Ironshore Europe DAC v. Schiff Hardin, L.L.P.

Case: 18-40101 Document: 00514779217 Page: 1 Date Filed: 01/02/2019

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

FILED

No. 18-40101 January 2, 2019

Lyle W. Cayce

IRONSHORE EUROPE DAC, Clerk

Plaintiff - Appellee

v.

SCHIFF HARDIN, L.L.P.,

Defendant - Appellant

Appeal from the United States District Court

for the Eastern District of Texas

Before DAVIS, COSTA, and OLDHAM, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Defendant Schiff Hardin, L.L.P. (“Schiff Hardin”), a law firm, challenges

the district court’s denial of its Rule 12(b)(6) motion to dismiss the complaint

and rejection of its attorney immunity defense. The Plaintiff, Ironshore Europe

DAC (“Ironshore”), issued an excess insurance policy to the firm’s client Dorel

Juvenile Group, Inc. (“Dorel”). Ironshore casts its complaint as one for

negligent misrepresentation against Schiff Hardin, alleging that the firm made

misstatements and omissions in the course of reporting on the litigation

against Ironshore’s insured Dorel, the firm’s client. Schiff Hardin argues that

it is entitled to attorney immunity against Ironshore’s negligent

misrepresentation claim. As discussed below, we conclude that the district

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No. 18-40101

court erred in rejecting Schiff Hardin’s attorney immunity defense because the

conduct sued on occurred during the representation of the firm’s client, Dorel.

We therefore REVERSE the denial of Schiff Hardin’s motion and RENDER

judgment dismissing the plaintiff’s complaint pursuant to Rule 12(b)(6). 1

I. Background

In 2015, Nicole and Cameron Hinson filed a lawsuit in the Eastern

District of Texas against Dorel, which allegedly designed, marketed, and sold

the forward-facing car seat in which their one-year-old child, C.H., was seated

when the Hinson vehicle was involved in an accident in Texas. The Hinsons

alleged that C.H. suffered a paralyzing spinal cord injury and a brain injury in

the accident. They asserted claims of negligence, gross negligence, marketing

defect, and failure to adequately warn consumers of the risks posed by the use

of forward-facing car seats with young children.

Dorel was self-insured up to $6 million. The appellee Ironshore issued a

policy of excess insurance to Dorel for liability above $6 million up to $25

million. The policy included an “assistance and cooperation” provision giving

Ironshore the right to associate with Dorel in the defense of any claim,

requiring Dorel to cooperate in the event Ironshore exercised that right, and

requiring Dorel to promptly provide any litigation-related information

requested by Ironshore.

Dorel retained the law firm Schiff Hardin, the defendant-appellant, to

defend it in the Hinson suit. Although Schiff Hardin did not represent

Ironshore, the firm did provide Ironshore with information about the litigation,

1 As discussed below, a district court’s order denying a defendant’s motion to dismiss

on the basis of attorney immunity under Texas law is an appealable collateral order. In this

appeal, this court only has jurisdiction over the district court’s immunity ruling and therefore

does not consider the other aspects of the district court’s ruling.

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including developments in the litigation and Schiff Hardin’s opinions of the

settlement value and potential judgment value of the case.

The Hinson case went to trial in June 2016, and the jury returned a

verdict adverse to Dorel and awarded total compensatory damages of

$24,438,000 and an additional $10 million in exemplary damages. After the

verdict, Ironshore retained its own counsel for the first time. The parties

participated in post-trial mediation, during which a confidential settlement

was agreed upon in an amount that reached Ironshore’s policy.

Ironshore then filed the instant lawsuit against Schiff Hardin asserting

a claim for negligent misrepresentation pursuant to the Restatement (Second)

of Torts § 552, 2 which has been adopted by the Supreme Court of Texas. 3

Ironshore alleged that the firm made various misrepresentations and

omissions in the course of reporting on the Hinson litigation to Ironshore,

including making false statements in verbal and written reports and failing to

disclose certain information about the underlying suit’s facts and settlement

and judgment value. Ironshore alleged that the firm’s conduct led it to believe

that the suit posed no threat of exposure to its policy.

Ironshore’s complaint alleged that the misrepresentations took place

“[i]n the course of Schiff’s business” representing Dorel but “were made by

Schiff separate from its representation and defense of Dorel in the Lawsuit and

were not necessary to, nor a part of, Schiff’s defense of Dorel in the Lawsuit.”

Ironshore also alleged that the firm failed to disclose certain developments in

2 RESTATEMENT (SECOND) OF TORTS § 552 (AM. LAW INST. 1977) (“One who, in the

course of his business, profession or employment, or in any other transaction in which he has

a pecuniary interest, supplies false information for the guidance of others in their business

transactions, is subject to liability for pecuniary loss caused to them by their justifiable

reliance upon the information, if he fails to exercise reasonable care or competence in

obtaining or communicating the information.”).

3 McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791

(Tex. 1999).

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the Hinson litigation, including adverse pre-trial rulings and a pre-trial

settlement offer of $3.25 million. Ironshore argued that it relied to its

detriment on the negligent misrepresentations and that had it known the true

facts about the developments in the lawsuit, settlement offers, and the danger

to its policy, it would have settled with the Hinsons for a much lower amount

than the ultimate verdict or post-verdict settlement.

Schiff Hardin filed a motion to dismiss under Federal Rule of Civil

Procedure 12(b)(6), asserting that it was entitled to attorney immunity under

Texas law. The firm argued that any communications with Ironshore were

part of the discharge of the firm’s duties to its client, Dorel.

The district court denied Schiff Hardin’s motion to dismiss based on

attorney immunity. 4 The district court ventured an Erie 5 guess to determine

that the attorney immunity doctrine under Texas law did not foreclose a

negligent misrepresentation claim. Schiff Hardin timely filed this appeal

challenging that ruling.

II. Standards of Review

A district court’s order denying a defendant’s motion to dismiss on the

basis of attorney immunity under Texas law is an appealable collateral order

because “attorney immunity is properly characterized as a true immunity from

4 The district court granted Schiff Hardin’s motion to dismiss as to Ironshore’s claims

based on 1) alleged misrepresentations related to predictions of future outcomes, such as a

possible jury verdict or settlement outcome; and 2) alleged misrepresentations related to

Schiff Hardin’s subjective assessments about trial, including that trial “was fine” or “went

pretty well.” Specifically, the district court determined that the former allegations did not

fall within the scope of a negligent misrepresentation claim and that the latter allegations

failed to state such a claim. However, the district court ventured an Erie guess to determine

that omissions can sometimes form the basis for a negligent misrepresentation claim under

Texas law, and it denied the motion to dismiss as to Ironshore’s allegation that the firm

misrepresented or failed to disclose information about offers to settle.

5 Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).

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suit, not as a defense to liability.” 6 This court reviews de novo the denial of a

motion to dismiss based on immunity. 7

“The ultimate question in a Rule 12(b)(6) motion is whether the

complaint states a valid claim when all well-pleaded facts are assumed true

and are viewed in the light most favorable to the plaintiff.” 8 “Although

dismissal under [R]ule 12(b)(6) may be appropriate based on a successful

affirmative defense, that defense must appear on the face of the complaint.” 9

“The court’s review is limited to the complaint, any documents attached to the

complaint, and any documents attached to the motion to dismiss that are

central to the claim and referenced by the complaint.” 10 “[A]n attorney seeking

dismissal based on attorney immunity bears the burden of establishing

entitlement to the defense.” 11 “To meet this burden, the attorney must

‘conclusively establish that [the] alleged conduct was within the scope of [the

attorney’s] legal representation of [the] client.’” 12 “Texas courts occasionally

grant attorney immunity at the motion to dismiss stage [where] the scope of

the attorney’s representation—and thus entitlement to the immunity—[i]s

apparent on the face of the complaint.” 13

This court also reviews de novo a district court’s interpretation of state

law and is bound to resolve the issue as the state’s highest court would. 14 “In

6 Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 346, 348 (5th Cir. 2016).

7 Id. at 345 (citation omitted).

8 Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir.

2010) (citation omitted).

9 Kelly v. Nichamoff, 868 F.3d 371, 374 (5th Cir. 2017) (quoting EPCO Carbon Dioxide

Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 470 (5th Cir. 2006)).

10 Lone Star, 594 F.3d at 387 (citation omitted).

11 Kelly, 868 F.3d at 375 (citations omitted).

12 Id. (alterations in original) (citation omitted) (quoting Santiago v. Mackie Wolf

Zientz & Mann, P.C., No. 05-16-00394-CV, 2017 WL 944027, at *3 (Tex. App.—Dallas Mar.

10, 2017, no pet.) (mem. op.)).

13 Id. (citation omitted).

14 Troice, 816 F.3d at 345 (citation omitted) (quoting Occidental Chem. Corp. v. Elliott

Turbomachinery Co., 84 F.3d 172, 175 (5th Cir. 1996)).

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applying Texas law, we look first to the decisions of the Texas Supreme

Court.” 15 “If the Texas Supreme Court has not ruled on an issue, we ‘make an

Erie guess, predicting what [the Texas Supreme Court] would do if faced with

the [same] facts.’” 16 “In doing so, we typically ‘treat state intermediate courts’

decisions as the strongest indicator of what a state supreme court would do,

absent a compelling reason to believe that the state supreme court would reject

the lower courts’ reasoning.’” 17

III. Discussion

As discussed in greater detail below, the attorney immunity doctrine

under Texas law generally insulates a lawyer from civil liability to a non-client

for conduct performed as part of the discharge of the lawyer’s duties to his

client. We first make an Erie guess as to whether the Supreme Court of Texas

would extend the attorney immunity doctrine to claims of negligent

misrepresentation. Next, we consider whether the requirements of attorney

immunity are satisfied on the facts alleged in this case.

a. Attorney Immunity from Negligent Misrepresentation Claims

As indicated, this appeal raises the question whether the attorney

immunity doctrine under Texas law shields an attorney against claims by a

non-client based on negligent misrepresentation made in the course of

counsel’s representation of his clients. Having found no decisions from the

Supreme Court of Texas that directly address this issue, we make an Erie

guess that the Supreme Court of Texas would apply the attorney immunity

doctrine to shield attorneys for such negligent misrepresentation claims.

15 Kelly, 868 F.3d at 374 (quoting Hux v. S. Methodist Univ., 819 F.3d 776, 780 (5th

Cir. 2016)).

16 Id. (alterations in original) (quoting Hux, 819 F.3d at 780).

17 Id. (quoting Hux, 819 F.3d at 780-81).

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The Supreme Court of Texas recognized in McCamish, Martin, Brown &

Loeffler v. F.E. Appling Interests 18 that the absence of privity of contract does

not preclude a non-client from suing an attorney for negligent

misrepresentation under the Restatement (Second) of Torts § 552, which

creates liability for providing false information to persons other than his client.

In that 1999 decision, the court did not address the issue of attorney immunity

but focused its analysis on the issue of privity, which it found was not required

for a negligent misrepresentation claim against an attorney. 19

More recently, the Supreme Court of Texas clarified the scope and

application of the attorney immunity doctrine under Texas law in Cantey

Hanger, LLP v. Byrd 20 and Youngkin v. Hines. 21 In Cantey Hanger, the court

described this doctrine as “intended to ensure ‘loyal, faithful, and aggressive

representation by attorneys employed as advocates’” by avoiding “the

inevitable conflict that would arise if [they] were ‘forced constantly to balance

[their] own potential exposure against [their] client’s best interest.’” 22

The Cantey Hanger court made it clear that attorneys are generally

“immune from civil liability to non-clients ‘for actions taken in connection with

representing a client in litigation.’” 23 Attorney immunity does not extend to

actions that “do not qualify as ‘the kind of conduct in which an attorney

engages when discharging his duties to his client’” or that “are entirely foreign

to the duties of an attorney” because they do “not involve the provision of legal

18McCamish, 991 S.W.2d at 791, 795.

19See id. at 791-95.

20 Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015).

21 Youngkin v. Hines, 546 S.W.3d 675 (Tex. 2018).

22 Cantey Hanger, 467 S.W.3d at 481, 483 (first quoting Mitchell v. Chapman, 10

S.W.3d 810, 812 (Tex. App.—Dallas 2000, pet. denied); then quoting Alpert v. Crain, Caton

& James, P.C., 178 S.W.3d 398, 405 (Tex. App.—Houston [1st Dist.] 2005, pet. denied)).

23 Id. at 481 (citations omitted) (quoting Alpert, 178 S.W.3d at 405).

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services and would thus fall outside the scope of client representation.” 24

However, this immunity extends to even wrongful conduct that is “part of the

discharge of the lawyer’s duties in representing his or her client.” 25 The Cantey

Hanger court declined to find a general fraud exception to the doctrine of

immunity, reasoning that “the focus in evaluating attorney liability to a non-

client is ‘on the kind—not the nature—of the attorney’s conduct,’” so “[m]erely

labeling an attorney’s conduct ‘fraudulent’ does not and should not remove it

from the scope of client representation or render it ‘foreign to the duties of an

attorney.’” 26

In Cantey Hanger, the plaintiffs alleged that an attorney made

intentional misrepresentations in the “preparation of a bill of sale

[transferring] an airplane awarded to [the firm’s] client in an agreed divorce

decree,” for the purpose of shifting tax liability between the parties to the

divorce in violation of the decree. 27 The court reasoned that the preparation of

the bill of sale to facilitate the transfer of the airplane pursuant to the decree

“‘was conduct in which an attorney engages to discharge his duties to his client’

and was not ‘foreign to the duties of an attorney.’” 28 It found that the additional

allegations about the intentional misrepresentations to shift tax liability did

not bring the conduct outside the scope of the firm’s duties to its client. 29

24 Id. at 482 (citations omitted) (first quoting Dixon Fin. Servs., Ltd. v. Greenberg,

Peden, Siegmyer & Oshman, P.C., No. 01-06-00696-CV, 2008 WL 746548, at *9 (Tex. App.—

Houston [1st Dist.] Mar. 20, 2008, pet. denied) (mem. op. on reh’g); then quoting Poole v.

Hous. & T.C. Ry. Co., 58 Tex. 134, 137 (1882)).

25 Id. at 481-82 (citation omitted) (first quoting Toles v. Toles, 113 S.W.3d 899, 910-11

(Tex. App.—Dallas 2003, no pet.); then quoting Alpert, 178 S.W.3d at 406).

26 Id. at 483-84 (citations omitted) (first quoting Dixon Fin. Servs., 2008 WL 746548,

at *8; then quoting Alpert, 178 S.W.3d at 406).

27 Id. at 485 (quoting Byrd v. Vick, Carney & Smith LLP, 409 S.W.3d 772, 780 (Tex.

App.—Fort Worth 2013), rev’d sub nom. Cantey Hanger, 467 S.W.3d 477).

28 Id. (quoting Byrd, 409 S.W.3d at 780).

29 Id.

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The Cantey Hanger court included a footnote in its discussion stating:

In McCamish, we held that an attorney can be liable to a non-client

for negligent misrepresentation where “an independent duty to the

nonclient [arises] based on the [attorney’s] manifest awareness of

the nonclient’s reliance on the misrepresentation and the

[attorney’s] intention that the nonclient so rely.” The plaintiffs do

not assert such a claim here. 30

In April 2018, the Supreme Court of Texas reaffirmed in Youngkin that

Cantey Hanger “controls [its] analysis of attorney immunity” and summarized

the Cantey Hanger rule as follows: “[A]n attorney may be liable to nonclients

only for conduct outside the scope of his representation of his client or for

conduct foreign to the duties of a lawyer,” which “inquiry correctly focuses on

the kind of conduct at issue rather than the alleged wrongfulness of said

conduct.” 31 The court noted that “[t]he only facts required to support an

attorney-immunity defense are the type of conduct at issue and the existence

of an attorney-client relationship at the time.” 32

In Youngkin, the plaintiff alleged that the attorney knowingly

participated in a fraudulent scheme to deprive the plaintiff of property by

entering a settlement agreement on his clients’ behalf “knowing they had no

intention to comply,” helping his clients avoid compliance by preparing a deed

used to transfer the property to another person, and aiding that person in his

efforts to wrongfully assert ownership of the property. 33 The court noted that

it was required, under Cantey Hanger, to “look beyond [the plaintiff’s]

characterizations of activity as fraudulent and conspiratorial and focus on the

conduct at issue,” which it described as “negotiating and entering a settlement

30 Id. at 483 n.7 (alterations in original) (quoting McCamish, 991 S.W.2d at 792).

31 Youngkin, 546 S.W.3d at 681 (citations omitted).

32 Id. at 683.

33 Id. at 678-79.

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agreement, preparing transfer documents, and filing a lawsuit.” 34 The court

found that this “conduct was directly within the scope of [the lawyer’s]

representation of his clients, regardless of any disagreement over the

substance of the settlement agreement” and was “not foreign to the duties of a

lawyer.” 35

In this case, the district court denied Schiff Hardin’s attorney immunity

defense, venturing an Erie guess that the attorney immunity doctrine did not

foreclose a negligent misrepresentation claim. In so ruling, the district court

found that McCamish had not been overruled because the Supreme Court of

Texas had expressly declined to address it in the court’s more recent guidance

on the doctrine of attorney immunity, citing the Cantey Hanger footnote

referencing the McCamish case.

On appeal, Ironshore argues that the footnote in Cantey Hanger, upon

which the district court relied, creates an exception to attorney immunity for

negligent misrepresentation claims. However, this footnote does not bear the

weight Ironshore places on it. Rather, the footnote merely acknowledges that

the court was not ruling on a negligent misrepresentation claim because none

was before it in that case. The Cantey Hanger court’s rejection of the argument

that attorney immunity does not extend to fraudulent and other intentional

conduct committed by the attorney in the course of representing his client

makes it clear to us that the Supreme Court of Texas would extend immunity

to the much less egregious conduct of negligent misrepresentation, whether or

not the non-client relied on the negligent misrepresentation. The district court

therefore erred in determining that attorney immunity did not apply to claims

of negligent misrepresentation.

34 Id. at 682, 684 (citation omitted).

35 Id.

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b. Analysis of Schiff Hardin’s Conduct

Having made the Erie guess that the Supreme Court of Texas would

extend the attorney immunity doctrine to negligent misrepresentation claims,

we turn to the question whether the requirements for attorney immunity are

satisfied in this case.

Whether an attorney’s conduct was in the scope of his representation of

a client is a legal question. 36 Attorney immunity applies to all “actions taken

in connection with representing a client in litigation,” even wrongful conduct

that is “part of the discharge of the lawyer’s duties in representing his or her

client,” 37 as long as it is not “entirely foreign to the duties of an attorney.” 38

For this analysis, the Supreme Court of Texas has repeatedly instructed courts

to simply look to the general kind of conduct at issue and whether attorneys

engage in that kind of conduct when discharging duties to a client.

The factual allegations of the complaint in this case reflect that all of the

alleged misrepresentations and omissions were related to Schiff Hardin’s

representation of Dorel in the Hinson litigation. Looking beyond Ironshore’s

characterization of the firm’s conduct as wrongful, as we must, the type of

conduct at issue in this case includes: (1) reporting on the status of litigation

and settlement discussions; (2) providing opinions as to the strength and

valuation of plaintiffs’ claims; (3) providing opinions as to the perceived

litigation strategies employed by opposing counsel and the potential prejudice

of pre-trial developments; (4) providing estimates of potential liability;

(5) reporting on the progress of a jury trial; and (6) reporting on pre-trial

rulings and pre-trial settlement offers.

36 Id. at 683.

37 Cantey Hanger, 467 S.W.3d at 481-82 (citations omitted) (first quoting Alpert, 178

S.W.3d at 405; then quoting Toles, 113 S.W.3d at 910-11; and then quoting Alpert, 178 S.W.3d

at 406).

38 Id. at 482 (citations omitted) (quoting Poole, 58 Tex. at 137).

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We are satisfied that the kinds of conduct at issue in this case fall within

the routine conduct attorneys engage in when handling this type of litigation.

Schiff Hardin’s conduct falls squarely within the scope of the firm’s

representation of its client. This court is “not bound to accept as true

[plaintiff’s] legal conclusion” 39 that the misrepresentations were somehow

“separate from [Schiff’s] representation and defense of Dorel” and “not

necessary to, nor a part of, Schiff’s defense of Dorel in the Lawsuit.” Immunity

is established on the face of the complaint, which alleges only

misrepresentations and omissions related to the Hinson litigation, in which

Schiff Hardin undisputedly represented Ironshore’s insured Dorel in the

defense of a products liability case. Schiff Hardin’s first duty was to its client,

Dorel, and it was up to Ironshore to retain its own counsel if it was dissatisfied

with the comprehensiveness of the information it was receiving from its

insured’s attorneys. Therefore, we find that the requirements for attorney

immunity are met, Schiff Hardin’s Rule 12(b)(6) motion to dismiss should be

granted, and the plaintiff’s complaint should be dismissed.

IV. Conclusion

For these reasons, we conclude that the district court erred in denying

Schiff Hardin’s motion to dismiss plaintiff’s complaint. Accordingly, we

REVERSE the district court’s ruling and RENDER judgment dismissing

plaintiff’s complaint.

39Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Papasan v. Allain, 478

U.S. 265, 286 (1986)).

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