Cook v. Brundidge, Fountain, Elliott & Churchill
533 S.W.2d 751, 1976 Tex. LEXIS 201, 19 Tex. Sup. Ct. J. 173 (1976)
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Rule of Law:
Under the Texas Uniform Partnership Act, a law partnership may be liable for the fraudulent acts of a partner, even if those acts are outside the traditional scope of legal practice, if the partner was acting with apparent authority or in the ordinary course of the partnership's business. Whether a partner's actions meet this standard is a question of fact based on what a reasonable client would believe under the circumstances.
Facts:
- Warren C. Lyon, a partner at the law firm Brundidge, Fountain, Elliott & Churchill, represented Betty L. Cook in a divorce proceeding.
- During a legal conference, Cook informed Lyon that she and her relatives were receiving approximately $60,000 and asked for advice on investing it in Texas real estate.
- Lyon told Cook he was a silent partner in a real estate firm and suggested she invest the funds in Texas Yummers, a fast-food franchise corporation in which he was an officer and stockholder.
- Cook and her relatives agreed, and their Illinois attorney sent a check for $60,343.25, payable to 'Warren Lyon as Attorney for Isabelle M. Griffin, Winifred Baker and Betty Cook,' to Lyon at the law firm's offices.
- In the law firm's office, Lyon had the women execute a contract to loan the money to Texas Yummers Corporation, which he signed as the corporation's president.
- Lyon subsequently persuaded the women to convert their loan into stock in Texas Yummers, which was later dissolved before being declared bankrupt.
- The other partners at the law firm were unaware of Lyon's investment dealings with Cook and her relatives, and the firm received no fees from these transactions.
Procedural Posture:
- Betty L. Cook, et al., sued the law firm of Brundidge, Fountain, Elliott & Churchill in trial court, seeking damages for the fraudulent acts of its partner, Warren C. Lyon.
- The law firm filed a motion for summary judgment, arguing it was not liable for Lyon's actions.
- The trial court granted the motion for summary judgment in favor of the law firm.
- Cook, as appellant, appealed the decision to the Court of Civil Appeals.
- The Court of Civil Appeals, with the law firm as appellee, affirmed the trial court's summary judgment.
- Cook then appealed to the Supreme Court of Texas.
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Issue:
Under the Texas Uniform Partnership Act, does a genuine issue of material fact exist as to whether a law partner was acting with apparent authority or in the ordinary course of the partnership's business when he solicited and misapplied a client's funds for a personal investment scheme, thereby precluding summary judgment in favor of the law firm?
Opinions:
Majority - Justice Steakley
Yes, a genuine issue of material fact exists. The law firm failed to establish as a matter of law that its partner was not acting with apparent authority or in the ordinary course of the partnership's business. Under the Texas Uniform Partnership Act, a partnership is liable for the wrongful acts of a partner 'acting in the ordinary course of the business of the partnership' or 'within the scope of his apparent authority.' The reasonableness of a client's belief that a partner is acting within the scope of the partnership is a question for the jury. Here, the existing attorney-client relationship, the conferences occurring at the law office, and the check being made payable to Lyon 'as Attorney' create a fact issue as to whether Cook reasonably believed Lyon was acting for the firm, thus making summary judgment improper.
Dissenting - Justice McGee
No, a genuine issue of material fact does not exist. The summary judgment proof established as a matter of law that Lyon had neither actual nor apparent authority for his actions. Cook specifically asked for an 'investment counselor or a real estate person,' and Lyon responded by stating he was a partner in a separate real estate firm. This clearly indicated he was acting in a non-legal capacity. Apparent authority must be based on conduct by the principal (the law firm), and here, the firm did nothing to lead Cook to believe Lyon was authorized to act as an investment counselor. Lyon's fraudulent acts were part of his own private deal, not in the course of the partnership's legal business, and the firm should therefore not be liable.
Analysis:
This case is significant for extending the principles of the Uniform Partnership Act to professional partnerships like law firms, potentially broadening their vicarious liability. The court shifts the focus from the profession's own definition of its business scope to the reasonable belief of a third-person client. By finding that accepting client funds for investment could be within a partner's 'apparent authority,' the decision makes it more difficult for professional firms to obtain summary judgment in cases where a partner defrauds a client in a transaction outside of traditional professional services. It underscores that the context of the attorney-client relationship can create a reasonable belief of authority, even for non-legal activities.
