Fifth Circuit Finds That Lawyer Committed Legal Malpractice By Filing Frivolous Antitrust Claims
02/03/2023On January 13, 2023, the U.S. Court of Appeals for the Fifth Circuit found that a Texas lawyer committed legal malpractice by filing antitrust claims that lacked any reasonable factual or legal basis. Lowe v. Gammon, 21-51234 (5th Cir. Jan. 13, 2023).
The defendant lawyer represented a wedding photographer as a plaintiff in the underlying action in Texas state court, which alleged that two other photographers engaged in a conspiracy to restrain trade in violation of Texas Business and Commerce Code § 15.05(a) & (c). The lawsuit alleged that the photographers conspired to restrain trade by including exclusivity clauses in their contracts and certain other allegedly anticompetitive conduct. The Texas state court granted summary judgment for defendant photographers on the merits and awarded sanctions against plaintiff (but not his lawyer). The Texas Court of Appeals affirmed the sanctions order, finding that the complaint “made groundless assertions of fact” because defendant photographers “did not control a significant market share of the international wedding industry and . . . an antitrust cause of action based on this fact situation was groundless.”
Unable to satisfy the sanctions order, plaintiff photographer filed for Chapter 7 bankruptcy. The bankruptcy trustee in turn filed a lawsuit against plaintiff’s lawyer asserting that he knew or should have known that the underlying lawsuit was groundless and that his decision to file it was malpractice. The district court ruled for defendant lawyer, finding that the trustee failed to carry his burden under Texas law to show that defendant lawyer breached any duty to his client. On appeal, the Fifth Circuit reversed, finding that the record established that the attorney breached a duty to his client not to file a lawsuit without a reasonable legal or factual basis to do so.
Specifically, as to the duty element, the Fifth Circuit found that the lawyer filed a state antitrust claim “that no reasonable attorney could have filed after a cursory inquiry into Texas law.” The Fifth Circuit concluded that a reasonable attorney would have done enough legal research to discover that a plaintiff alleging a restraint of trade based on exclusivity must (1) identify the relevant product market; (2) identify the relevant geographic market; and (3) demonstrate that the competition foreclosed by the arrangement constitutes a substantial share of the relevant market. Focusing specifically on the third element, the Fifth Circuit held that no reasonable attorney could have concluded that all of these elements were satisfied because the evidence available to the lawyer suggested at most “the fear of a ‘negative impact’ by the exclusivity clauses at issue,” a far cry from the required “substantial share” of the relevant market being foreclosed. The Fifth Circuit also concluded that there was no factual or legal basis for a reasonable attorney to conclude that in an antitrust action under Texas law, the relevant geographic market could be as small as a single city or that “the relevant product market [could] be as specific as high-end wedding photography.”
While the decision that this facially absurd antitrust lawsuit against two small business owners was groundless does not appear to have been a close call, it is nevertheless heartening that the Fifth Circuit reversed the district court, ensuring that the lawyer, not just the client, responsible for the groundless suit will face consequences. This opinion, though unpublished, should serve as a reminder that antitrust plaintiffs must have some reasonable factual basis for their alleged geographic and product market definitions and allegations of substantial foreclosure before filing suit.