McMahan v. Greenwood

In McMahan v. Greenwood, 108 S.W.3d 467, 495-96 (Tex. App.--Houston 14th Dist. 2003, pet. denied), a client sued his former business associates and his former attorney for, among other things, fraud, fraudulent inducement, breach of fiduciary duty, and legal malpractice. McMahan, 108 S.W.3d at 477. Specifically, the client alleged that the attorney gave him false information and advice regarding the client's stock ownership in a business entity he formed with the other defendants, and that the attorney falsely told him he was a shareholder of the business entity in order to induce him into contributing assets to the company. Id. at 476, 495-96. The client further alleged that the attorney failed to correct the misrepresentation prior to the client's execution of a settlement agreement with the other defendants, and that because the attorney gave him this false information and advice, he continued to transfer assets to the company and later signed the settlement agreement, rather than attempting to recover the full value of the assets he contributed. Id. at 496. The defendants pleaded numerous affirmative defenses, including release, ratification, and limitations, and the attorney moved for summary judgment on traditional and no-evidence grounds. Id. at 477. The trial court granted the attorney's motions for summary judgment, but did not specify the grounds upon which the motions were granted. Id. The client appealed. In our examination of the client's claims against the attorney, we found that the client had presented more than a scintilla of evidence that the attorney made material misrepresentations to the client, that he had a duty to disclose the client's lack of stock ownership, and that the client justifiably relied on his representations. Id. at 495. The Court therefore concluded that the client's fraud and fraudulent inducement causes of action survived the attorney's no-evidence motion for summary judgment. Id. The Court similarly concluded that the client's legal malpractice and breach of fiduciary duty claims survived the attorney's motion for summary judgment. Id. at 496. The attorney did not argue that the non-fracturing rule barred the independent assertion of claims of breach of fiduciary duty; rather, the attorney merely argued that there was no evidence of an attorney-client relationship between himself and the client at the time the settlement agreement was executed. Id. at 495-96. The Court determined that the attorney had not sufficiently refuted the existence of an attorney-client relationship during the period surrounding the formation of the business entity, and stated that, contrary to the attorney's position, Texas law requires an attorney who has made misstatements to a client to make a full disclosure of the truth. Id. at 496.