Cornwall Personal Insurance Agency, Inc., Ronald J. Hettler, and Robin Hettler v. Robert N. Nebb, Michael H. Carper and Law Office of Michael H. Carper, P.C.

NO. 07-08-0450-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO

PANEL E

FEBRUARY 2, 2010
______________________________

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

v.

ROBERT N. NEBB, MICHAEL CARPER, AND THE LAW
OFFICES OF MICHAEL CARPER, P.C., APPELLEES

________________________________

FROM THE 237TH DISTRICT COURT OF LUBBOCK COUNTY;

NO. 2006-537,428; HON. SAM MEDINA, PRESIDING
_______________________________

Before CAMPBELL and PIRTLE, JJ., and BOYD, S.J. 1

MEMORANDUM OPINION

This appeal arises from a take-nothing summary judgment in favor of appellees

Robert N. Nebb (Nebb), Michael H. Carper, and the Law Offices of Michael H. Carper,

P.C. (Carper), in a suit filed by appellants Cornwall Personal Insurance Agency, Inc.

(CPI), and Ronald J. Hettler and Robin Hettler against appellees. In the suit, appellants

alleged that Nebb was guilty of legal malpractice and violations of the Texas Deceptive

1
John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by
assignment. Tex. Gov=t Code Ann. '75.002(a)(1) (Vernon).

1
Trade Practices Act (DTPA) for which Carper was vicariously liable because at all

relevant times Nebb was employed by Carper. Appellees initially responded to the suit

by a general denial and by asserting affirmative defenses including res judicata and

judicial estoppel.

Subsequent to the filing of their answer, appellees filed a motion seeking summary

judgment. As grounds for that motion, they argued: 1) res judicata, as a matter of law,

barred all claims; 2) judicial estoppel, as a matter of law, barred all claims; 3) the statute of

limitations and the professional services exemption barred the DTPA claims; 4) as a

matter of law, Nebb was not negligent with regard to certain alleged failures to object to

jury questions; and 5) as a matter of law, there was no proximate cause on appellants=

allegations that Nebb failed to preserve error on matters relating to a Daubert/Robinson

challenge to expert witness testimony and to jury questions submitted in the course of that

trial. Prior to the time the summary judgment motion was set for hearing, appellants

non-suited their DTPA claims. After the hearing, and without specifying its reasons for

doing so, the trial court granted the motion and rendered a take-nothing summary

judgment.

Background

In the 1997 suit underlying the one giving rise to this appeal, William David

Brenholtz filed suit against CPI and the Hettlers (the Brenholtz suit) seeking the recovery

of various damages suffered as the result of an alleged wrongful termination of his

employment relationship with them. The ensuing jury trial resulted in a March 22, 2002

judgment against the Hettlers and CPI.

2
 Subsequent to the judgment, and on April 12, 2002, CPI filed a Chapter 11

bankruptcy proceeding, as did the Hettlers on April 15, 2002. In doing so, they were

assisted by Nebb in the selection and employment of their bankruptcy counsel. In those

proceedings, appellees filed a proof of claim for the unpaid balance of Nebb=s fees for

representing appellants in the Brenholtz suit which resulted in the payment of those fees.

In the bankruptcy schedules listing all of appellants= assets and liabilities, although they

included a potential legal malpractice claim against another attorney who had

represented them in the Brenholtz suit prior to Nebb=s employment in that suit, they did

not list any potential claim against any appellees. Ultimately, the bankruptcy court

approved reorganization plans submitted by appellants which resulted in the payment of

the Brenholtz judgment and the ultimate closure of the Hettlers= bankruptcy on July 26,

2006, and that of CPI on June 24, 2004.

In July of 2005, with pleadings signed by Nebb, appellants filed a bill of review

proceeding in the 364th District Court of Lubbock County in which they sought a review of

the Brenholtz suit on the basis that, in a related lawsuit against the Travelers Insurance

Company, they had discovered information that had not been revealed by Brenholtz, and

which, they alleged, would have made a difference in the original suit. Appellee Nebb

represented appellants in that proceeding. In that suit, despite Nebb=s testimony that

such an imposition was not justified, sanctions were assessed against appellants on the

basis that appellants had not exercised due diligence in bringing the newly discovered

evidence to the attention of the court.

The suit against appellees, which gives rise to this appeal, was filed on December

12, 2006, over four years after the trial of the Brenholtz suit, two years after the close of

3
the CPI bankruptcy, and some six months after the close of the Hettler bankruptcy.

Appellants assert the suit could not have been filed sooner because it was not until the fall

of 2006, when they consulted another attorney, that they then learned that some of the

alleged acts and omissions of Nebb in the Brenholtz suit might constitute malpractice.

They also argue that until that time, they had reasonably relied upon Nebb=s

representations that he had done nothing that led to the adverse judgment in the

Brenholtz case but that they might have a malpractice claim against another attorney who

earlier represented them in the suit.

Discussion

In pursuing their appeal, appellants present six issues for our review. However,

because it is determinative of this appeal, it is only necessary for us to discuss their first

issue. In that issue, appellants argue the trial court erred in rendering summary

judgment on the basis of res judicata.

The standards by which summary judgments are reviewed are by now axiomatic.

When reviewing a summary judgment, the reviewing court takes as true all evidence

favorable to the nonmovant, and resolves any doubts and indulges any reasonable

inferences in the nonmovant=s favor. South Plains Switching, Ltd. v. BNSF Ry. Co., 255

S.W.3d 690, 699 (Tex. App.BAmarillo 2008, pet. denied). The summary judgment is

reviewed de novo, and when the trial court=s order does not specify the ground or grounds

relied upon for its ruling, it will be affirmed if any of the theories advanced are meritorious.

Id.

Res Judicata

4
 Appellees argue that any legal malpractice claim against them because of Nebb=s

representation of appellants in the Brenholtz suit is barred by the res judicata doctrine.

In doing so, they point out that they filed a proof of claim in the bankruptcies seeking to

collect unpaid legal fees for services rendered by Nebb in the Brenholtz suit. That being

true, they argue, any claims for legal malpractice were compulsory counterclaims in those

bankruptcies, and appellants= failure to assert any such claim in response to Nebb=s quest

for payment of legal services rendered in those suits precludes them from making any

such claim now. Parenthetically, appellees acknowledge that inasmuch as they

presented a traditional summary judgment motion, they carried the burden of proving

each element of res judicata as a matter of law. Joachim v. Travelers Ins. Co., 279

S.W.3d 812, 815 (Tex. App.BAmarillo 2008, pet. granted).

Res judicata, sometimes referred to as Aclaim preclusion,@ prevents parties and

their privies from relitigating a cause of action that has been fully adjudicated as well as

any claims or defenses that through diligence should have been litigated but were not.

The doctrine is intended to prevent causes of action from being split, thus curbing

vexatious litigation and promoting judicial economy. Ingersoll-Rand Co. v. Valero

Energy Corp., 997 S.W.2d 203, 206-07 (Tex. 1999). Even so, the doctrine does not bar

a former defendant who did not assert an affirmative claim for relief in an earlier action

from stating a claim in a later action that could have been filed as a cross-claim or

counterclaim in the earlier action, unless the claim inclusion was compulsory in the earlier

action. Id. at 207.

In supporting their claim that res judicata is applicable, appellees point to the

undisputed facts that a proof of claim for unpaid attorney=s fees was filed in the

5
bankruptcies, that those unpaid attorney=s fees related to work performed by Nebb in

defending the Brenholtz lawsuit, that no contest was made to the payment of that claim,

that the bankruptcy court authorized the payment of those fees, and that they were paid

by appellants.

Noting the Fifth Circuit Court of Appeals holding In re Intelogic Trace, Inc., 200

F.3d 382 (5th Cir. 2000), appellants recognize that res judicata of a compulsory

counterclaim may apply to claims made in bankruptcy. However, in doing so they point

out that court=s caveat:

Even if the two actions are the same under the transactional test, res
judicata does not bar this action unless [plaintiff] could and should have
brought its malpractice claims in the former proceedings.

* * *

In reaching our determination, we consider whether and to what extent
[plaintiff] had actual or imputed awareness prior to the fee hearing of a real
potential for claims against Ernest & Young such as those asserted by the
Trustee and whether the bankruptcy court possessed procedural
mechanisms that would have allowed [plaintiff] to assert such claims.

Id. at 388.

In considering the Intelogic court=s teaching, appellants argue that while the

bankruptcy court did possess procedural mechanisms that would have allowed them to

assert malpractice claims against appellees, they had presented fact issues as to

whether they had actual or implied notice of a real potential for claims against appellees

prior to the bankruptcy court=s plan confirmations in October 2003. Thus, it was

necessary to determine those fact questions before it could be determined if their claim

against appellees for legal malpractice was a compulsory counterclaim in the bankruptcy

6
proceeding. That being so, they contend, any application by the trial court of the res

judicata doctrine would constitute reversible error.

Appellants= argument requires us to examine in some detail the implications of

Texas Rule of Civil Procedure 97(a), the compulsory counterclaim rule. A counterclaim

is compulsory if 1) it arises out of the transaction or occurrence that gives rise to the

opposing party=s claim; 2) it is mature and owned by the counter-claimant; 3) it is against

an opposing party in the same capacity; 4) it does not require third parties who cannot be

brought into the suit; 5) it is within the court=s jurisdiction; and 6) it is not pending

elsewhere. Tex. R. Civ. P. 97(a); Wyatt v. Shaw Plumbing Co., 760 S.W.2d 245, 247

(Tex.1988); South Plains Switching, Ltd. v. BNSF Ry. Co., 255 S.W.3d at 699. If a claim

meets those elements, it must be asserted in the initial action and cannot be later raised.

Id.

In the seminal case of Ogletree v. Crates, 363 S.W.2d 431, 435 (Tex. 1963), the

court instructed that A[t]he rule of res judicata in Texas bars all litigation of all issues

connected with a cause of action or defense which, with the exercise of diligence, might

have been tried in a former trial, as well as those that were actually tried.@ Appellants

argue that even if their legal malpractice claim would otherwise have been a compulsory

counterclaim to appellees= bankruptcy court claim for attorney fees, because they have

raised fact issues concerning when they knew, or in the exercise of reasonable diligence

should have known that they had a cause of action against appellees, the AOgletree rule@

required determination of that question before the compulsory counterclaim rule would

have come into play. They also contend that they had raised fact issues as to whether

7
their cause of action against appellees accrued long after appellees= claims for attorney’s

fees had been approved by the bankruptcy court. Thus, they argue, the compulsory

counterclaim rule was not applicable and prevented any application of the res judicata

doctrine to bar their legal malpractice claims.

In deciding appellants= due diligence and accrual arguments, we note the court=s

decision in Bailey v. Travis, 622 S.W.2d 143 (Tex. App.BEastland 1981, writ ref=d n.r.e.).

In that case, as we are here, the court was also considering three underlying cases 2 and

questions as to implications of the compulsory counterclaim rule and imposition of res

judicata by the trial court. Because that court=s reasoning and disposition of those

questions is instructive and determinative here, we must discuss that case at some

length.

2
The three cases involved here are: 1) the Brenholtz case during which the
alleged malpractice occurred; 2) the bankruptcies in which the attorney=s fees were
approved; and 3) this case involving alleged legal malpractice.

8
 In Bailey, the court opined that the question for its determination was whether a

legal malpractice claim had Amatured@ so as to be a compulsory counterclaim in an earlier

suit filed by an attorney against a former client for attorney=s fees. Like the case before

us, Bailey involved three underlying cases. In Bailey 1, Bailey had been represented by

attorney William Travis (Travis) and the case had resulted in a judgment adverse to

Bailey. Following the trial, Bailey employed a different attorney to prosecute an appeal.

Travis then sued Bailey (Bailey II), and recovered a judgment for attorney=s services

performed by him in Bailey I. Bailey did not file a counterclaim urging legal malpractice in

the Bailey II suit. Subsequently, Bailey sued Travis (Bailey III) seeking damages for

alleged legal malpractice during the trial of Bailey I. The trial court rendered summary

judgment against Bailey in Bailey III which gave rise to the appeal discussed by the

appellate court.

In its discussion, the appellate court noted that the narrow issue to be decided by it

was whether Bailey=s malpractice claim was Amature@ when he was sued by Travis for

attorney=s fees in Bailey II. If it was, the court observed, than the summary judgment

was proper because Bailey had failed to file a compulsory counterclaim under Texas Rule

of Civil Procedure 97(a). Id. at 143-44.

In pursuing his appeal, Bailey contended that the malpractice claim was not

mature at the time he answered in Bailey II, because Bailey I was on appeal and it was

therefore unsettled as to what damages, if any, he might have suffered as a result of

Travis= malpractice. Id. That argument and the facts underlying it are significantly

similar to those advanced here by appellants.

9
 In affirming the trial court=s summary judgment, the appellate court opined that the

maturity of a counterclaim was not Anecessarily equivalent to >accrual= of a malpractice

cause of action for statute of limitations purposes.@ Id. at 144. Even so, it continued,

Bailey had Aclearly@ suffered harm when the trial court judgment was entered against him

in Bailey I and he was forced to appeal that decision, and it was not necessary that the full

extent of the damages be known at that time. Id. Thus, the court concluded, it was

apparent at the time he filed his answer in Bailey II, Bailey had been damaged or harmed

as a result of the alleged malpractice and his claim for damages resulting from that

alleged legal malpractice had ripened into an enforceable cause of action even though

the full extent of his damages might not have been known. Id.

Likewise, in the case before us, appellants had clearly suffered harm when they

suffered the adverse judgment in the Brenholtz suit. Thus, any right of action against

appellees for legal malpractice had accrued at the time appellees made claims in the

bankruptcy court for attorney=s fees rendered in the Brenholtz suit. That being so, any

legal malpractice claim by appellants became a compulsory counterclaim at that time.

The failure to assert that compulsory counterclaim timely prevents it being raised again in

the suit underlying this appeal.

Thus, the trial court correctly concluded that res judicata was applicable to

appellants= claims here. That decision requires us to overrule appellants= first issue, and,

because res judicata was properly applicable, it supports the trial court=s judgment and

obviates the necessity for discussion of appellants= other issues. The judgment of the

trial court must be, and is, hereby affirmed.

10
 John T. Boyd
Senior Justice

11