Monday, October 24, 2011

How Did the Supreme Court Change Texas Nonsuit Law in Epps v. Fowler?

Historically, most nonsuits have been deemed to be without prejudice.   Greenberg v. Brookshire, 640 SW2d 870, 872 (Tex. 1982).  In recent years, parties have filed documents called "nonsuits with prejudice," and these will be treated as res judicata against the filing of the claim in question, consistent with the title of the document.   Galvan v. America's Favorite Chicken Co., 934 SW2d 409 (Tex. App.--San Antonio 1996, writ den.).

Nonsuits cannot deprive the defendant of the right to adjudicate a pending counterclaim.    The Travelers Ins. Co. v. Joachim, 315 SW3d 860 (Tex. 2010).     Absent that situation, a plaintiff nonsuiting without prejudice has been assumed to have no further exposure.

In Epps v. Fowler (No. 10-0283, Tex. Sup. Ct., Aug. 26, 2011), the plaintiff had sued on a contract which expressly provided that attorney fees would be awarded to the prevailing party.   The plaintiff filed a nonsuit without prejudice, and the principal issue in the case was whether the defendant could be deemed to be the prevailing party for purposes of an award of attorney fees.

The Supreme Court observed that had the nonsuit been with prejudice, there would be no question that the defendant would be the prevailing party.    In the case of a nonsuit without prejudice, the Court stated that, in view of the contract clause in question, the defendant would be the prevailing party if the trial court found, in a hearing upon a motion by the defendant, that the nonsuit was "taken to avoid an adverse judgment."     This determination should be made primarily based on the record already before the court.   And, apparently, a defendant could secure such a finding and win such an award even it had not counterclaimed for attorneys' fees under the contract.

Thus, in cases involving contracts with clauses that award attorney fees to the prevailing party, this case adds another potential danger to the nonsuiting plaintiff.   Plaintiffs should be advised of this danger before the case is filed.

Monday, October 10, 2011

Is it Always a Mistake to Sue a Former Client Over an Unpaid Fee?

No.    The danger that is seen in this situation is, of course, the possibility of a counterclaim for legal malpractice.     But sometimes that danger is very slight.

I have experience on both sides of legal malpractice cases.     When I have been asked by firms to consider suing a former client for an unpaid fee, the first thing that must be done is to evaluate the possible merit of a counterclaim for legal malpractice.     Sometimes it is clear that the potential counterclaim would be without  merit, and in those cases, if the firm's former client is solvent, it makes sense to go forward.    In one I had recently, the former client had been threatening a legal malpractice action before I even got involved in response to correspondence asking for payment of the arrearage.    I determined that the potential legal malpractice case was most probably lacking in merit.    We went forward with the suit for fees.    Once the former client had counsel, that counsel also starting make vague threats about a counterclaim.    I called his bluff and explained that it would be frivolous, and he would be creating potential exposure under the sanctions rules and Chapters 9 and 10 of the Texas Civil Practice & Remedies Code for his client, and maybe even for himself.

It turned out that the malpractice threat was just a bluff being used for leverage, and the case settled on very favorable terms for my law firm client.

So, I would advise not to automatically walk away from those unpaid fees.