
companies including, but not limited to All Home Lending, Inc.”
        The CEO avers that he and Winstead agreed that the firm would
seek monetary damages in the motion for default judgment and that he
provided affidavits to the firm to support that request. The CEO
discovered Winstead’s failure to request money damages only after the
federal court signed the default judgment. As the custodian of records
for USA Lending, the CEO asserts that USA Lending’s business records
demonstrate that the “amount of expenses, fees, and other out of pocket
costs incurred or expended” exceeds $1,200,000. He attached financial
records, only some of which are in USA Lending’s name. The records are
undifferentiated and voluminous, but a review shows funds transferred
from USA Lending to Ahmari, including a check for $32,783.83 dated
February 5, 2013, and two transfers totaling $31,841.59 on March 13,
2013.
        On causation, USA Lending’s first expert, a retired state judge,
avers that a reasonably prudent lawyer would have followed the client’s

        19   2021 WL 1047208, at *9–10.

                                          8
instructions to seek monetary damages in connection with a default
judgment. Had Winstead sought damages, the expert avers, then “more
likely than not, the default judgment rendered in USA Lending’s favor
would have included judgment for damages represented by USA
Lending’s out of pocket costs and expenses as described and attested to
in the affidavit of the CEO.”
      As to the likelihood that USA Lending would have collected
damages on a judgment against Ahmari, a California resident, USA
Lending proffered the testimony of a second expert, a California lawyer.
Under California law, the expert concludes that it was “reasonably
likely” that, had the judgment rendered against Ahmari included an
award of actual damages, it could have been collected from assets that
“Ahmari held.” Those assets include community property or assets
Ahmari fraudulently transferred either to his wife or to All Home
Lending, an entity controlled by Ahmari’s wife. According to the expert’s
affidavit, records from the California Secretary of State show that
Ahmari’s wife “is listed on publicly available California Secretary of
State records as the . . . President, CFO, and Secretary” of All Home
Lending, and that the company “was acquired” in 2012, around the time
that Ahmari began working for USA Lending.
      The third expert, a Texas attorney, avers that public records
indicate that All Home Lending was a Federal Housing Administration
Approved Mortgagee, requiring a minimum net worth of at least
$1,000,000.

                                   9
                                         C
      Under the Act, “the evidence must be sufficient to allow a rational
inference that some damages naturally flowed from the defendant’s
conduct.”20 A general averment of loss, like any conclusory opinion, is
not sufficient.21 For example, in In re Lipsky, we rejected the plaintiff’s
general averment that it had sustained “direct pecuniary and economic
losses and costs, lost profits, loss of its reputation, and loss of
goodwill . . . in excess of three million dollars.”22 We criticized the
affidavit as “devoid of any specific facts illustrating how [the
defendant’s] alleged remarks about [the plaintiff’s] activities actually
caused such losses.”23
      We contrasted the insufficient evidence in Lipsky with the
sufficient evidence adduced in S&S Emergency Training Solutions, Inc.
v. Elliott.24 In that case, a provider of emergency medical training sued
its former employee, alleging that her breaches of nondisclosure
agreements caused the provider to be unable to offer accredited training
under a consortium agreement.25 In her motion to dismiss under the Act,
the former employee argued that the provider could not establish its
damages. We observed that the provider “was not required to provide

      20   Elliott, 564 S.W.3d at 847.
      21   In re Lipsky, 460 S.W.3d at 592–93.
      22   Id. at 592.
      23   Id. at 593.
      24   564 S.W.3d at 848.
      25   Id. at 845.

                                         10
evidence sufficient to allow an exact calculation of the lost profits.”26
Instead, “it was only required to present evidence sufficient to support
a rational inference that [the employee’s] actions caused it to lose some
specific, demonstrable profits.”27 The provider did so by adducing a
record demonstrating that the “lost revenues were susceptible to
calculation with reasonable certainty.”28
      The facts in this case align with those in Elliott. USA Lending’s
causation expert avers that the company’s out-of-pocket costs and
expenses would more likely than not have been awarded in a default
judgment. USA Lending’s evidence of out-of-pocket expenses includes
those it incurred in acquiring and maintaining the domain name and
toll-free number during the time Ahmari deprived USA Lending of their
use.29 The expert testimony, combined with the existence of
demonstrable out-of-pocket expenses, establishes that USA Lending
suffered some specific, demonstrable injury attributable to Winstead’s
conduct. Accordingly, we agree with the court of appeals that USA

      26   Id. at 848.
      27   Id.
      28   Id.
      29  Exhibits attached to the motion for default judgment support USA
Lending’s outlay of $5,000 to acquire the domain www.usalend.com and an
outlay of $3,150.50 related to the acquisition and operation of the toll-free
phone number. The amounts paid to maintain the phone number after
Ahmari’s resignation appear to be trifling ($21.49 over three months). The
record contains a midden of other business records, some for an entity called
USA Lend Cash LLC, which may or may not support USA Lending’s additional
theories of damages.

                                     11
Lending presented prima facie evidence that the failure to request
money damages caused it some injury.30
      Winstead responds that USA Lending’s assertion of over
$1,000,000 in malpractice damages is conclusory. To make a prima facie
case under the Act, however, plaintiffs need not prove the entirety of
their damages with specificity.31 It is enough that USA Lending has
evidence supporting the inference that Winstead’s actions caused it to
lose “some specific, demonstrable” amount.32 The costs expended to
acquire and maintain the domain name and telephone number, along
with the amounts it transferred to Ahmari, are some evidence that USA
Lending could have shown the federal court to receive a judgment for
monetary damages.
      Winstead also argues that the default judgment awarded USA
Lending ownership of the domain name and telephone number, and thus
recovery of the out-of-pocket expenses incurred to acquire the assets is
duplicative relief. At least some of the expenses attached to the motion
for default judgment, however, show that USA Lending continued to pay
for the use of the toll-free number both before and after Ahmari
resigned. USA Lending’s outlays to maintain an asset while a
competitor held it are separate alleged losses not compensated by the
eventual return of the assets.

      30   See 2021 WL 1047208, at *7.
      31   Elliott, 564 S.W.3d at 848.
      32   See id.

                                         12
       Winstead will have opportunities to contest the proposition that
the district court would have awarded monetary damages. Under the
Act, however, prima facie evidence is taken at face value.33 At this phase
of the proceedings, the evidence supports a rational inference causally
connecting Winstead’s conduct to a specific, demonstrable injury.
                                      D
       Winstead next challenges USA Lending’s expert affidavit as
speculative in concluding that it was “reasonably likely” that USA
Lending could have collected monetary damages from Ahmari, had USA
Lending obtained such a judgment. We have said that “collectibility
must be proved; it is not presumed.”34
       USA Lending’s CEO avers that Ahmari used USA Lending’s
domain name and toll-free telephone number to benefit All Home
Lending, Inc., a California lender. Circumstantial evidence in the
default judgment record supports this allegation: invoices categorized
entries from June 2013 to November 2013 as “Rec-All Home.” Relying in
part on the CEO’s affidavit and public records, USA Lending’s second
expert avers that Ahmari’s wife is publicly identified as All Home
Lending’s President, Chief Financial Officer, and Secretary. The expert
also referred to a June 24 email not present in the record. The expert
avers that this email is from Ahmari to USA Lending’s CEO, seeking an
investment in All Home, in which Ahmari claimed to exercise some

       33 See In re Lipsky, 460 S.W.3d at 590 (giving “prima facie case” its
“traditional legal meaning” of referring to “evidence sufficient as a matter of
law to establish a given fact if it is not rebutted or contradicted”).
       34   Akin, Gump, 299 S.W.3d at 115.

                                      13
control over the entity. The expert noted that the Ahmaris appear to
have acquired All Home Lending in 2012, approximately the time that
Ahmari was supposed to be creating a similar home mortgage business
for USA Lending. From these specific facts, the expert opined that either
Ahmari or his wife owned, or at least controlled, All Home Lending.
Applying California community property and fraudulent transfer laws,
the expert further concluded that it was likely that USA Lending could
collect a judgment against Ahmari through All Home Lending’s assets
or against any salary his wife drew from the company.
        A third expert assembled evidence of the assets of All Home
Lending. Relying on publicly available reports from federal agencies and
minimum net-worth regulations, the expert concluded that All Home
Lending had “assets of at least $1,000,000 . . . for almost two full years
post judgment.”
        Though Winstead may demonstrate that the experts’ conclusions
do not support USA Lending’s claim because they prove to be incredible,
unreliable, countered, or outweighed by legal defenses or other evidence,
we conclude that USA Lending met the minimum requirement for a
prima facie case of collectibility. Some circumstantial evidence and
expert opinion support an inference that Ahmari used assets paid for by
USA Lending to further the interests of All Home Lending, an entity
with evidence of assets against which a judgment could be collected
under fraudulent transfer laws. Additionally, some evidence supports
the expert’s conclusion that Ahmari’s wife, as an owner or salaried
employee, had assets reachable under California community property
laws.

                                   14
       The court of appeals concluded that the evidence of collectibility
rested on too many assumptions, such as the assumption that Ahmari
or his wife owned All Home Lending and that no pre- or post-nuptial
agreement affected its ownership.35 These assumptions may well be
undercut by evidence adduced at a future juncture. The expert
addressed the assumptions, however, by opining that California
fraudulent transfer laws prevent the diversion of assets and that public
records demonstrate that Ahmari’s wife controls that company. A prima
facie case eventually may be controverted. At this stage, however, a
claim survives if the evidence “is legally sufficient to establish a claim
as factually true if it is not countered.”36
       Though circumstantial and subject to counterattack, USA
Lending presented sufficient evidence to rationally infer that a
judgment could have been collected against Ahmari’s community
property or against All Home Lending as the recipient of a fraudulent
transfer. The experts’ assumptions, as yet unproven, are susceptible of
proof and based on untested, specific facts that are available at this early
stage of the proceedings: (1) that Ahmari used USA Lending’s assets to
benefit a competitor company operated by his wife; (2) that Ahmari
claimed to control USA Lending; (3) that Ahmari’s wife is publicly
identified as an officer of All Home Lending; and (4) that All Home
Lending, at the relevant time after judgment, satisfied federal net-worth
minimums.

       35   2021 WL 1047208, at *9.
       36   Elliott, 564 S.W.3d at 847.

                                          15
       Finally, Winstead complains that the affidavits lack specificity
regarding the process for domesticating a judgment in California and
any defenses to enforcement. Though discovery may bear out such
concerns, the Full Faith and Credit Clause of the United States
Constitution supplies sufficient guarantee, for this stage of the
proceedings, that a judgment in one state may be enforced in another.37
The Act permits a moving party to overcome the prima facie case by
establishing grounds on which it is entitled to judgment as a matter of
law.38 Winstead did not seek to establish that a defense to the judgment
defeated its enforcement in California.

                                   *    *    *

       37   U.S. Const. art. IV, § 1.
       38Tex. Civ. Prac. & Rem. Code § 27.005(d) (“[T]he court shall dismiss a
legal action against the moving party if the moving party establishes an
affirmative defense or other grounds on which the moving party is entitled to
judgment as a matter of law.”).

                                        16
       The motion to dismiss stage is not a battle of evidence; it is the
clearing of an initial hurdle.39 The Act does not select for plaintiffs
certain to succeed; it screens out plaintiffs certain to fail—those who
cannot support their claims with clear and specific evidence.40
       Because USA Lending adduced prima facie evidence to support
its claim for legal malpractice, the court of appeals erred in ordering the
case dismissed. Accordingly, we reverse the judgment of the court of
appeals and remand the case to the trial court.

                                             Jane N. Bland
                                             Justice

OPINION DELIVERED: May 19, 2023

       39See In re Lipsky, 460 S.W.3d at 589 (“That the [Act] should create a
greater obstacle for the plaintiff to get into the courthouse than to win its case
seems nonsensical.”).
       40   See Tex. Civ. Prac. & Rem. Code § 27.005(c).

                                        17