William G. Barber and Patricia W. Barber v. the Travelers Insurance Company, Burger King Corporation, and Brown McCarroll & Oaks Hartline

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-94-00185-CV

William G. Barber and Patricia W. Barber, Appellants

v.

The Travelers Insurance Company, Burger King Corporation, and

Brown McCarroll & Oaks Hartline, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT

NO. 92-15763, HONORABLE JAMES R. MEYERS, JUDGE PRESIDING

William and Patricia Barber (1) sued The Travelers Insurance Company ("Travelers")

and Burger King Corporation ("Burger King") on causes of action for negligence and tortious

interference with a contractual relationship. In the same cause, the Barbers sued the law firm of

Brown McCarroll & Oaks Hartline ("Brown McCarroll") on a cause of action for "negligent

misrepresentation" that allegedly caused Barber to withdraw from the firm. The trial court

sustained the defendants' motions for summary judgment that the Barbers take nothing by their

claims. The Barbers appeal. We will affirm the summary judgment as to the Barbers' claims

against Travelers and Burger King and will reverse the summary judgment as to the Barbers'

claim against Brown McCarroll.

THE CONTROVERSY

Barber was a member of the Brown McCarroll law firm when his minor

granddaughter, Kathryn Kelley, was injured on playground equipment maintained at a Burger

King restaurant. Kathryn's parents contracted with Brown McCarroll to represent them and

Kathryn in litigation to recover compensatory damages for her injuries. In the contract, the

parties also agreed that Barber would be "primary counsel" and that he would pursue a "national

fix," that is to say, an additional remedy that would protect other children at other Burger King

restaurants across the nation from the risk of similar injuries.

Before filing suit, Barber searched Brown McCarroll's records for any possible

conflict of interest that might exist by reason of his representation in the suit against Burger King.

None appeared. He mailed "DTPA" notices (2) to Burger King and the manufacturer of the

playground equipment. Soon afterwards, Travelers' employee Karen Birch contacted Barber to

discuss the litigation against Burger King. (3) Birch advised Barber that each owner of a Burger

King franchise was contractually bound to defend and indemnify Burger King in cases like

Kathryn's and, as a result, she did not believe Burger King would play a major role in the

litigation. Barber told Birch he thought Burger King might have no liability and if discovery

revealed that to be so, he would non-suit Burger King without the necessity of its filing a motion

for summary judgment.

Barber sued Burger King and the manufacturer of the playground equipment. In

the course of discovery, it appeared that Burger King might be subject to liability. Barber

amended his pleading to request punitive damages against Burger King.

Birch contacted her supervisor, Cheryl Ackerman, and a Burger King official, Tom

Dunn, to discuss Burger King's possible liability and Barber's removal from the litigation because

the Brown McCarroll law firm had previously represented Travelers in cases like Kathryn's.

Birch stated her belief that Barber had become emotionally involved in the lawsuit and had lost

objectivity. Birch suggested that the suit might be settled for a reasonable amount without the

element of a "national fix."

While Barber was on vacation, Birch contacted another partner in the Brown

McCarroll firm, Robert Oliver, and requested a list of lawsuits in which Brown McCarroll had

represented Travelers. On the same day, Oliver and Kinnan Goleman, the firm's managing

partner, sent a "fax" message to Barber. The message stated as follows:

Karen Birch with The Travelers has now advised that our representation against

Burger King is no longer acceptable because of complaints by their self-insured,

Burger King.

She advises that we need to disengage from this case as soon as possible.

Suggested alternatives:

1. Settle the case for a reasonable monetary sum; or

2. Refer to other counsel.

Six days later, Oliver telephoned Birch. He asked whether Burger King would agree to Barber's

continuing representation in the Kelley case if Barber took a leave of absence from Brown

McCarroll. Birch responded that a conflict of interest would remain even if Barber took such a

leave of absence. Seven days after this conversation, the Brown McCarroll management

committee decided that no member of the firm, including Barber, should continue as counsel in

the Kelley case.

Desiring to continue his representation in the case, Barber decided to retire from

the Brown McCarroll firm. He and the firm entered into a contract under which Barber retired

from the firm effective September 1, 1991, in consideration of the payment of $20,000 per month

for five months and $5,000 per month for sixty months.

Barber sued Travelers and Burger King, alleging causes of action for negligence

and tortious interference with his partnership contract with Brown McCarroll. That is the suit

now before us on appellate review. In the course of litigation, Goleman testified on deposition

that Travelers imposed no pressure on Brown McCarroll to withdraw from the Kelley litigation;

instead, the decision to withdraw was solely an internal business decision by Brown McCarroll.

Thereupon, Barber joined Brown McCarroll as a party defendant alleging against the firm a cause

of action for misrepresentation: that Brown McCarroll had falsely represented to Barber that

Travelers pressured the firm to withdraw from the Kelley litigation on pain of losing Travelers's

business; that Barber was induced thereby to take early retirement from Brown McCarroll; and

that he sustained certain damages as a result.

On summary judgment, the trial court ordered that the Barbers take nothing by their

claims against Travelers, Burger King, and Brown McCarroll. The Barbers appeal to this Court

on points of error discussed below.

THE SUMMARY JUDGMENT ORDER

In its summary-judgment order, (4) the trial court stated as follows the grounds upon

which the court based its summary judgment: (1) Barber's early retirement contract with Brown

McCarroll "represents a contractual relationship . . . supported by consideration and mutuality"

from which Travelers and Burger King benefitted. "Mr. Barber cannot complain that his

employment contract was interfered with under these circumstances"; (5) and (2) "Travelers and

Burger King had no specific intent to interfere with the contractual relationship between Will

Barber and his firm [and] Travelers was exercising a right that any client has of complaining about

something his lawyer is doing that the client sees as affecting the client's interest."

As discussed below, the court also sustained certain special exceptions urged by

Burger King and Travelers. When a trial court lists multiple reasons for granting summary

judgment, its decision will be upheld on appeal if any theory advanced is meritorious. Hayes v.

E.T.S. Enters. , 809 S.W.2d 652, 654 (Tex. App.--Amarillo 1991, writ denied). (6)

NEGLIGENT MISREPRESENTATION

In their first point of error, the Barbers contend the trial court erred in awarding

summary judgment on the ground that Barber's early retirement contract with Brown McCarroll

precluded recovery on their cause of action against the firm for negligent misrepresentation. (7) The

allegations, they say, set out a cause of action in tort, and one not barred by Barber's early

retirement contract. In support of the trial-court judgment, Brown McCarroll argues that Barber's

early retirement contract has not been set aside; the Barbers have ratified the contract by accepting

benefits payable under it; and they cannot now maintain any kind of action to recover lost earnings

or other benefits they have bargained away.

We believe the trial court erred in awarding summary judgment against the Barbers'

claim. If a person who has been induced by fraud to enter a contract continues to accept the

benefits of the contract after he discovers the fraud, he thereby ratifies the contract and is bound

by its terms. Daniel v. Goesl , 341 S.W.2d 892, 895 (Tex. 1960); Rosenblaum v. Texas Bldg. &

Mortgage Co. , 167 S.W.2d 506, 508 (Tex. 1943). It is uncontroverted that the Barbers continued

to accept the benefits of their bargain with Brown McCarroll after Goleman's deposition

testimony. By affirming the contract, however, the Barbers did not surrender their right to sue

for damages in tort.

On Barber's withdrawal from Brown McCarroll, the Barbers fully performed their

bargain under the early retirement contract. When they learned of the alleged misrepresentation

that induced their execution of the contract, they were faced with a choice between two legally

available remedies. They were entitled to pursue the equitable remedy of rescission, provided

they were willing to return payments received under the contract. Alternatively, they were

entitled to affirm the contract, retain the payments made thereunder, and pursue the common law

remedy of an action in tort for "deceit," that is to say, an action for any damages occasioned by

the misrepresentation. This is not an action on or for breach of the contract. See Dallas Farm

Mach. Co. v. Reaves , 307 S.W.2d 233, 239 (Tex. 1957); George v. Hesse , 93 S.W. 107, 108

(Tex. 1906); Grabenheimer v. L. & H. Blum , 63 Tex. 369, 374-75 (1885); see also W. Page

Keeton et al., Prosser & Keeton on the Law of Torts § 110, at 770 5th ed. 1984) (when the

defrauded party executes fully his obligation under the contract, "it is generally recognized that

it is too late to require him to rescind, and that his continued performance is merely affirmance,

and not a waiver of his action for damages"). That the Barbers affirmed the contract simply

signifies that they chose their tort remedy for damages in lieu of the equitable remedy of

rescission. It does not, under the authorities cited, bar their tort action for any damages resulting

from the misrepresentation.

Brown McCarroll cites Wise v. Pena , 552 S.W.2d 196, 200 (Tex. Civ.

App.--Corpus Christi 1977, writ dism'd w.o.j.), for the proposition that a defrauded party waives

his right to any remedy by ratifying a contract induced by fraud. The proposition is not in

accordance with Texas law and is not, we believe, supported by the cases cited in the Wise

opinion. See Shaddock v. Grapette , 259 S.W.2d 231, 234 (Tex. Civ. App.--Waco 1953, no writ)

("It is well settled that if a person induced by fraud to enter a contract continues to receive

benefits under the contact after he becomes aware of the fraud, he waives his right of rescission .")

(emphasis added); Fox v. Miller , 198 S.W.2d 776, 778 (Tex. Civ. App.--San Antonio 1946, writ

ref'd n.r.e.) (party waived right to damages by entering into new agreement after discovering

fraud); Risely v. McAdams , 108 S.W.2d 443, 444 (Tex. Civ. App.--Amarillo 1937, no writ) ("The

law is of long standing to the effect that the rights of rescission or to sue for damages for fraud

is [sic] waived when the defrauded party enters into a new contract or agreement by which the

rights of the parties are adjusted, after he had been apprised of the fraud . . . .") (emphasis

added). Barber has waived by election any right of rescission and no new contract is involved. (8)

We hold the trial court erred in concluding the Barbers' contract precluded an

action against Brown McCarroll for negligent misrepresentation. We sustain the Barbers' point

of error one as it pertains to Brown McCarroll.

TORTIOUS INTERFERENCE

In their second point of error, the Barbers contend the trial court erred in granting

Travelers's and Burger King's motions for summary judgment on the ground that there was no

specific intent to interfere with Barber's partnership contract with Brown McCarroll. The

elements of tortious interference are: (1) the existence of a contract subject to interference; (2)

the act of interference was willful and intentional; (3) such intentional act was a proximate cause

of plaintiff's damage; and (4) actual damage or loss occurred. Victoria Bank & Trust Co. v.

Brady , 811 S.W.2d 931, 939 (Tex. 1991).

The alleged acts of interference consist of the communications between Birch and

Oliver described above in our summary of the summary-judgment record. Intentional interference

requires that "the actor desires to cause the consequences of his act, or that he believes that the

consequences are substantially certain to result from it." Southwestern Bell Tel. Co. v. John Carlo

Tex., Inc. , 843 S.W.2d 470, 472 (Tex. 1992).

The Barbers contend in their live petition that Travelers and Burger King wished

Barber out of the Kelley case because he was demanding the "national fix" in addition to monetary

damages. They further contend that Travelers was ready to do whatever was necessary to remove

Barber, including withdrawing its business from Brown McCarroll. It cannot reasonably be

inferred, however, that an intention to force Barber from the case is equivalent to an intention to

interfere with Barber's contractual relationship with the firm.

The present case is similar to John Carlo . Id. Carlo sued Southwestern Bell

("Bell") for tortious interference based upon Bell's failure to relocate its telephone poles in a

timely manner in accordance with a city ordinance. Bell's failure to act prohibited Carlo's

performance of his contract with the City of Houston to widen city roads. The jury found that

Bell intentionally failed timely to relocate its poles. The supreme court held this finding was not

tantamount to a finding that Bell intended to interfere with Carlo's contract with the city. Id. at

472 .

The Barbers obscure the issue by maintaining that Travelers's intentional

interference with the contract between Brown McCarroll and the Kelleys satisfies the willful and

intentional requirement of tortious interference with the partnership contract between Barber and

his firm. In support of this contention, the Barbers cite American Petroleum Co. v.

Transcontinental Gas Pipe Line Corp. , 798 S.W.2d 274, 279 (Tex. 1990). The decision holds

that a pipeline company's interference with working-interest owners' agreements with oil-well

operators was not privileged for the purpose of tortious interference claims. In that case, the

pipeline company threatened not to take gas in accordance with its contracts with oil-well

operators until the working-interest owners agreed to settle claims against the pipeline company.

The Barbers omit an important sentence in their lengthy quotation from the case. The omitted part

states: "[a] knowing and intentional breach of one's direct contract may also be an act tortiously

interfering with a third party's contract, if it is done with a purpose and effect of preventing the

third party from performing its contract with another." Id. at 279 (emphasis added).

Travelers and Burger King have met their burden to disprove prima facie the

necessary element of intent. We therefore overrule the Barbers' second point of error. In light

of our holding, we need not address their third point of error relating to privilege.

SPECIAL EXCEPTIONS

In the Barbers' fourth point of error, they complain the trial court erred in

sustaining Travelers and Burger King's special exceptions to their fifth-amended original petition.

The petition alleged:

[U]nder these circumstances, a person of ordinary common sense could recognize

that if she did not exercise reasonable care in her discussions with other partners

concerning Mr. Barber's cases, her conduct could jeopardize his position with the

law firm. Accordingly, she had a duty to use ordinary care to avoid placing Mr.

Barber in jeopardy with the law firm in her discussion with other partners

concerning his representation of the Kelleys and Lees. During July, 1991, she

decided she wanted to get Will Barber "off of the case" he was pursuing for the

Kelleys and Lees. In a conference call to her Travelers supervisor and a Burger

King official, she specifically obtained their approval to get him off of the case.

Thereafter she contacted Robert Oliver, one of William's law partners, concerning

Williams's continued representation of the Kelleys and Lees. After discussions

with some of the partners, Mr. Oliver called Ms. Birch and asked her for Burger

King's and Travelers' permission to allow Mr. Barber to take a leave of absence

from the firm to pursue the case. Ms. Birch denied this request without ever

explaining to Mr. Oliver (if it was a fact), that neither Travelers nor Burger King

had any objection to Mr. Barber's handling of the cases if there was no conflict of

interest. Throughout these conversations Karen Birch was negligent, as that term

is used in law, in that she:

1. failed to investigate and determine if in fact there had been prior representation

by the law firm of Burger King Corporation that would present a legal conflict

of interest; and

2. failed to inform Robert Oliver that neither she, Travelers Insurance Company

nor Burger King Corporation had any objection to Mr. Barber's continuing

representation of the Kelleys and Lees if there was no conflict of interest

between the law firm and Burger King.

Travelers and Burger King filed special exceptions to the allegations on the ground

that the Barbers had failed to state a cause of action. See Texas Dep't of Corrections v. Herring ,

513 S.W.2d 6, 9-10 (Tex. 1974).

We must assume, in reviewing the trial court's decision sustaining the special

exceptions, that all material facts alleged by the Barbers are true. Aranda v. Insurance Co. of N.

Am. , 748 S.W.2d 210, 213 (Tex. 1988). Absent an abuse of discretion, we may not disturb the

trial court's ruling. Hubler v. City of Corpus Christi , 564 S.W.2d 816, 820 (Tex. App.--Corpus

Christi 1978, writ ref'd n.r.e.).

The Barbers argue that Birch should have known that the inquiry regarding the

Kelley litigation would "jeopardize Barber's position with the firm" and, therefore, she "had a

duty to use ordinary care to avoid harming Mr. Barber's relationship with his firm." In effect,

the Barbers have alleged a cause of action for negligent interference with a contractual

relationship. Texas courts do not recognize tortious interference of contract based on negligence.

John Carlo , 843 S.W.2d at 472 ; see also Restatement (Second) of Torts §§ 766-766C (1965).

Finding no abuse of discretion, we overrule the Barber's fourth point of error.

HEARSAY OBJECTION

In point of error five, the Barbers contend the trial court erred in sustaining

Travelers and Burger King's hearsay objection to Barber's notes and deposition testimony

describing a telephone conversation with Keith Taunton, Burger King's attorney in the Kelley

litigation. The Barbers contend the conversation constituted an admission by a party-opponent

pursuant to the Texas Rules of Civil Evidence. See Tex. R. Civ. Evid. 801(e)(2).

The excluded testimony consisted of Taunton telling Barber of a previous

conversation that took place between Taunton and Birch. The gist of the conversation, as

reflected in Barber's notes, was as follows: Taunton had known about the circumstances

surrounding Barber's departure from the firm; Taunton had nothing to do with that event; Birch

told Taunton that she had a "good feeling" that Barber would "give up"; Birch asked Taunton if

she should start "pull[ing] files"; Taunton told her it was her "call"; Taunton believed that Barber

might not give up but if pushed to the wall he might leave Brown McCarroll.

We believe the trial judge properly sustained appellees' hearsay objections to

Barber's notes of the conversation and his testimony. A statement by a party's agent concerning

a matter within the scope of the declarant's employment and made during the existence of the

employment relationship is not hearsay. Handel v. The Long Trusts , 757 S.W.2d 848, 851 (Tex.

App.--Texarkana 1988, no writ). The Barbers, as proponents of the deposition testimony and

notes, had the burden to show that the statements were made concerning a matter within the scope

of Taunton's employment. Norton v. Martin , 703 S.W.2d 267, 272 (Tex. App.--San Antonio

1985, writ ref'd n.r.e.). An attorney acts as a special agent authorized only to fulfill those duties

in furtherance of his employment. Duval County Ranch Co. v. Alamo Lumber Co. , 663 S.W.2d

627, 633 (Tex. App.--Amarillo 1983, writ ref'd n.r.e.). When a party seeks to use, as a vicarious

admission, an attorney's hearsay statements against that attorney's client, the trial judge must first

find as a preliminary fact that the statements were authorized. Id. at 633 . The summary judgment

record fails to show that the statements made during the course of the conversation concerned a

matter within the scope of Taunton's employment as attorney for Burger King in the Kelley

litigation. See Handel , 757 S.W.2d at 851 . Finding no abuse of discretion, we overrule the

Barbers' firth point of error. See Reichhold Chems. v. Puremco Mfg. , 854 S.W.2d 240 (Tex.

App.--Waco 1993, writ denied).

CONCLUSION

For the reasons stated, we reverse the trial-court order granting summary judgment

in favor of Brown McCarroll and remand that portion of the cause of action to the trial court. The

remainder of the judgment is affirmed.

John Powers, Justice

Before Justices Powers, Aboussie and Jones

Reversed and Remanded in Part; Affirmed in Part

Filed: May 3, 1995

Do Not Publish

1. The Barbers are husband and wife. It appears that Patricia Barber's interest is a

community property interest in William Barber's partnership interest in the firm of Brown

McCarroll & Oaks Hartline. We will refer to William hereafter as "Barber."

2. The Deceptive Trade Practices--Consumer Protection Act, Tex. Bus. & Com. Code Ann.

§ 17.505 (West Supp. 1995) ("DTPA"), provides that any consumer seeking damages under

the DTPA must give sixty days' notice before filing suit.

3. Travelers represented Burger King, a self-insurer, on a contract basis.

4. The standards for reviewing a motion for summary judgment are well established: (1)

the movant for summary judgment has the burden of showing that no genuine issue of

material fact exists and that he is entitled to judgment as a matter of law; (2) in deciding

whether there is a disputed material fact issue precluding summary judgment, evidence

favorable to the nonmovant will be taken as true; and (3) every reasonable inference must

be indulged in favor of the nonmovant and any doubts resolved in its favor. Nixon v. Mr.

Property Management Co. , 690 S.W.2d 546, 548-49 (Tex. 1985).

5. Travelers and Burger King contend that this language evidences the intention of the

trial court to base its summary judgment order on a want of proximate cause in addition to

its stated bases of estoppel by contract, want of intent, and privilege. Our disposition of the

case does not require that we address this issue.

6. The Barbers complain on appeal that the trial court "failed to consider a lawyer's duty

not to violate the Disciplinary Rules of Professional Conduct." Because the Barbers did not

raise this issue in the trial court, any error concerning the disciplinary rules has been waived.

City of Houston v. Clear Creek Basin Auth. , 589 S.W.2d 671, 678 (Tex. 1979); Klafehn v. Fain ,

643 S.W.2d 227, 228 (Tex. App.--Fort Worth 1982, writ ref'd n.r.e.); Castleberry v. Goolsby

Bldg. Corp. , 608 S.W.2d 763, 765 (Tex. Civ. App.--Corpus Christi 1980), aff'd , 617 S.W.2d 665

(Tex. 1981).

7. Brown McCarroll's contended as follows its motion for summary judgment:

1. Barber cannot sue to recover what he willingly gave up by contract.

2. By receiving and accepting benefits under the early retirement contract after

Barber became aware of the alleged misrepresentation, Barber has affirmed

the contract, as a matter of law, and must abide by its terms.

3. Barber, in a deposition, testified that he still believed that pressure from

Travelers caused the firm's withdrawal from the Kelley litigation and that

Brown McCarroll's later statement disclaiming any pressure from Travelers

was a misrepresentation. Barber may not sue on a negligent

"misrepresentation" that he claims is not false.

4. Barber was not forced out of the firm; he could have remained a partner by

simply abiding by the decision of the management committee to withdraw

from the Kelley litigation, as the firm had the right to do.

8. A defrauded party may sue in tort for "fraud" regardless of whether the fraud was

intentional, negligent, or innocent. However, the degree of culpability determines the

amount of damages. Federal Land Bank Ass'n v. Sloane , 825 S.W.2d 439, 442 (Tex. 1991)

(damages limited to pecuniary losses in negligent misrepresentation action because fraud

perpetrated was unintentional); see also Prosser & Keeton, supra , at 768-69; Restatement

(Second) of Torts §§ 552B, 552C cmt. f (1977).