## Facts

- The plaintiffs were the sole shareholders of H.P. Enterprises Corporation, which operated and franchised catfish restaurants, and sought to sell the business.
- An attorney from the defendant law firm had long represented the Simpsons and handled corporate and personal matters for them.
- A group of investors sought to buy the business; the firm formed the buyers’ corporation (Tide Creek) and prepared documents transferring H.P. Enterprises’ assets to Tide Creek.
- The firm provided the only legal advice to both the sellers and the buyers in the transaction.
- The sale price was $500,000, with $100,000 paid at closing and the remaining $400,000 payable under a note supported by corporate security and personal guarantees.
- After closing, the firm continued to handle matters for the sellers, including maintaining business records and advising on other matters.
- A fire destroyed Tide Creek’s commissary and inventory; a firm partner assisted Tide Creek in recovering substantial insurance proceeds.
- Tide Creek later defaulted on payments; the sellers consulted a firm partner, who recommended restructuring the payment obligations despite Tide Creek’s financial problems.
- The sellers asserted they were told the firm would protect their interests if a conflict arose, but later were told the firm represented Tide Creek and the sellers needed new counsel.
- Tide Creek entered bankruptcy; the sellers could not collect the unpaid purchase price from Tide Creek or the individual guarantors and sued the firm partners for legal malpractice based on (1) the original sale and (2) the later restructuring.
- A jury found two acts of negligence and the district court entered judgment awarding $100,000 for each act; the defendant attorneys appealed.

## Issues

1. When did the sellers’ malpractice claims accrue under Texas’s two-year limitations period, including application of the discovery rule?
2. Whether evidence supported findings that the attorneys breached duties owed to the sellers in conflicted representations during the sale and note restructuring.
3. Whether evidence supported proximate causation and damages linking the attorneys’ negligence to the sellers’ inability to collect the balance of the purchase price.
4. Whether the district court reversibly erred by admitting the plaintiffs’ expert testimony that relied in part on hearsay or non-record materials.

## Decision

- The Fifth Circuit affirmed the judgment for the plaintiffs.
- The court held the malpractice claims were timely under Texas law because the evidence supported delayed accrual under the discovery rule.
- The court held the evidence was sufficient for the jury to find negligence in both the original transaction and the restructuring, including failures tied to conflicts of interest and inadequate advice.
- The court held the evidence supported causation and damages, rejecting the contention that the buyers’ financial failure alone broke the causal chain.
- The court upheld the admission of expert testimony, concluding the trial court did not abuse its discretion in allowing an expert to rely on materials of a type reasonably relied upon in the field.

## Legal Principles

- In a diversity malpractice action, state law supplies the statute of limitations and accrual rules, including any discovery-rule delay where the injury was not reasonably discoverable earlier.
- Attorneys owe fiduciary duties of loyalty, disclosure, and independent professional judgment; representing parties with adverse or potentially adverse interests can breach those duties absent proper disclosure and conflict management.
- Legal malpractice under Texas law requires proof of duty, breach, proximate cause, and damages; causation may be shown where the negligence is a substantial factor in producing the client’s loss.
- Expert opinions may be based on facts or data not themselves admissible if they are the type reasonably relied upon by experts in the relevant field; admission is reviewed for abuse of discretion.

## Conclusion

The Fifth Circuit affirmed a jury verdict finding two acts of legal malpractice arising from a law firm’s conflicted involvement in both sides of a business sale and a later note restructuring, holding the claims timely under Texas accrual principles, the evidence sufficient on breach and causation, and the expert testimony properly admitted.


Simpson v. James, 903 F.2d 372 (5th Cir. 1990)