Fifth Circuit Rules In Favor of Attorney Immunity

When dealing with contentious litigation, I have occasionally had a client ask why we can't sue the opposing lawyer.  When I try to explain that the other lawyer is merely representing his client, I get a tirade about how evil the other attorney is.   The better answer, as shown by a recent Fifth Circuit opinion, is attorney immunity.    Case No. 17-11464, Troice v. Greenberg Traurig, LLP (5th Cir. 4/17/19).

 What Happened

 The R. Allen Stanford Ponzi Scheme was and is a big deal.   Allen Stanford was a bankrupt former gym owner who bought a bank in Antigua and peddled bogus CDs, causing billions of dollars of losses over a period of twenty-one years.   For part of that time, Stanford was represented by a partner at Greenberg Traurig named Carlos Loumiet, who later moved his practice to Hunton & Williams.   In 2009, the SEC obtained a receivership over the Stanford entities and Ralph Janvey was named as Receiver.  In 2012, the Receiver brought suit against Greenberg Traurig and Hunton & Williams, among others, for their role in representing the Stanford Financial entities.   Three investors also brought a class action suit against the lawyers.    Hunton & Williams settled and was dismissed.   Greenberg Traurig moved to dismiss the investor suit based on attorney immunity.   The District Court granted judgment on the pleadings.   

Attorney Immunity

According to the Texas Supreme Court attorney immunity is a "comprehensive affirmative defense protecting attorneys from liability to non-clients.   Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015).   It applies where the "alleged conduct was within the scope of . . . legal representation."  Id. at 484.

On appeal, the investors argued that three exceptions to attorney immunity applied.   This required the Fifth Circuit to predict what the Texas Supreme Court would do.   The investors urged the Fifth Circuit to certify the question to the Texas Supreme Court.  The Fifth Circuit did not take them up on this request.

The first exception argued was that attorney immunity should only protect attorneys engaged in litigation.   The Fifth Circuit did not have any trouble dispatching this argument, since it relied on the dissent in Cantey Hanger and dissents are not winning arguments.

Next, they argued that participation in a crime was not subject to immunity.   Criminal conduct can negate attorney immunity.  The Fifth Circuit held that "We conclude that criminal conduct does not automatically negate immunity, but in the usual case it will be outside the scope of representation."  Opinion, p. 8.    The Texas Supreme Court has stated that assaulting opposing counsel during trial would be an example of unimmunized conduct.   However, it would fall outside the protections of immunity "not because it could be criminal, but 'because it does not involve the provision of legal services and would thus fall outside the scope of client representation.'"   Opinion, p. 8.   The Court concluded that "Thus, immunity can apply even to criminal acts so long as the attorney was acting within the scope of representation."   Opinion, p. 9.  I will return to this later.

Finally, the investors argued that Greenberg Traurig aided and abetted Stanford's violations of the Texas Securities Act and that the statute abrogated the common law attorney immunity.  However, the Fifth Circuit found that "The Act contains no explicit abrogation of immunity."   Opinion, p. 10.  The Court also noted that attorney immunity has been applied in under the Texas Deceptive Trade Practices Act.   The Court said, "We conclude that the Supreme Court of Texas would not consider itself sure that the Texas legislature intended to abrogate attorney immunity in the context of TSA claims."

As a result, the Fifth Circuit affirmed the dismissal of claims against Greenberg Traurig.

Greenberg Traurig's appellate victory is not the end of the story.  It is still being sued by Ralph Janvey, the Receiver.   An attorney does not have immunity when its client is suing for malpractice or similar theories.   When a third party is hurt by advice that an attorney gave his client, the proper procedure is that the third party can sue the client and the client can then sue the attorney.   This way the attorney is held responsible by the person to whom he owed the duty.

When Can an Attorney Be Liable to a Non-Client? 

While the attorneys in this case successfully urged attorney immunity, there are plenty of instances in which an attorney can be held liable to a non-party.   The most obvious examples are Fed.R.Civ.P. 11 and Fed.R.Bankr.P. 9011 and 28 U.S.C. Sec. 1927.   The rules specifically apply to actions of attorneys in litigation and allow attorney to be punished for actions in violation of the rules.   28 U.S.C. Sec. 1927 allows the Court to impose liability to an attorney who "multiplies the proceedings in any case unreasonably and vexatiously."

Next, there are attorneys who commit a direct tort.   For example, if the attorneys in this case had made fraudulent representations directly to the investors to get them to invest, they could have been sued for fraud.   This was recognized in In re Educators Group Health Trust, 25 F.3d 1281, 1285 (5th Cir. 1994) where the Court stated:

 We do agree, however, with the plaintiff school districts' contention that some of the causes of action allege a direct injury to themselves, which is not derivative of any harm to the debtor. For example, the plaintiff school districts allege in paragraph XI of the complaint that the defendants intentionally misrepresented to them the financial situation of EGHT, and that they materially relied on such representations to their detriment. To the extent that this cause of action and others allege a direct injury to the plaintiff school districts, they belong to the plaintiff school districts and not the estate.     

Then there is the question of what acts fall within the scope of the representation.    The Fifth Circuit said that assaulting opposing counsel would necessarily be outside of the scope of the representation.  However, what if opposing counsel was about to make a damaging point and the client said, "You need to shut him up?"  Would it be within the scope of the representation if the client asked the attorney to assault opposing counsel to help with his case?   What if a client tells an attorney to destroy incriminating evidence as part of the representation or worse, breaks into opposing counsel's office and sets fire to his filing cabinet?  I am tempted to say that only conduct which attorneys are permitted to take can fall within the scope of the representation.  However, the Fifth Circuit said that "immunity can apply even to criminal acts so long as the attorney was acting within the scope of representation."   Attorneys cannot ethically engage in criminal acts in the course of their representation.   Therefore I am at a loss at to what criminal activities an attorney could engage in within the scope of representing a client.