Henry S. Miller Commercial Company v. Newsom, Terry & Newsom, LLP and Steven K. Terry

Supreme Court of Texas
══════════
No. 22-1143
══════════

Henry S. Miller Commercial Company,
Petitioner–Cross-Respondent,

v.

Newsom, Terry & Newsom, LLP and Steven K. Terry,
Respondents–Cross-Petitioners

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

Argued October 3, 2024

CHIEF JUSTICE HECHT delivered the opinion of the Court, in which
Justice Boyd, Justice Devine, Justice Blacklock, Justice Busby, Justice
Huddle, and Justice Young joined, and in which Justice Bland joined
except as to Part III(A).

JUSTICE YOUNG filed a concurring opinion, in which Justice Bland
joined.

JUSTICE BLAND filed an opinion concurring in part and dissenting
in part.

Justice Lehrmann did not participate in the decision.
Client blames its Lawyer for losing its case. Its Opponent’s
position throughout trial had been that Client had the weaker case.
Afterward, Client assigns its malpractice claim against Lawyer to
Opponent in hopes of sharing in a recovery against him for the financial
benefit of both. But to win as plaintiff in the legal malpractice case,
Opponent must do an about-face from its position in the underlying
litigation: from “I won because I had the stronger case,” to “I wouldn’t
have won but for Lawyer’s negligence.” We have called that blatant
reversal driven solely by financial interest “demeaning” to the justice
system, and it is one reason among several why we have long held that,
as a general rule, “one cannot assign a cause of action for legal
malpractice.” 1
0

But even if Client does not assign its legal malpractice claim and
sues for itself, as we will show happened here, Opponent, as Client’s
judgment creditor from the underlying case, may yet seek some control
or influence over the malpractice claim to benefit from Client’s recovery
against Lawyer, and change positions to achieve that objective just as it
would if the malpractice claim were its own by assignment. The
principal issue in this case is whether taking opposite positions in
related litigation to win a legal malpractice claim—whether that change
of position alone, disturbing as it is—bars prosecution of the claim, just
as an assignment would. We agree with the court of appeals that it does

1 Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313, 315, 318 (Tex.

App.—San Antonio 1994, writ ref’d); see also State Farm Fire & Cas. Co. v.
Gandy, 925 S.W.2d 696, 707-708 (Tex. 1996); see also Mallios v. Baker, 11
S.W.3d 157, 159, 162-172 (Tex. 2000) (Hecht, J., concurring).

2
not. 2 The Client’s claim is its own so long as it retains substantial control
over it, whatever interest in Client’s success another may have. 3 To be
2

sure, the trial court must be careful to see that a jury is fully aware of
Opponent’s efforts and incentives to advance Client’s position against
its Lawyer and not be confused or misled by Opponent’s change of
position and financial interest in the outcome.
On an entirely separate matter, we hold, contrary to the court of
appeals, 4 that while there is evidence Lawyer’s negligence caused Client
3

some damages, there is no evidence that it caused the entire amount of
damages found by the jury, or that Lawyer was grossly negligent in
representing Client, and therefore the case must be remanded for yet a
third trial. 5 We need not, and do not, address the court of appeals’
4

judgment remanding to the trial court due to an improper jury charge

2 684 S.W.3d 502, 511 (Tex. App.—Dallas 2022); Henry S. Miller Com.

Co. v. Newsom, Terry & Newsom, L.L.P., No. 05-14-01188-CV, 2016 WL
4821684, at *3 (Tex. App.—Dallas Sept. 14, 2016, pet. denied).
3 See Mallios, 11 S.W.3d at 170 (Hecht, J., concurring) (“[A]n
assignment of an interest in a legal malpractice claim is contrary to public
policy if the assignee takes the interest purely as an investment unrelated to
any other transaction and acquires not merely a financial interest in the
outcome but a significant right of control over the prosecution of the claim”).
4 684 S.W.3d at 514.

5 See Guevara v. Ferrer, 247 S.W.3d 662, 669-670 (Tex. 2007) (holding

that where there was evidence that some of the plaintiff’s medical expenses
resulted from a car wreck but no evidence that all did, remand for a new trial
was appropriate); see also Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 682
(Tex. 2000) (holding that where there was evidence of some fraud damages, but
there was no evidence to support the full amount of damages found by the jury,
remand for a new trial was appropriate).

3
commenting on the weight of the evidence. 6 5

I
The events underlying this case span 20 years and are set out in
the court of appeals opinion before us and in two prior opinions, which
we refer to, earlier to more recent, as HSM I, 7 HSM II, 8 and HSM III. 9
6 7 8

With those opinions as resources to the reader, we confine our discussion
of the background, though still lengthy, to those facts important to our
analysis of the legal issues we decide.
A
In early 2004, Barry Nussbaum’s real estate broker received an
unsolicited call from Steven Defterios, a real estate sales agent, saying
that his client, James A. Flaven, had a $300 million trust fund from
which he wanted to spend $100 million to purchase Texas properties in
Nussbaum’s portfolio. Nussbaum bought, renovated, and sold
commercial apartment complexes and office buildings on behalf of
individual investors. 10 Defterios had begun working with broker Henry
9

S. Miller Commercial Co. (HSM) the year before as an independent
contractor, but HSM allowed him use of the title “vice president” even
though he was not an officer or employee of the company. Defterios said
he knew Flaven quite well, that he had worked with Flaven on other

6 684 S.W.3d at 516.

7 Defterios v. Dall. Bayou Bend, Ltd., 350 S.W.3d 659 (Tex. App.—Dallas

2011, pet. denied).
8 Henry S. Miller Com. Co., 2016 WL 4821684.

9 684 S.W.3d 502.

10 References to Nussbaum include his various entities.

4
deals, and that Flaven’s financial worth had been verified. None of that
was true. Nussbaum was interested in the investment prospect because
of Defterios’ position with HSM, although Nussbaum’s broker also met
with Flaven himself and decided he was a legitimate investor.
Nussbaum contracted to sell nine properties to Flaven for some $90
million. 11 But Flaven immediately reported difficulties in obtaining
0

funds from his trust, and closing was delayed repeatedly. Flaven and
Defterios made excuses and reassurances, telling Nussbaum that
funding from Flaven’s trust was imminent. But by May 2005, the sale
had collapsed. As it turned out, Flaven was a Massachusetts truck
driver with no significant assets.
Nussbaum sued HSM and Defterios for fraud and
misrepresentations resulting in his losses from the decline in his
properties’ value while they were under contract and off the market.
HSM denied ever having been involved in the transaction or knowing
anything about Flaven. Both sides worried about whether to join Flaven
in the suit. Nussbaum’s attorney, Marc Stanley, was concerned that if
they did, HSM would argue that it was as much a victim of Flaven’s
fraud as Nussbaum, and the jury would pin all the blame on Flaven, the
“bad guy”, who was insolvent, giving Nussbaum a Pyrrhic victory, an
uncollectable judgment. So Nussbaum never sued Flaven, and Stanley
argued to the jury that HSM alone was responsible for the fraud. HSM’s
attorney, Steven Terry, knew from the outset that designating Flaven a

11 The actual buyer was Orleans Properties, LP, an entity created by

Flaven.

5
responsible third party could reduce HSM’s percentage of any liability, 12
but he worried that when Flaven was proven to be an obvious con man,
the jury would believe that HSM and Defterios, experienced brokers,
clearly either knew or should have known, and be more inclined to hold
them entirely responsible for the fraud. Terry remained undecided until
a few days before trial, when he finally moved to designate Flaven as a
responsible third party, asserting that Flaven alone was liable to
Nussbaum. Nussbaum opposed the motion because it was untimely 13 2

and stated no legal duty that Flaven breached. The trial court denied
the motion without explanation.
Another issue at trial was whether Defterios acted with HSM’s
authority even though it disavowed any knowledge of the transaction. 14 3

Terry believed HSM was liable by statute, 15 that the evidence showed
4

Defterios was its authorized agent, and that for HSM to deny
responsibility would indicate its dishonesty in allowing Defterios to use
the title of vice president. In addition, HSM’s president testified that he
was “proud” of how Defterios had handled the transaction, although he
equivocated after hearing Defterios admit on the stand that he had lied

12 See TEX. CIV. PRAC. & REM. CODE § 33.003(a).

13 See id. § 33.004(a) (stating that a motion to designate a responsible

third party “must be filed on or before the 60th day before the trial date unless
the court finds good cause to allow the motion to be filed at a later date”).
14 See HSM II, 2016 WL 4821684, at *4-*5.

15 See Act of June 1, 2003, 77th Leg., R.S., ch. 1421, 2003 Tex. Gen. Laws

4688 (amended 2016) (current version at TEX. OCC. CODE § 1101.803) (“A
licensed broker is liable to the commission, the public, and the broker’s clients
for any conduct engaged in under this chapter by the broker or by a salesperson
associated with or acting for the broker.”).

6
about Flaven. During the litigation, Defterios left his association with
HSM. Thinking it would be better to minimize any apparent conflict
between HSM and Defterios before the jury, and believing that HSM
was statutorily responsible for all Defterios’ actions anyway, Terry
stipulated, after the evidence closed, that Defterios had always acted
with HSM’s authority, notwithstanding its complete lack of involvement
in the Nussbaum transaction.
The jury found HSM and Defterios liable for fraud and negligent
misrepresentations. In December 2008, the trial court rendered
judgment for Nussbaum for $8.1 million plus pre- and post-judgment
interest. HSM and Defterios appealed the damages award only, not the
liability findings. The court of appeals affirmed in HSM I.
B
In February 2009, two months after judgment was rendered and
a month after the appeal was filed, HSM sued its errors and omissions
insurer, Diamond State Insurance Co., for denying coverage of the
judgment, and Terry, its lawyer, for malpractice. 16 Five months into the
5

suit, Nussbaum filed an involuntary petition in bankruptcy against
HSM as a judgment creditor. In July 2010, the parties agreed on a plan
of reorganization for HSM, which provided that HSM, “in its sole
discretion, may prosecute, settle, or dismiss” its malpractice and
insurance claims, and “all proceeds therefrom shall be [its] property”.
But the plan also provided that the first $5 million in recovery would go
to Nussbaum, payable to Stanley as his agent, and that HSM could not

16HSM also sued Terry’s firm, Newsom, Terry & Newsom, LLP. In
discussing the parties’ positions, we include the firm when referring to Terry.

7
settle for less than $5 million without their consent. HSM had “sole
discretion to settle” for an amount over $5 million, and Nussbaum and
Stanley would receive 70% of up to $13 million and 30% above that. The
plan required Nussbaum to support HSM “toward . . . recovery” in the
case, “recognizing that higher recoveries will enhance and benefit” the
bankruptcy estate.
As part of the plan, Nussbaum consented to a temporary
injunction prohibiting enforcement of his judgment against HSM as long
as HSM used its “best efforts and all reasonable means” to pursue its
claims against Diamond State and Terry. The temporary injunction is
to become permanent only when that litigation is concluded and HSM
has complied with its obligation. Its discharge from bankruptcy is
deferred until then.
The bankruptcy court approved the plan while observing that it
seemed to have no purpose but to assure Nussbaum that HSM would
pursue its claims against its lawyer and insurer. The plan provisions
regarding HSM’s action against Diamond State and Terry were
reiterated in a litigation agreement between Nussbaum and HSM.
Diamond State settled with HSM before trial for $6 million, so
Nussbaum and Stanley’s consent to settle for less than $5 million was
never triggered.
C
The legal malpractice case was tried in April 2014. HSM claimed
that Terry was negligent and grossly negligent in handling the fraud
case by not timely moving to designate Flaven as a responsible third

8
party and by stipulating that HSM had authorized Defterios’ actions. 17 6

Opponents in the fraud case, Nussbaum and HSM, aligned against
Terry. Stanley and another lawyer, Lewis Sifford, testified that if Terry
had designated Flaven as a responsible third party, the jury would have
allocated 85-100% of the responsibility for Nussbaum’s damages to him,
even though Stanley had argued for Nussbaum in the fraud case that
HSM alone was responsible for all his damages. Sifford also testified
that by stipulating Defterios acted with HSM’s authority, Terry
subjected HSM to complete liability when it otherwise would have had
none.
The trial court directed a verdict for Terry on gross negligence.
The jury found that but for Terry’s negligence, the judgment in the fraud
case would have been about $4.6 million less. 18 Crediting Diamond
7

State’s $6 million settlement left HSM with no net recovery.
Both sides appealed. The court of appeals held that HSM’s plan
of reorganization in the bankruptcy court, which Nussbaum prompted

17 HSM also asserted that Terry failed to advise it of a potential conflict

with Defterios, and separately, that he provided a substandard defense in
several respects. HSM II, 2016 WL 4821684 at *4. HSM does not argue here
that these were grounds for finding Terry negligent.
18 The fraud judgment awarded Nussbaum $8,136,088 in damages
found by the jury plus $782,631.99 in prejudgment interest. Subtracting from
those damages the $4,636,088 the malpractice jury found to have been caused
by Terry’s negligence would leave exactly $3.5 million, disregarding interest.
It is not clear why the malpractice jury settled on that number. One might
conclude that the jury found Terry to have been about 57% responsible for the
fraud judgment (4,636,088 ÷ 8,136,088 = 0.5698). But the jury also found that
the fraud judgment was caused by HSM’s, Defterios’, and Terry’s negligence
and allocated responsibility 50% to Terry, 40% to Defterios, and 10% to HSM.
These confusing findings do not appear to have been resolved.

9
and to which it agreed, was not an illegal assignment of its legal
malpractice claim barring prosecution of it. The court noted that this
Court has “‘disapproved voluntary assignments of legal malpractice
claims that necessitate a duplicitous change in the positions taken by
the parties in antecedent litigation,’ that is, where a party adopts a
former adversary’s position to pursue a claim for legal malpractice
against the former adversary’s lawyer.” 19 But the court held that HSM
8

was not barred from “assert[ing] its own malpractice claim . . . in its own
name.” 20
9

The court of appeals held that there was evidence of Terry’s
negligence. As for gross negligence, the court of appeals reversed the
directed verdict for Terry in part. Terry reasonably believed, the court
concluded, that HSM’s liability for Defterios’ actions was required by
statute so stipulating as much did not put HSM at any further risk.
“[N]o reasonable factfinder”, the court concluded, “could form a firm
belief or conviction that in making decisions based on [his]
interpretation of the statute, [Terry] had ‘actual, subjective awareness
of the risk involved, but nevertheless proceed[ed] with conscious
indifference’ to HSM’s rights.” 21
20

But the court concluded that there was evidence Terry was
grossly negligent in failing to designate Flaven as a responsible third

19 HSM II, 2016 WL 4821684, at *3 (quoting Mallios, 11 S.W.3d at 164

(Hecht, J., concurring)).
20 Id.

21 Id. at *5 (last alteration in original) (quoting TEX. CIV. PRAC. & REM.

CODE § 41.001(11)(B)).

10
party. Flaven’s many, repeated false statements were undisputedly a
cause of Nussbaum’s claimed injury, and assigning liability to him
would reduce any assigned to HSM. Terry explained that he could not
meet the deadline for designating Flaven as a responsible third party
because he could not find him to talk with him, and he was concerned
that asserting Flaven’s responsibility would reflect poorly on Defterios,
HSM’s agent. The court rejected Terry’s explanation: “[HSM] could have
maintained there was no fraud in the underlying transaction, but
pleaded in the alternative that if there was fraud, it was only on Flaven’s
part, not HSM’s.” 22 In the end, Terry moved to designate Flaven as a
2

responsible third party, asserting that he alone was responsible for
Nussbaum’s damages, but after the deadline. The court concluded that
Terry’s admittedly intentional decision to delay in filing the motion that
could avoid a potentially extreme risk to his client was some evidence of
conscious indifference. 2322

D
The second trial of the malpractice case, in November 2019, was
much like the first with an important difference. As in the first trial,
Terry explained that he was hesitant to designate Flaven a responsible
third party because he was concerned that in doing so, he would be
lending credence to Nussbaum’s claim of injury. The legitimacy of his
concerns and whether his delay misunderstood the law, and was
therefore negligent, were again hotly contested issues and the subject of

22 Id. at *6.

23 Id.

11
extensive evidence on both sides. The court included in its jury charge
the text of the statute governing the designation of responsible third
parties. 24 But the court then added this additional instruction:
23

In resisting a motion to strike a designation of a
responsible third party, the Terry Defendants would not
have been required to prove the plaintiffs’ case that there
was fraud in the underlying transaction. They could rely
on evidence of the proposed transaction, its failure, and the
identity of a responsible third party as the defaulting buyer
in resisting a motion to strike a designation of a responsible
third party.
Terry objected that the court was essentially instructing the jury that
he made the wrong decision and was therefore negligent. Terry argued
the court had gone beyond providing the jurors the text of the
designation statute to read for themselves and was improperly
commenting on the weight of that evidence.
The jury found Terry negligent and grossly negligent. As in the
first trial, Stanley and Sifford again testified that if the jury had been
asked to apportion responsibility for Nussbaum’s injury between HSM
and Flaven, it would have assigned 85-100% to Flaven. And Sifford
again testified that by stipulating to HSM’s responsibility for Defterios’
actions, HSM was subjected to liability when it would not have been
otherwise. HSM did not argue that the stipulation was grossly
negligent, only that the failure to designate Flaven was. The jury found
that the difference between the amount of the judgment rendered in the
fraud case and the amount of the judgment that would have been
rendered had Terry not been negligent was about $13.6 million, the total

24 See TEX. CIV. PRAC. & REM. CODE § 33.004.

12
then due with interest. In effect, the jury found Terry 100% responsible
for the fraud judgment against HSM. 25 The jury awarded punitive
24

damages of $6 million against Terry and $1 million against his firm.
Terry appealed. The court of appeals refused to reconsider its
holding in the first appeal that the bankruptcy reorganization plan and
the relationship between HSM and Nussbaum made prosecution of the
malpractice claim unlawful. 26 The court concluded that the evidence
25

was sufficient to support the jury’s finding that the rendition of
judgment in the fraud case was caused by Terry’s negligence and that
not designating Flaven as a responsible third party was grossly
negligent. 27 But a majority of the court concluded that the jury charge
26

instruction on designating a responsible third party, to which Terry
objected, was an improper comment on the weight of the evidence. 28 27

Accordingly, the court reversed and remanded for yet a third trial. 29 28

E
Both Terry and HSM petition for review. We first consider
whether HSM is prohibited from prosecuting its legal malpractice claim
because its bankruptcy reorganization plan constitutes an assignment
of the claim to Nussbaum and Stanley that is illegal under Texas law.

25 The trial court refused to ask the jury whether HSM’s and Defterios’

negligence caused the judgment or to separately apportion responsibility for
any excess judgment as it had in the first malpractice trial.
26 HSM III, 684 S.W.3d at 511.

27 Id. at 514.

28 Id. at 516.

29 Id.

13
We then turn to whether there is evidence that the fraud judgment was
entirely caused by Terry’s negligence and gross negligence.
II
We first address whether the relationship between HSM and
Nussbaum precludes HSM from asserting its legal malpractice claim
against Terry.
A
As we have recounted in other cases, the early common law did
not allow alienation of choses in action in order to avoid multiplying
litigation and because it regarded rights as personal. 30 The expectations
29

and demands of a far more mercantile society have displaced the rule
but have not eliminated the common law’s concerns. “Practicalities of
the modern world have made free alienation of choses in action the
general rule, but they have not entirely dispelled the common law’s
reservations to alienability, or displaced the role of equity or policy in
shaping the rule. Even today, the general rule is that a contractual
assignment may be ‘inoperative on grounds of public policy.’” 31 30

We cited three such grounds in barring assignments of legal
malpractice actions in Zuniga v. Groce, Locke & Hebdon. 32 One was that
3

“assignability would make possible the commercial marketing of legal
malpractice causes of action by strangers, which would demean the legal

30 See Gandy, 925 S.W.2d at 705-706; see also Mallios, 11 S.W.3d at 162

(Hecht, J., concurring).
Gandy, 925 S.W.2d at 707 (quoting RESTATEMENT (SECOND) OF
31

CONTRACTS § 317(2)(b) (AM. L. INST. 1981)).
32 878 S.W.2d at 316-317.

14
profession.” 33 Another was that the possibility of assignment could
32

“drive a wedge between [an] attorney and his client [making it]
increasingly risky to represent [an] underinsured, judgment-proof
[client]” whose opponent would have a financial incentive to join with
the client in suing the lawyer to obtain some recovery. 34 More generally,
33

of continuing concern to the justice system, “[i]n each assigned
malpractice case, there would be a demeaning reversal of roles. The two
litigants would have to take positions diametrically opposed to their
positions during the underlying litigation”. 35 The plaintiff/assignee
34

would have to argue that he prevailed in the underlying case not because
he had the stronger position, as he had there asserted, but only because
of the lawyer’s negligent representation of his client. And the lawyer
would argue that his client lost only because he had the weaker position,
contrary to his advocacy on the client’s behalf. 36 35

For the law to countenance this abrupt and shameless shift
of positions would give prominence (and substance) to the
image that lawyers will take any position, depending upon
where the money lies, and that litigation is a mere game
and not a search for truth. It is one thing for lawyers in our
adversary system to represent clients with whom they
personally disagree; it is something quite different for
lawyers (and clients) to switch positions concerning the
same incident simply because an assignment and the law

33 Id. at 316.

34 Id. at 317.

35 Id. at 318.

36 Id.; see also Gandy, 925 S.W.2d at 708; Mallios, 11 S.W.3d at 163

(Hecht, J., concurring).

15
of proximate cause have given them a financial interest in
switching. 37
36

Added to this negative reflection on the legal profession and the judicial
process is the real risk of confusion to jurors hearing parties taking
positions contrary to their pre-litigation interests. 38
37

Manuel Zuniga fell from a ladder and sued its manufacturer,
Bauer, whose insurer became insolvent. In hopes of yet achieving some
recovery, the Zuniga family agreed to settle with Bauer by taking an
assignment of its malpractice claim against its lawyer, Sprague, and
allowing it to transfer all its assets to a new entity beyond the Zunigas’
reach. The Zunigas then sued Sprague. 39 We affirmed the trial court’s
38

dismissal of the suit: “On balance, we conclude that the costs to the legal
system of assignment outweigh its benefits. We hold that an assignment
of a legal malpractice action arising from litigation is invalid.” 40
39

The assignee of a claim owns it, controls its prosecution, and is
entitled to any recovery. But someone with less than ownership of a
claim may still exert control over its prosecution and have a legal
interest in recovery. In Mallios v. Baker, Baker sustained serious
injuries when he wrecked his motorcycle after leaving a bar at 2:00 a.m.
He retained Mallios to sue the owner of the bar under the Dram Shop

37 Zuniga, 878 S.W.2d at 318 (citation omitted); Gandy, 925 S.W.2d at

708.
38 See Mallios, 11 S.W.3d at 169 (Hecht, J., concurring).

39 Zuniga, 878 S.W.2d at 314.

40 Id. at 318.

16
Act. 41 Mallios sued and obtained a default judgment for more than $1
40

million, but it turned out the defendant did not own the bar, and when
that was discovered, limitations on Baker’s claim had run. Baker saw
Herron’s newspaper advertisement offering to buy judgments and
contacted him for assistance in suing Mallios for legal malpractice. The
two signed an agreement that Herron would employ counsel to sue
Mallios, subject to Baker’s consent, and would pay all attorney fees and
expenses. Herron would receive half of any recovery plus reimbursement
of expenses. Baker would fully prosecute the claim and could not settle
without Herron’s consent. 42 Herron simply invested in Baker’s claim. 43
4 42

This Court held unanimously that regardless of whether the
arrangement was something like an assignment, it did not preclude
Baker from asserting his own legal malpractice claim in his own name. 44
43

Four Justices concurring in the result would have held Baker and
Herron’s agreement to be invalid. 45 “[O]ur disapproval of the
44

assignment in [Zuniga],” they wrote, “did not bar all transfers of legal
malpractice claims”:
[T]his Court has disapproved voluntary assignments of
legal malpractice claims that necessitate a duplicitous
change in the positions taken by the parties in antecedent
litigation, and we have expressed reservation about any
commercial marketing of legal malpractice claims, but we
have not precluded the transfer of such claims to the

41 See TEX. ALCO. BEV. CODE § 2.02(b).

42 See Mallios, 11 S.W.3d at 161 (Hecht, J., concurring).

43 Id. at 170 (Hecht, J., concurring).

44 Id. at 159.

45 Id. at 163 (Hecht, J., concurring).

17
client’s surrogate, such as a bankruptcy trustee, and we
have allowed equitable subrogation in certain
circumstances. 4645

The concurring Justices would have held that “an assignment of an
interest in a legal malpractice claim is contrary to public policy if the
assignee takes the interest purely as an investment unrelated to any
other transaction and acquires not merely a financial interest in the
outcome but a significant right of control over the prosecution of the
claim.” 47 Because Baker had agreed to fully cooperate with Herron in
46

the prosecution of his claim against Mallios and not to settle it without
Herron’s consent, and because Herron was Baker’s counsel’s sole source
of payment of his attorney fees, the concurring Justices would have held
that Baker’s arrangement with Herron was an invalid assignment. 48 47

The “vice” in the arrangement, they said, was “not in a mere assignment
of part of plaintiff’s recovery, but in an assignment coupled with such
control that the third party assignee has a commercial investment in the
outcome and the power to protect it.” 49 Nevertheless, the concurring
48

Justices concluded: “It would be unfair to punish Baker for executing
the assignment by depriving him of his claim against Mallios”. 50 In
49

other words, Baker could prosecute his claim against Mallios even
though neither Baker nor Herron could enforce their agreement. Thus,

46 Id. at 164 (Hecht, J., concurring).

47 Id. at 170 (Hecht, J., concurring).

48 Id. at 170-171 (Hecht, J., concurring).

49 Id. at 160 (Hecht, J., concurring).

50 Id. at 172 (Hecht, J., concurring).

18
the Court was unanimous in allowing Baker to prosecute his legal
malpractice claim.
This holding was despite the fact that a distortion of the parties’
positions, a principal reason for Zuniga’s prohibiting assignments of
legal malpractice claims, would still be front and center in the trial, with
Baker asserting that he would have recovered if only Mallios had timely
sued the right bar, and Mallios arguing that Baker really had no claim
to start with, even though he had asserted the contrary in the suit he
filed against the wrong bar. The Court did not discuss why the distortion
of positions was not enough in and of itself to preclude prosecution of the
malpractice claim or how the parties’ change in positions should be
handled at trial before the jury.
A similar distortion of positions occurs with Mary Carter
agreements in which the plaintiff settles with one defendant who
remains a party but joins forces with the plaintiff against the
non-settling defendants so that one party seemingly in the defendants’
camp sides with the plaintiff. 51 Before we prohibited such agreements,
50

courts had taken prophylactic measures “to mitigate the agreements’
harmful skewing of the trial process” generally by requiring full
disclosure of the agreements to all parties and at trial so that the
motives for the parties’ alignment could be seen. 52 We concluded that
5

remedial measures could “only mitigate and not eliminate the unjust

51 See Elbaor v. Smith, 845 S.W.2d 240, 247 (Tex. 1992).

52 Id. at 248-249; see also Gandy, 925 S.W.2d at 709-710.

19
influences exerted on a trial”. 53 “[T]horoughly disclosing the true
52

alignment of the parties[] and revealing the agreement’s substance
cannot overcome collusion between the plaintiff and settling defendants
who retain a financial interest in the plaintiff’s success.” 54
53

The conclusion to be drawn from the Court’s unanimous judgment
in Mallios is that while a pernicious distortion of positions in a legal
malpractice case may be enough to prohibit the client’s outright
assignment of ownership of the claim, it is not enough to prohibit
prosecution of the claim by the client in his own name, even if the client
cedes to the other a significant right of control over prosecution of the
claim as long as the client retains substantial control, and even though
the distortion cannot be completely cured by disclosure or other
procedures. Full disclosure of the parties’ positions and interests in a
legal malpractice case, inadequate to support the client’s assignment of
the claim, is the trial court’s remaining tool to remedy that harm when
the plaintiff sues on his own claim in his own name.
B
Terry argues that the arrangements between HSM and
Nussbaum are an assignment of HSM’s legal malpractice claim barring
prosecution as in Zuniga. But unlike the Zunigas, and like Baker in
Mallios, HSM is pursuing in its own name its own claim as Terry’s
former client. Nussbaum’s interests in the claim, and partial control
over it, do not bar its prosecution.

53 Elbaor, 845 S.W.2d at 249-250; see also Gandy, 925 S.W.2d at 709-

710.
54 Elbaor, 845 S.W.2d at 250; see also Gandy, 925 S.W.2d at 709-710.

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HSM’s plan of reorganization in the bankruptcy court authorized
HSM to prosecute its legal malpractice claim “in its sole discretion”,
protected it from enforcement of Nussbaum’s fraud judgment as long as
it prosecuted its malpractice claim using its “best efforts and all
reasonable means”, and made “all proceeds therefrom” its property. The
plan required Nussbaum to support HSM, but only for the obvious
reason that recovery would benefit both (and other HSM creditors).
Nussbaum’s control over HSM’s claim was much less than Herron’s
control over Baker’s claim in Mallios because HSM chose and paid its
own lawyer.
Baker and Herron’s agreement in Mallios required both to
consent to settlement. HSM’s reorganization plan required Nussbaum’s
consent only for a settlement under $5 million. But HSM’s settlement
with its insurer as part of the same case was for more than that, so the
consent provision has not been and cannot be triggered. The plan gave
HSM “sole discretion to settle” for an amount over $5 million, with
Nussbaum and Stanley to receive 70% of up to $13 million and 30%
above that.
HSM and Nussbaum reiterated the reorganization plan’s
provisions in a separate litigation agreement, but it does not alter their
relationship. The plan itself does little more than provide the
bankruptcy court’s imprimatur to the agreed arrangement, and perhaps
a mechanism for enforcing it. Even without the arrangement, plan and
all, Nussbaum would be entitled to enforce its fraud judgment against
HSM at any time, and HSM would have every interest in avoiding that
burden, including pursuing its malpractice claim to recover against

21
Terry, alleviating its obligation to Nussbaum. Terry insists that this
shows why the malpractice claim should be disallowed. The possibility
of such a claim interjects conflict between lawyer and client from the
get-go and discourages lawyers from representing judgment-proof
clients, to the detriment of the legal profession and the justice system.
The alternative is that a solvent client can prosecute a legal malpractice
claim while a distressed client cannot. Terry does not argue how this is
a good public policy limitation of legal malpractice claims. Nothing about
the plan, the agreement, or the arrangement requires that HSM be
prohibited from enforcing its own legal malpractice claim in its own
name, just as Baker was permitted to do in Mallios.
We add two caveats. Not at issue here is whether HSM and
Nussbaum’s arrangement is enforceable as between the two of them.
The Mallios concurring opinion would have held that it is not. If not, a
judgment debtor and creditor may be less likely to agree to cooperate in
prosecuting the debtor/client’s legal malpractice claim. The creditor may
instead choose to rely on its enforcement rights.
The second caveat is whether the distortion of positions, which
must be thoroughly explained to the jury, can be better remediated by
raising the standard of proof of malpractice in such cases from a
preponderance of the evidence to clear and convincing evidence. As we
explain below, the lower standard of proof allows parties and lawyers to
adduce summary opinion evidence from distorted positions to predict
what a jury would have decided had a case been tried differently. We
conclude that the opinion evidence here that Terry’s negligence was the
sole cause of the fraud judgment is conclusory and therefore cannot

22
support the verdict, but the question remains whether the standard
should be higher. The parties have not argued this very significant issue,
and we decline to address it.
We hold that HSM is not precluded from prosecuting its legal
malpractice claim against Terry.
III
We turn now to whether there is evidence to support the full
amount of damages found by the jury—that is, the entire fraud
judgment—or evidence that Terry was grossly negligent.
A
The evidence supports the jury’s finding that Terry was negligent
in not designating Flaven as a responsible third party so that the jury
in the fraud case could consider apportioning some of the fault resulting
in Nussbaum’s damages to him instead of all to HSM. Nussbaum’s
counsel, Marc Stanley, testified to that effect. His testimony must be
viewed with considerable skepticism, given his insistent assertions in
the fraud trial that his client was harmed exclusively by HSM’s fraud,
and his blatant flip in positions in the malpractice case for transparently
financial reasons. But Terry also shifted positions between the two
cases, arguing in the fraud trial that Flaven alone was responsible for
Nussbaum’s damages, then testifying in the malpractice trial that part
of his hesitation in designating Flaven as a responsible third party was
that the jury would have found HSM and Flaven both responsible. Lewis
Sifford, an experienced trial lawyer, supported Stanley’s opinion. Their
opinions were some evidence that Terry was negligent with respect to
the designation, and thus that HSM is entitled to recover some

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damages. 55 54

But the only evidence that HSM is entitled to recover the full
amount of the fraud judgment as found by the jury—that is, that the
fraud judgment against HSM was entirely Terry’s fault—was
conclusory. Stanley opined that had Flaven’s fault been submitted to the
jury, they would likely have apportioned 85-100% of the responsibility
for Nussbaum’s damages to him. Asked for the basis of his opinion, he
testified only: “It’s based on two things. One, it’s what I told my client
could be a very likely outcome. And, number two, based on my
experience . . . .” Asked if he really “had no way to tell what [the jury in
the fraud trial] would have done”, Stanley answered, “[t]hat’s absolutely
correct.” Sifford also opined that the jury would have apportioned fault
to Flaven by exactly the same percentages as Stanley. Sifford testified
that he had reviewed the record of the fraud trial. Although “you never
know exactly what a jury’s going to do,” Sifford testified, he believed it
was “reasonable the jury would have placed 85 to 100 percent
responsibility on Mr. Flaven”, based on “my experience, my training, my
review of this file”.
Stanley’s and Sifford’s opinions were evidence that Terry’s
negligence was a cause of the fraud judgment against HSM. The

55 Stanley and Sifford also testified that Terry was negligent in
stipulating that HSM was responsible for Defterios’ actions. The testimony of
HSM’s president that he was “proud” of Defterios’ actions would indicate that
HSM authorized them even after the fact and undercuts the significance of the
stipulation. But the president appeared to equivocate when he heard Defterios
admit on the stand that he lied about Flaven’s qualifications. Having concluded
that there is evidence that Terry was negligent with respect to the designation,
we need not, and therefore do not, consider whether he was also negligent in
agreeing to the stipulation.

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overwhelming evidence of Flaven’s clear misconduct throughout the
entire transaction made it almost inescapable that the jury would
apportion some responsibility to him if asked. But it is not at all clear
that the jury would have assigned fault to him entirely and not partly
to HSM, given Defterios’ admission to misconduct and HSM’s
president’s ratification of Defterios’ authority. The only evidence that
Terry’s negligence was the sole cause of the fraud judgment against HSM
was Stanley’s and Sifford’s conclusory opinions based on their asserted
experience. “[A] claim will not stand or fall on the mere ipse dixit of a
credentialed witness.” 56 Even an experienced lawyer “cannot simply
55

say, ‘Take my word for it . . . .’” 57
56

Because there is evidence that Terry’s negligence resulted in the

56 Burrow v. Arce, 997 S.W.2d 229, 235 (Tex. 1999).

57 Id. at 236. The dissent would go further and hold that Stanley’s and

Sifford’s opinions are not probative evidence that Terry’s negligence caused
HSM any damages at all. But even if their opinions standing alone would not
furnish evidence of causation of some damages, they are supported by the
extensive record of Flaven’s personal fraud.
The dissent argues that because the jury was instructed in the
underlying trial to find only the amount of damages resulting from HSM’s
fraud, that amount must now be taken as established, and Stanley’s and
Sifford’s opinions that the amount would have been less had the jury allocated
responsibility to Flaven are “irrefutably false”. Post at 4-6 (Bland, J.,
dissenting). In the dissent’s view, given the jury’s verdict, we must now assume
that had it found that Flaven had also committed fraud and allocated partial
responsibility to him, it would have awarded only additional damages against
him, not less against HSM. But the jury might have found that HSM and
Flaven were part of the same fraud, that the amount of damages was the same,
and that they should be shared rather than borne by HSM alone. This has been
the parties’ understanding throughout this litigation. In essence, the dissent
argues that a failure to designate a responsible third party can never result in
harm to a defendant. The dissent offers no authority for this view, and we are
aware of none.

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fraud judgment against HSM but no evidence that it was the sole cause
of that judgment, HSM is entitled to recover damages but not the total
amount of the judgment as found by the jury. When there is evidence of
some fraud damages but no evidence to support the full amount of
damages found by the jury, remand for a new trial is the appropriate
remedy. We thus conclude, as the court of appeals did, though for
different reasons, that the trial court’s judgment must be reversed and
the case remanded for yet a third trial. 5857

B
HSM argues that Terry was grossly negligent only in failing to
designate Flaven as a responsible third party.
“Gross negligence” means an act or omission:
(A) which when viewed objectively from the
standpoint of the actor at the time of its occurrence involves
an extreme degree of risk, considering the probability and
magnitude of the potential harm to others; and
(B) of which the actor has actual, subjective
awareness of the risk involved, but nevertheless proceeds

58 See Guevara, 247 S.W.3d at 669-670; see also Fortune Prod., 52
S.W.3d at 682. The dissent acknowledges that this is the general rule but
argues that the case should not be remanded for a new trial because “the expert
testimony is devoid of evidence of segregable damage attributable to legal
malpractice.” Post at 8 (Bland, J., dissenting). The dissent points to cases in
which there was evidence of some but not all damages and characterizes the
difference in them as segregable. None of the cases draw that distinction, the
dissent cites no authority that does, and we are aware of none. In any event, a
jury in the third trial may certainly take into account the nature of the
damages to Nussbaum and when and how they occurred in allocating
responsibility between Terry and HSM.

26
with conscious indifference to the rights, safety, or welfare
of others. 5958

“[A]n extreme risk is ‘not a remote possibility of injury or even a high
probability of minor harm, but rather the likelihood of serious injury to
the plaintiff.’” 60 Conscious indifference means that the “defendant knew
59

about the peril caused by his conduct but acted in a way that
demonstrates he did not care about the consequences to others.” 61 60

Exemplary damages awarded for gross negligence must be proved by
clear and convincing evidence. 626

The evidence of extreme risk from Terry’s failure to designate
Flaven as a responsible third party is unclear because of the
circumstances presented. The evidence is essentially uncontradicted
that such a failure poses an extreme risk when a jury is denied the
opportunity to apportion responsibility to someone besides the
defendant, exposing the defendant to greater liability than it would
otherwise bear. The complication in the fraud trial was the concern that
designating Flaven as responsible for Nussbaum’s injuries could suggest
to the jury that some responsibility should be apportioned when HSM’s
position was that it had no responsibility at all. In Terry’s judgment,
designating and not designating each bore risks, so the former offset the
latter to some extent. There is evidence that Terry’s judgment was

59 TEX. CIV. PRAC. & REM. CODE § 41.001(11).

60 Boerjan v. Rodriguez, 436 S.W.3d 307, 311 (Tex. 2014) (quoting Mobil

Oil Corp. v. Ellender, 968 S.W.2d 917. 921 (Tex. 1998)).
61 Reeder v. Wood Cnty. Energy, LLC, 395 S.W.3d 789, 796 (Tex. 2012)

62 See TEX. CIV. PRAC. & REM. CODE § 41.003.

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flawed, but the potential of extreme risk must be judged objectively,
apart from his subjective views. The existence of extreme risk from not
designating Flaven must be viewed in the context of the effect of
designation on the entire trial.
But assuming that the evidence of extreme risk was clear and
convincing, there is no probative evidence that Terry was consciously
indifferent to it. The evidence shows that he was aware of the issue early
in the case and weighed the proper course. There is no evidence that he
did not care about the consequences of his decision to HSM. The court of
appeals concluded that Terry was consciously indifferent because his
decision was conscious and objectively unreasonable. 63
62 Terry
acknowledged—indeed, asserted himself—that his decision was
conscious, but explained that it was a hard judgment call. Because the
issue is subjective, his explanation is uncontradicted. Evidence that his
decision was objectively unreasonable goes to show that he was
negligent, but it says nothing about whether he simply “did not care”.
The trial court in the first malpractice trial correctly directed a verdict
for Terry on HSM’s gross negligence claim. The judgment awarding
punitive damages in the second trial must be reversed and judgment
rendered that HSM take nothing on its gross negligence claim.
* * * * *
Accordingly, the judgment of the court of appeals is affirmed only
insofar as it remands HSM’s negligence claim for retrial and is otherwise
reversed.

63 HSM III, 684 S.W.3d at 513-514.

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Nathan L. Hecht
Chief Justice

OPINION DELIVERED: December 31, 2024

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