Reverse and Remand and Opinion Filed September 14, 2016




                                            Court of Appeals
                                                              S     In The


                                     Fifth District of Texas at Dallas
                                                         No. 05-14-01188-CV

                      HENRY S. MILLER COMMERCIAL COMPANY,
                              Appellant and Cross-Appellee
                                           V.
                 NEWSOM, TERRY & NEWSOM, L.L.P. AND STEVEN K. TERRY,
                             Appellees and Cross-Appellants

                                 On Appeal from the 101st Judicial District Court
                                              Dallas County, Texas
                                        Trial Court Cause No. 09-1306

                                           MEMORANDUM OPINION
                                       Before Justices Bridges, Evans, and O’Neill1
                                               Opinion by Justice Bridges
            This is a suit for attorney malpractice.                                  In a previous lawsuit, a jury found

appellant/cross-appellee Henry S. Miller Commercial Company (“HSM”) liable for fraud.

Judgment was rendered against HSM for $8.9 million. In this case, HSM sued the lawyers who

represented it in the 2008 trial, appellees/cross-appellants Newsom, Terry & Newsom, L.L.P.

and Steven K. Terry (“Lawyers”). The jury found $4,636,088 in damages, caused 50% by the

Lawyers’ negligence.                  But because another defendant had already settled with HSM for

$6 million, the trial court applied a settlement credit and rendered a take-nothing judgment. Both

parties now challenge the trial court’s judgment.

   1
       The Hon. Michael J. O’Neill, Justice, Court of Appeals, Fifth District of Texas at Dallas, Retired, sitting by assignment.
       HSM asserts five issues; the Lawyers in their cross appeal assert two. We sustain HSM’s

fifth issue because we conclude that the trial court erred by directing a verdict on HSM’s claim

for gross negligence. We also conclude the trial court did not err by rejecting the Lawyers’

argument that HSM’s agreement with its judgment creditors was an illegal and void assignment

that barred recovery on HSM’s claim for legal malpractice. We therefore overrule the Lawyers’

second cross-issue.   Because of our rulings on these issues, we do not reach the parties’

remaining issues regarding submission of the parties’ comparative responsibility to the jury, the

trial court’s reapportionment of responsibility, postjudgment interest, and the amount of a

settlement credit. We reverse the trial court’s judgment and remand the cause for new trial.

Because the issues are settled, we issue this memorandum opinion. TEX. R. APP. P. 47.4.

                                         BACKGROUND

       HSM and its former employee Steven Defterios were sued by a group of commercial

property owners for fraud relating to several unsuccessful real estate deals (the “Underlying

Lawsuit”). James Flaven, the prospective buyer put forward by HSM and Defterios, held

himself out as the beneficiary of a large trust fund. In fact, Flaven was a truck driver with no

trust fund, and none of the deals ever closed. The properties were sold at a loss, and the

prospective sellers sued HSM and Defterios, but not Flaven. The Lawyers represented HSM and

Defterios in the Underlying Lawsuit. Defterios’s employment with HSM ended while the

Underlying Lawsuit was pending, about a year before the case proceeded to a jury trial. The trial

court rendered judgment on the jury’s verdict against HSM and Defterios. We modified and

affirmed the trial court’s judgment. Defterios v. Dallas Bayou Bend, Ltd., 350 S.W.3d 659 (Tex.

App.—Dallas 2011, pet. denied).

       After the verdict in the Underlying Lawsuit, HSM’s insurance carrier Diamond State

Insurance Company denied coverage. HSM and Defterios promptly filed this suit against

                                              –2–
Diamond State and the Lawyers. HSM’s allegations of malpractice against the Lawyers were

based on:

               the Lawyers’ failure to designate Flaven as a responsible third party;

               the Lawyers’ stipulation that HSM was responsible for Defterios’s conduct;

               the Lawyers’ failure to offer expert testimony on HSM’s behalf, especially as to
                damages, and

               the Lawyers’ failure to advise HSM about, or obtain a waiver of, the potential
                conflict between Defterios and HSM.

        After HSM filed this suit, the judgment creditors in the Underlying Lawsuit filed an

involuntary petition in bankruptcy against HSM. A reorganization plan was approved by the

bankruptcy court in July 2010. Under the plan, a portion of HSM’s claims against the Lawyers

and Diamond State was assigned to the judgment creditors.

        In this suit, the trial court rendered a partial summary judgment against Diamond State

for $1,000,000 plus prejudgment interest and attorney’s fees. Diamond State and HSM settled

before trial for $6 million. Defterios and HSM nonsuited their claims against Diamond State.

Immediately before trial, Defterios nonsuited all of his claims against the Lawyers and was no

longer a party to the suit.

        The case proceeded to trial on HSM’s claims against the Lawyers. The jury found that

the negligence of the Lawyers, HSM, and Defterios, but not Diamond State, was a proximate

cause of HSM’s injury. The jury assigned 50% responsibility to the Lawyers and 10% to HSM.

The remaining 40% was assigned to Defterios, 20% in the underlying transaction and 20% in the

Underlying Lawsuit.      The jury awarded $4,636,088 as the “amount, if any, by which the

judgment actually rendered in the Underlying Lawsuit exceeds the judgment that would have

been rendered but for the negligence you have found” on the part of the Lawyers.



                                                –3–
       By agreement of the parties, after the jury verdict, the trial court heard evidence and

made findings regarding attorney’s fees. The trial court then rendered its final judgment. In the

judgment, the trial court disregarded the jury’s findings regarding Defterios, applied the 10%

responsibility found by the jury as to HSM, applied the $6 million settlement credit reflecting

HSM’s settlement with Diamond State, and concluded the settlement credit exceeded the amount

of HSM’s recoverable damages. The judgment therefore provided that HSM should take nothing

on its claims.

       The trial court denied the Lawyers’ motion to modify the judgment and HSM’s motion

for new trial. This appeal followed.

                                          DISCUSSION

A. ILLEGALITY

       In their second cross-issue, the Lawyers contend that HSM’s agreement with its judgment

creditors is an illegal and void assignment that bars recovery on HSM’s legal malpractice claim.

This is an issue of law we review de novo. See, e.g., Barber v. Colo. Indep. Sch. Dist., 901
S.W.2d 447, 450 (Tex. 1995) (questions of law are reviewed de novo). If HSM’s claim is barred

as a matter of law, then we need not address any other issue.

       After the judgment was entered in the underlying lawsuit, HSM entered into agreements

with the judgment creditors to avoid execution on the judgment. This included a plan of

reorganization and a litigation agreement. The Lawyers allege that these agreements assigned

HSM’s proceeds of recovery in this lawsuit to the judgment creditors “and realigned the

judgment creditors’ attorney to not only help but control the litigation in the legal malpractice

case.” The Lawyers conclude that these agreements constituted an illegal assignment under

Texas law.




                                               –4–
       The supreme 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. See Mallios v. Baker, 11 S.W.3d 157, 164

(Tex. 2000) (Hecht, J., concurring). In Tate v. Goins, Underkofler, Crawford & Langdon, 24
S.W.3d 627, 629 (Tex. App.—Dallas 2000, pet. denied), we considered whether a client’s

assignment of a legal malpractice claim to a former adversary was invalid in light of Mallios. In

that case, Tate hired the appellee law firm (“Goins”) to file a collection suit against the SIDCO

corporation. Id. at 630. Soon after the suit was filed in Tarrant County, SIDCO filed suit against

Tate in Bexar County. Id. Goins represented Tate in the Bexar County suit as well, but did not

file an answer on Tate’s behalf. SIDCO obtained a default judgment against Tate. Id. Tate and

SIDCO then entered into a settlement agreement under which SIDCO agreed not to execute on

the judgment in exchange for Tate’s agreement to assign a portion of the proceeds of his

malpractice suit against Goins to SIDCO. Id. at 630–31. Tate then filed suit against Goins for

legal malpractice. Id. at 631. Goins moved for summary judgment, alleging among other

grounds that Tate’s assignment of his legal malpractice claim to SIDCO violated public policy.

The trial court granted Goins’s motion. Id. We reversed the trial court’s judgment. Id. at 637.

We concluded that Tate’s assignment of his malpractice cause of action against Goins was

against public policy. Id. at 634. But we also concluded that Tate was correct in arguing that his

“right to bring the legal malpractice claim in his own name would not be affected by any invalid

assignment of his malpractice claim to SIDCO.” Id. We relied on the supreme court’s opinion

in Mallios, explaining, “[i]n Mallios, the Texas Supreme Court held that when there is a

purported partial assignment of a legal malpractice claim, the plaintiff’s right to bring his own




                                                –5–
cause of action for malpractice is not vitiated by the invalid assignment.” Tate, 24 S.W.3d at

634.

           The Lawyers distinguish Tate on the ground that it was an appeal of a summary judgment

rather than an appeal of a judgment rendered after a jury trial. They contend there is no remedy

for an illegal assignment once trial has occurred; that “[u]ndoing or merely invalidating the

assignment is an exercise in futility after the legal malpractice claim is prosecuted to trial and a

jury verdict rendered” because the judgment creditor has “controlled the litigation and strategy

decisions per the agreement.” They rely on a Connecticut case, tried before a jury, to support

their argument. See Gurski v. Rosenblum & Filan, LLC, 885 A.2d 163, 178 (Conn. 2005). The

Connecticut supreme court not only invalidated the assignment but also reversed the trial court’s

judgment with instructions to render judgment for the law firm. Id.

           But neither Tate nor Mallios imposed such a limitation on a plaintiff’s right to assert its

own malpractice claim against its lawyers. See Mallios, 111 S.W.3d at 159; Tate, 24 S.W.3d at

634. Here, HSM asserted its own malpractice claim against the Lawyers in its own name. It

pursued its own claim through trial and judgment. Under these circumstances, HSM’s right “to

bring [its] own cause of action for malpractice is not vitiated” by the assignment to its judgment

creditors. See Tate, 24 S.W.3d at 634. We overrule the Lawyers’ second cross-issue.

B. GROSS NEGLIGENCE

           HSM sought exemplary damages against the Lawyers, alleging gross negligence. In its

fifth issue, HSM contends that the trial court erred by granting a directed verdict for the Lawyers

on this claim. A client who establishes the elements of its legal malpractice claim2 may also


     2
       The elements of a legal malpractice claim are not in dispute. Under Texas law, a plaintiff alleging legal malpractice must establish four
elements: (1) that the defendant attorney owed the plaintiff a duty; (2) that the attorney breached that duty; (3) that the breach was the proximate
cause of the plaintiff’s injury; and (4) that damages occurred. Gunn v. Minton, 133 S. Ct. 1059, 1065 (2013) (citing Alexander v. Turtur &
Assocs., Inc., 146 S.W.3d 113, 117 (Tex. 2004)). A litigation attorney’s negligence causes damage to a client if the result the client would have
obtained with competent counsel is more favorable to the client than the result actually obtained. See Kelley & Witherspoon, LLP v. Hooper, 401
S.W.3d 841, 847 (Tex. App.—Dallas 2013, no pet.). The plaintiff must prove that it would have obtained a more favorable result but for its


                                                                       –6–
recover exemplary damages upon proof of the attorney’s gross negligence. See, e.g., Rhodes v.

Batilla, 848 S.W.2d 833, 843 (Tex. App.—Houston [14th Dist.] 1993, writ denied). The trial

court, however, granted the Lawyers’ motion for directed verdict on this issue:

                      THE COURT: I think I could envision a case involving legal
                      malpractice in which gross negligence might be in play. I don’t
                      think this is it. I don’t—I don’t find that there is any more than a
                      scintilla of evidence in the record, particularly on the subjective
                      prong.

                      I think we have to recognize that some judgment calls were made
                      by attorneys dealing with a very, very bad set of facts. There is a
                      legitimate difference of opinion as to whether any of those
                      decisions caused things to turn out any worse than they would have
                      anyway. I think that probably a couple of them very possibly did.

                      But I’m not—I’m just not satisfied that this is a proper case for
                      gross negligence or exemplary damages. So that Motion for
                      Directed Verdict is sustained as well.

           In reviewing the grant or denial of a directed verdict we employ the standard for

assessing the legal sufficiency of the evidence. City of Keller v. Wilson, 168 S.W.3d 802, 823

(Tex. 2005). Because the standard of proof of gross negligence is elevated, the standard of

appellate review is likewise elevated. Id. at 817. Therefore, we conduct a legal sufficiency

review under the “clear and convincing evidence” standard, defined as the measure or degree of

proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of

the allegations sought to be established. U-Haul Int’l, Inc. v. Waldrip, 380 S.W.3d 118, 137

(Tex. 2012). We look at all of the evidence, in the light most favorable to the trial court’s ruling:

                      [L]ooking at the evidence in the light most favorable to the
                      judgment means that a reviewing court must assume that the
                      factfinder resolved disputed facts in favor of its finding if a
                      reasonable factfinder could do so. A corollary to this requirement
                      is that a court should disregard all evidence that a reasonable
                      factfinder could have disbelieved or found to have been incredible.

attorney’s negligence. See id. Legal malpractice damages “are the difference between the result obtained for the client and the result that would
have been obtained by competent counsel.” Elizondo v. Krist, 415 S.W.3d 259, 263 (Tex. 2013).



                                                                     –7–
               This does not mean that a court must disregard all evidence that
               does not support the finding. Disregarding undisputed facts that do
               not support the finding could skew the analysis of whether there is
               clear and convincing evidence.

               If, after conducting its legal sufficiency review of the record
               evidence, a court determines that no reasonable factfinder could
               form a firm belief or conviction that the matter that must be proven
               is true, then that court must conclude that the evidence is legally
               insufficient.

In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002); see also Diamond Shamrock Ref. Co. v. Hall, 168
S.W.3d 164, 170 (Tex. 2005) (applying standard from In re J.F.C.).

       Gross negligence is defined by statute:

               (11) “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 with conscious indifference to
               the rights, safety, or welfare of others.

TEX. CIV. PRAC. & REM. CODE ANN. § 41.001(11) (West Supp. 2015).

       Gross negligence has both an objective and a subjective component. Reeder v. Wood

Cty. Energy, LLC, 395 S.W.3d 789, 796 (Tex. 2012). In examining proof of the subjective

component, courts focus on the defendant’s state of mind, examining whether the defendant

knew about the peril caused by his conduct but acted in a way that demonstrates he did not care

about the consequences to others. Id. Under the objective element, “extreme risk” is not a

remote possibility or even a high probability of minor harm, but rather the likelihood of the

plaintiff’s serious injury. U-Haul Int’l, Inc., 380 S.W.3d at 137.

       HSM alleges four acts of gross negligence by the Lawyers in the Underlying Lawsuit:

(1) failing to designate the “con man,” James Flaven, as a responsible third party; (2) stipulating,

                                                 –8–
after the evidence was closed and the parties had rested, that HSM was responsible for

Defterios’s negligence; (3) failing to offer expert testimony on HSM’s behalf, especially as to

damages;3 and (4) failure to advise HSM about, or obtain a waiver of, the potential conflict

between Defterios and HSM.

           HSM’s second and fourth complaints are based on the Lawyers’ assumption that HSM

had no defense to the Underlying Lawsuit if the underlying plaintiffs proved Defterios lied.

Terry testified that as he prepared the case he “felt like the evidence was indicating [Defterios]

did commit fraud, yes.” The Lawyers’ assumption that HSM was liable for Defterios’s fraud

was based on a statutory provision that real estate brokers are responsible for the conduct of their

salespersons. See TEX. OCC. CODE ANN. § 1101.803 (West 20124 & Supp. 20155). Because they

believed HSM could not avoid liability to the underlying plaintiffs by blaming Defterios, the

Lawyers saw no conflict. Both HSM and the Lawyers offered expert testimony at trial to support

their interpretations of this statutory provision. HSM’s expert opined that the provision did not

apply to the opposing party in a real estate transaction. The Lawyers’ expert opined that it did.

Terry also testified that the statute applied and that his decisions regarding HSM’s liability for

Defterios’s conduct were based on the statute. On this record, no reasonable factfinder could

form a firm belief or conviction that in making decisions based on their interpretation of the

statute, the Lawyers had “actual, subjective awareness of the risk involved, but nevertheless
     3
        HSM alleges the failure to properly “designate and scope” an expert witness to address damages also constituted gross negligence, but the
parties do not address the issue in detail or explain how the record provides clear and convincing evidence of the objective and subjective
components of gross negligence on this point. We therefore do not address this contention further.
     4
       This statutory section, part of The Real Estate License Act, provided, “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.” The
applicability of this statute was hotly contested at trial. HSM’s position was that the statute did not apply because Defterios’s alleged
misrepresentations were not made to “the commission, the public, [or] the broker’s clients,” but to the plaintiffs in the Underlying Lawsuit who
were the opposing parties in a transaction. The Lawyers, in turn, relied on the statute to argue that as a matter of law HSM was liable for all of
Defterios’s actions. In the jury charge, the trial court explained it had “concluded that reasonable attorneys could differ in their opinions as to
whether this statute in fact applied to the Underlying Lawsuit.” The trial court instructed the jury that “[y]ou need not decide whether this section
applied in the Underlying Lawsuit. Instead, you are to decide whether it was negligence on the part of [the Lawyers] to assume that it applied and
to conduct the defense of the Underlying Lawsuit in accordance with that assumption.”
     5
        The statute was amended in 2015 to replace the term “salesperson” with “sales agent.” See Act of May 26, 2015, 84th Leg., R.S.,
ch. 1158, § 89, 2015 Tex. Gen. Laws 3896, 3921 (codified at Tex. Occ. Code § 1101.803). This amendment was effective on January 1, 2016,
after the verdict and judgment in this case. Id.


                                                                       –9–
proceed[ed] with conscious indifference” to HSM’s rights. See TEX. CIV. PRAC. & REM. CODE

ANN. § 41.001(11)(B). The trial court did not err in granting a directed verdict on this point.

           We reach a different conclusion, however, regarding the failure to designate Flaven as a

responsible third party. If indeed HSM had no defense to the Underlying Lawsuit because it was

liable as a matter of law for Defterios’s conduct, then the only avenue for reducing the amount of

a judgment against HSM (other than attacking the dollar amount of damages claimed) was by

reducing HSM’s proportionate responsibility. As the plaintiffs’ lawyer from the Underlying

Litigation testified, “the value of my lawsuit went down if they named [Flaven] as a responsible

third party.” But the Lawyers foreclosed this possibility by their failure to designate Flaven until

after the deadline for doing so had passed.6

           The Lawyers contend that if they had attempted to find and designate Flaven, they would

have proved the underlying plaintiffs’ case. But no such proof was required. The trial court has

little discretion regarding a timely-filed motion to designate a responsible third party. The court

“shall grant leave” to designate unless the opposing party files an objection and establishes that

the designating party’s pleadings are inadequate. See TEX. CIV. PRAC. & REM. CODE ANN.

§ 33.004(f), (g) (West 2015); Challenger Gaming Solutions, Inc. v. Earp, 402 S.W.3d 290, 293

(Tex. App.—Dallas 2013, no pet.). As we have explained, “[t]he pleading requirements for

designating a responsible third party at the outset of a case are not stringent.” In re Greyhound

Lines, Inc., No. 05-13-01646-CV, 2014 WL 1022329, at *2 (Tex. App.—Dallas Feb. 21, 2014,

orig. proceeding) (mem. op.). Only notice pleading under the Texas Rules of Civil Procedure is

required. Id.




     6
       The record reflects that the motion was filed on September 26, 2008, less than sixty days before the October 20, 2008 trial date. See TEX.
CIV. PRAC. & REM. CODE ANN. § 33.004(a) (motion to designate responsible third party must be filed on or before 60th day before trial date
unless court finds good cause to allow later filing).



                                                                    –10–
       HSM was not required to concede liability in order to designate Flaven. It 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. See TEX. R. CIV. P. 48 (“A party may

set forth two or more statements of a claim or defense alternatively or hypothetically . . . .”).

Neither was it necessary to serve Flaven, join him in the lawsuit, or even determine his

whereabouts in order to designate him as a responsible third party.         See Galbraith Eng’g

Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 868–69 (Tex. 2009) (“Thus, a defendant may

designate a responsible third party even though that party possesses a defense to liability, or

cannot be formally joined as a defendant, or both.”). The Lawyers took precisely this position in

their untimely designation of Flaven, arguing in the alternative that plaintiffs’ damages were a

result of false information provided by Flaven.

       The Lawyers also argue that if they had designated Flaven, the plaintiffs in the

Underlying Lawsuit would have moved to strike the designation, requiring HSM to prove the

plaintiffs’ case that there was fraud in the underlying transaction. The only statutory ground for

a motion to strike is that “there is no evidence that the designated person is responsible for any

portion of the claimant’s alleged injury or damage.” TEX. CIV. PRAC. & REM. CODE ANN.

§ 33.004(l) (emphasis added); see In re Brokers Logistics, Ltd., 320 S.W.3d 402, 407 (Tex.

App.—El Paso 2010, orig. proceeding) (statute “articulates a single ground for striking a

designation of a responsible third party”). The trial court “shall” grant a motion to strike a

responsible third party made after adequate time for discovery “unless a defendant produces

sufficient evidence to raise a genuine issue of fact regarding the designated person’s

responsibility for the claimant’s injury or damage.” TEX. CIV. PRAC. & REM. CODE ANN.

§ 33.004(l). The underlying plaintiffs brought suit when Flaven did not purchase their properties

as he had agreed to do. There was ample evidence of the proposed transaction, its failure, and

                                              –11–
Flaven’s identity as the defaulting buyer. The Lawyers could have relied on this evidence in

arguing that Flaven was responsible for at least some of the damages from the failure to close the

transactions even in the absence of any fraud by HSM or Defterios. There was more than a

scintilla of evidence that Flaven was responsible for at least a portion of the underlying

plaintiffs’ damages.             See In re Brokers Logistics, Ltd., 320 S.W.3d at 406–07 (discussing

standard of proof for motion to strike designation of responsible third party).

          Further, the record establishes that the Lawyers had knowledge of the extreme risk

involved. More than a year before the underlying trial, the Lawyers prepared disclosures on

HSM’s behalf naming Flaven as a responsible third party, but never sought to designate him until

after the deadline for doing so. In a 2007 email to Diamond State, Terry stated, “It appears that

Flaven was a con man from the start.” Terry also informed Cheryl Lanier of Diamond State that

“Mr. Flaven is the principal actor in the claim. He was the customer of the insured and the buyer

under the contracts in question. It is his misrepresentation to the insured that is the subject

matter of the suit.”7 Terry’s July 2008 status report explained that Defterios denied making any

representation that he had personally verified the truth of Flaven’s statements, but “[b]ased upon

the deposition of the two principals of [the plaintiff] and the third party broker dealing with Mr.

Defterios in this matter, I am not confident that the jury will believe he did not make the

statements.” Terry testified that HSM was “faced with a $20 million or a $30 million verdict.”

His pretrial case assessment to Diamond State showed the “Highest Reasonable Exposure

Amount” to be $20,450,000. The assessment reflected that the plaintiffs’ expert prepared a

report “in which he states his opinion that the Plaintiffs’ damages are $20,447,905.00.” The last

settlement demand was $16,000,000. Diamond State’s policy limits of $1,000,000 were far

below these estimates, leaving significant exposure for HSM.

   7
       These statements were made in an email dated December 18, 2007, approximately ten months before the trial in October 2008.



                                                                  –12–
       Terry testified he understood that it would have been in HSM’s best interest to designate

other responsible parties to deflect liability from HSM if there was a basis for doing so. But he

admitted doing little to develop any evidence that Flaven bore responsibility for any of the

underlying plaintiffs’ damages; in fact, he testified his inaction was intentional. He testified, “I

tried to contact Mr. Flaven with the contact information we had, unsuccessful in that. But I was

not going to go out and find him and develop those facts which were contrary to my client’s best

interests.” The underlying plaintiffs developed the evidence instead, locating Flaven’s brother

and deposing him to determine that Flaven was not the beneficiary of any trust fund.

       Terry testified that the failure to designate Flaven had no impact on the outcome of the

case. But as HSM’s expert witness testified, the “whole rationale” for the Underlying Lawsuit

was that misrepresentations were made about Flaven’s ability to close the real estate transactions

in question. The lawyer for the underlying plaintiffs testified that he was first approached by the

underlying plaintiffs to file suit against Flaven, not HSM or Defterios.         Terry reported to

Diamond State that Flaven initiated the underlying transactions, contacting Defterios to ask if

there were any large real estate packages available in the area in which to invest the millions

from his (fictional) trust fund. Given this evidence, HSM’s expert opined that Flaven “would be

someone that the jury would very well consider to be the person most responsible, if not totally

responsible, for what happened.” And contrary to the Lawyers’ contention, we have explained

that permitting a case to proceed in the absence of a proper responsible third party does

“potentially affect the outcome of the litigation.” See In re Greyhound Lines, Inc., 2014 WL
1022329, at *4 (internal quote omitted).

       The Lawyers also contend that HSM’s expert witness’s testimony regarding gross

negligence is no evidence because it was conclusory. HSM’s expert testified he had formed the

conclusion that the Lawyers acted with gross negligence “in two specific areas,” including the

                                               –13–
failure to timely file the responsible third party designation. But in addition to these conclusions,

the expert testified at length regarding his opinion that “a reasonably prudent lawyer absolutely

would have designated Mr. Flaven as a responsible third party and would have done it at a very

early time,” as we have just discussed. He addressed Terry’s reasons for not making the

designation and explained why those reasons did not change his opinions. Although Terry

testified that the underlying plaintiffs were focusing on Defterios’s representations, the expert

testified that “what really matters is what the jury would focus on”:

          And that is, they would be given an opportunity to decide who set all of this
          in motion, who conned almost everybody, who was the person that was
          most responsible for doing this. And it would have allowed them to make
          that determination, which was an opportunity that Henry S. Miller deserved
          to have in this case.

Further, the expert testified that a reasonably prudent lawyer would have filed the designation

“much earlier,” and, in his opinion, the result of the underlying litigation would have been

different. In sum, the expert provided support, based on his review of the record and his

expertise, for his ultimate conclusion that the Lawyers’ failure to designate Flaven before the

deadline constituted gross negligence.

       As we have explained, the jury also heard testimony from Terry himself. In addition, the

Lawyers’ own expert witness testified about Terry’s reasons for not designating Flaven until the

deadline had passed, and offered his opinion that a reasonably prudent lawyer would have waited

to designate Flaven as Terry did. The jury could have credited this testimony and found that the

Lawyers’ conduct was not grossly negligent. But the existence of controverting evidence is not

the standard for determining whether a directed verdict was proper. Instead, we must determine

whether a reasonable factfinder could form a firm belief or conviction that the Lawyers were

grossly negligent in failing to designate Flaven as a responsible third party. See U-Haul Int’l,

Inc., 380 S.W.3d at 137. We conclude that the jury could have reached this conclusion based on

                                               –14–
the evidence presented at trial. HSM offered clear and convincing evidence establishing the

Lawyers’ subjective and objective awareness of the extreme risks of their litigation strategy

which exposed HSM to multi-million-dollar liability not only for Defterios’s actions but also for

Flaven’s. The trial court erred by granting a directed verdict on HSM’s gross negligence claim.

       We cannot remand for new trial on the issue of punitive damages alone. See Nowzaradan

v. Ryans, 347 S.W.3d 734, 739 (Tex. App.—Houston [14th Dist.] 2011, no pet.). A jury must

decide the amount of punitive damages based on the totality of the evidence from the liability

phase as well as the punitive damages stage. See Nowzaradan, 347 S.W.3d at 739 (quoting Sw.

Ref. Co. v. Bernal, 22 S.W.3d 425, 433 (Tex. 2000)); Williams v. LifeCare Hosps. of N. Tex.,

L.P., 207 S.W.3d 828, 832–34 (Tex. App.—Fort Worth 2006, no pet.) (issue of exemplary

damages not separable from issues of ordinary negligence and compensatory damages). Because

we reverse the trial court’s directed verdict, we must remand the cause for a new trial on both

liability and damages.

                                          CONCLUSION

       We overrule the Lawyers’ second cross-issue. We sustain HSM’s fifth issue. Because of

our disposition of these issues, we need not address the parties’ remaining issues and cross-issue.

We reverse the trial court’s judgment and remand the cause for a new trial.




                                                   /David L. Bridges/
                                                   DAVID L. BRIDGES
                                                   JUSTICE
141188F.P05




                                              –15–
                                       S
                              Court of Appeals
                       Fifth District of Texas at Dallas
                                       JUDGMENT

HENRY S. MILLER COMMERCIAL                        On Appeal from the 101st Judicial District
COMPANY, Appellant                                Court, Dallas County, Texas
                                                  Trial Court Cause No. 09-1306.
No. 05-14-01188-CV        V.                      Opinion delivered by Justice Bridges;
                                                  Justices Evans and O’Neill participating.
NEWSOM, TERRY & NEWSOM, LLP,
and STEVEN K. TERRY, Appellees

    In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court for a new trial.

        It is ORDERED that appellant Henry S. Miller Commercial Company recover its costs
of this appeal from appellees Newsom, Terry & Newsom, LLP, and Steven K. Terry.


Judgment entered September 14, 2016.




                                           –16–