GOVERNMENT HOSPITAL NOT IMMUNE FROM SUIT FOR MISPLACED SURGICAL SPONGE

University of Texas Southwestern Medical Center v. Rhoades
Dallas Court of Appeals, No. 05-19-00445-CV (June 30, 2020)
Justices Molberg, Partida-Kipness (Opinion linked here), and Bridges (Concurring and Dissenting Opinion linked here)
A divided Dallas Court of Appeals panel held the University of Texas Southwestern Medical Center (UTSW) does not have governmental immunity in a lawsuit arising from a medical team’s failure to remove a sponge during surgery.

As a breast reconstruction operation neared conclusion, the medical staff reported one of the surgical sponges used to absorb blood during the operation was missing. After a visual search of the surgical field did not reveal the location of the sponge, the doctor ordered x-rays with a portable x-ray machine. The missing sponge did not appear on x-rays of the chest and abdomen. The patient’s position did not allow x-rays of the pelvic area, but the doctor was confident the sponge would not have been there, and concluded the sponges must have been miscounted. The surgery was concluded and the patient was sent to intensive care for recovery. The search for the missing sponge added several hours to what normally would have been a six-hour surgery.

While the patient was recovering, an x-ray of her pelvic region revealed the missing sponge, which was then removed in a second surgery. The patient developed post-operative complications that required four additional surgeries. The patient sued UTSW for medical negligence. UTSW filed a plea to the jurisdiction on the grounds that as a governmental hospital, it is immune from the patient’s suit. The trial court denied the plea, finding immunity was waived under the Texas Tort Claims Act. UTSW appealed.

On appeal, the dispositive issue was whether UTSW’s governmental immunity was waived because the alleged injuries were caused by the negligent “use of tangible personal … property” under the TTCA, TEX. CIV. PRAC. & REM. CODE §101.021(2). Two separate items were at issue—the surgical sponge and the x-ray machine. UTSW argued that the claims “arise from the surgeons’ allegedly negligent medical judgment, for which immunity is not waived.” The Court affirmed the trial court’s holding as to both items, after a painstaking review of cases applying the “use of personal property” waiver of immunity, including University of Texas M.D. Anderson Cancer Center v. McKenzie, 578 S.W.3d 506 (Tex. 2019). Justice Partida-Kipness’s majority opinion, rejecting UTSW’s argument, emphasized that the doctor’s “erroneous decision to call off the search and close the remaining incisions followed the allegedly negligent use of the sponge.” Likewise, according to the majority, immunity was waived by the allegation and jurisdictional evidence that “UTSW used the machine negligently by failing to x-ray the entire surgical field.”

Justice Bridges joined the majority’s conclusion that UTSW waived immunity “for negligent use of the sponge during the operation.” He dissented, however, from the holding concerning use of the x-ray machine, arguing that the majority improperly expanded the Texas Supreme Court’s holding in McKenzie “to create jurisdiction where none exists.” Offering a detailed rebuttal to the majority’s review of the case law, Justice Bridges concluded the “negligence claims alleging misuse of the x-ray machine are artfully pleaded complaints about UTSW surgeons’ and radiology staff’s medical judgments, rather than use or misuse of tangible personal property.”

SCOTX—DEFAMATION AND BUSINESS DISPARAGEMENT ARE NOT THE SAME!

Innovative Block of South Texas, Ltd. v. Valley Builders Supply, Inc.
Supreme Court of Texas, No. 18-1211 (June 25, 2020)
Justice Devine (opinion available here)
The Supreme Court reversed a $2.7 million defamation verdict entered in favor of Valley Builders Supply, concluding it was “not a case of defamation but rather of business disparagement—a cause of action not submitted to the jury.” The case involved two building-supply companies that manufactured and sold concrete blocks and pavers in the Rio Grande Valley. Valley went out of business several years after Innovative entered the market. It sued Innovative for disparagement and defamation, claiming that Innovative disparaged the quality of Valley’s concrete blocks and falsely accused Valley of using “bad” aggregates in its manufacturing process. Ultimately, Valley only went to the jury on the defamation claim, and the trial court entered a judgment against Innovative for $1.8 million in actual damages and $937,000 in exemplary damages based on the jury’s verdict. The judgment was affirmed on appeal.

Valley did not fare so well at the Supreme Court. The threshold issue for the Court was whether Valley’s allegations and proof supported an action for defamation, business disparagement, or both. The torts of defamation and business disparagement are alike in that “both involve harm from the publication of false information.” But there are important differences between the two, largely explained by the interests the respective torts seek to protect. Defamation serves to protect one’s interest in character and reputation (“dignity harm”), whereas disparagement protects economic interests by providing a remedy for pecuniary losses from slurs affecting the marketability of goods and services (“commercial harm”). In other words, “defamatory communications about a corporation’s reputation are those directed at the character of the owner rather than the underlying business.” To support its defamation claim, then, Valley had to show actual injury to reputation.

Valley attempted to provide that evidence through the testimony of its expert, Kenneth Lehrer. Lehrer used a “Quasi-Monte Carlo method” to quantify the possible harm done to Valley’s reputation. A Monte Carlo simulation can be used to predict a range of values when a precise value is difficult to calculate. It “essentially requires a computer to run millions of possible, randomized scenarios to produce a range of likely values for the number in question.” It is typically used to answer questions for which a massive amount of data is available—for example, the number, intensity, and location of all forest fires in the United States for a given year. A “Quasi-Monte Carlo method” can be used to address questions smaller in scope, like whether a forest fire will happen within a particular county.

Essentially, Lehrer took Valley’s total estimated lost profits over the years in question and multiplied that figure by eight random percentages, allegedly representing the portion of lost profits caused by Innovative’s statements. But the percentages used in the model “had no basis in any underlying data from the case.” He then arbitrarily assigned a “percentage of probability” to each of the eight percentages. Again, the percentages were not derived from any data or evidence in the case. He then averaged these calculations to come up with his range of damages. The Court rejected this alleged expert opinion, finding that it was “largely unmoored from the facts,” and that it should have been excluded by the trial court.

Valley also argued that Innovative’s comments resulted in the loss of a specific customer’s business, which could support an award of special damages. The customer testified at trial that she had been told Valley received a load of bad aggregate and thereafter moved her business from Valley to Innovative. Another expert then calculated Valley’s alleged lost profits from that customer. But such damages could only be damages for business disparagement, not defamation, because the “receipt of bad aggregate does not imply reprehensible conduct or lack of integrity on Valley’s part.”

Without proof of harm to Valley’s reputation, as opposed to its business, Valley’s defamation claim failed.

“MAY” MEANS “MAY”: INTERLOCUTORY APPEAL FROM DENIAL OF MOTION TO COMPEL ARBITRATION IS PERMISSIVE, NOT MANDATORY

Bonsmara Natural Beef Company, LLC v. Hart of Texas Cattle Feeders, LLC
Supreme Court of Texas, No. 19-0263 (June 26, 2020)
Justice Busby (Opinion, linked here), Justice Green Dissenting (linked here)
Most Texas statutes that authorize interlocutory appeals of interim trial-court orders provide only that an aggrieved litigant “may” pursue such an appeal—employing permissive rather than mandatory language. The statutes allowing for interlocutory appeals from orders denying motions to compel arbitration follow that pattern: they specify that a party “may” pursue an interim appeal of such an order, not that the party “must” do so. Tex. Civ. Prac. & Rem. Code §§ 51.016 & 171.098(a)(1). Expanding on its holding in Hernandez v. Ebrom, 289 S.W.3d 316 (Tex. 2009), the Supreme Court of Texas confirmed in Bonsmara that, with limited exceptions, such statutes mean what they say. Employing a textualist approach, the Court held that, while an aggrieved litigant may pursue an interlocutory appeal of an order denying arbitration, it can defer its appeal of that decision until after final judgment following a trial on the merits.

Bonsmara contracted with Hart to feed and care for cattle. When a dispute arose about whether Hart was doing its job, Bonsmara sued. The Hart defendants moved to compel arbitration, as provided for in the parties’ contract. The trial court denied that motion and refused to send the matter to arbitration. Although the Hart defendants could have taken an interlocutory appeal of that order, they failed to do so within the prescribed timeframe. They sought mandamus relief after the deadline had expired for an interlocutory appeal, but—no surprise—the court of appeals rejected that petition without addressing the merits because there had been an adequate remedy by appeal. So, the case proceeded to a jury trial in the district court, which led to a judgment against the Hart defendants for several hundred thousand dollars. Undaunted, the Hart defendants appealed and included a challenge to the trial court’s denial of its motion to compel arbitration. Bonsmara argued the appellate courts lacked jurisdiction because the Hart defendants had blown their interlocutory appeal. But the court of appeals disagreed, and so did a majority of the Supreme Court.

The Supreme Court majority observed that the statute at issue “uses the permissive word ‘may,’ and nothing in the text of that section or related statutes indicates that a party’s choice not to pursue an appeal from an interlocutory order has any consequences for the longstanding jurisdictional principle that it may challenge the order on appeal from a final judgment.” Therefore, the majority said, a party has “discretion to pursue an interlocutory appeal of an arbitration order,” and “the party’s choice not to file an interlocutory appeal [does not] deprive[] an appellate court of ‘jurisdiction to review [that] order ... as part of the appeal of a final judgment in the case.’” Nor did the Hart defendants’ ill-fated mandamus, in which the court of appeals did not reach the merits of their complaint.

The dissenters argued that the majority’s rigid textual approach ignored the policies underlying the statutes, undermined the very purposes of arbitration, and led to an absurd result. But the majority responded that there were countervailing policy reasons supporting the result it reached and, more important, such concerns were for the Legislature, not the courts. Perhaps recognizing the reasoning and holding here would have broader applicability than its prior decision in Ebrom, the Court acknowledged that there could be non-statutory reasons why not pursuing an interlocutory appeal might lead to the forfeiture of post-judgment appeal in some cases. For example, the issue might be mooted by subsequent proceedings or events, as with respect to a temporary injunction. Or a party might be estopped, as with respect to an order appointing a receiver, where third parties dealt in good faith with the receiver in the interim. But such concerns were not at play here, the majority held.

Moving to the merits, the Court affirmed the appeals court’s ruling that the trial court had erred in denying the motion to compel arbitration. But both appellate courts had to deal with an issue not originally presented to the trial court: by proceeding to trial, had the Hart defendants waived their right to compel arbitration by “substantially invoking the litigation process to Bonsmara’s detriment”? No, said the Supreme Court. But its reasoning on this score was not altogether clear. The Court suggested Bonsmara may have waived the issue, saying that it had “never asserted this type of waiver in any court, including ours,” that such an argument would not affect jurisdiction in any event, and that the “doctrine therefore has no place in our analysis.” But then, during its merits discussion, the Court explained that by merely complying with the trial court’s order denying arbitration and participating in trial, the Hart defendants could not be said to have waived their right to appeal that decision—no more than would any party that complied with any other interim order pending final judgment.

BUYING A TRAIN TICKET ISN’T “PAYING FOR USE” OF THE TRAIN STATION

City of Dallas v. Kennedy
Dallas Court of Appeals, No. 05-19-01299-CV (June 18, 2020)
Justices Whitehill (Opinion available here), Osborne, and Carlyle
Ms. Kennedy tripped and fell in Union Station train station and sued the City of Dallas for premises liability. The Texas Tort Claims Act waives a city’s governmental immunity for personal injuries caused by a real property condition if the city would, were it a private person, be liable to the claimant under Texas law. Whether the City could be held liable depends on whether Kennedy is treated as a licensee or an invitee. The City’s duty is that owed by a private person to a licensee “unless the claimant pays for the use of the premises,” in which case the City’s duty is elevated to that owed to an invitee. This is critical because a premises owner only owes a licensee the duty not to injure her (i) by willful, wanton, or grossly negligent conduct or (ii) by failing to use ordinary care to warn of or make safe a dangerous condition of which the owner is aware and the licensee is not. By contrast, an invitee must prove only that the owner knew or should have known about the dangerous condition.

Kennedy alleged she paid for use of the Dallas train station because she purchased a train ticket to travel from Kilgore to Dallas. The Dallas Court of Appeals disagreed. Kennedy paid a fee to Amtrak to ride the train, but did not pay a separate fee to the City of Dallas for use of Union Station, and a fee must be paid “specifically for entry onto and use of the premises” in order to trigger invitee status. Because Kennedy did not pay a fee to use the train station, she was a mere licensee and had to produce evidence the City was actually aware of the allegedly dangerous condition, which she failed to do. Kennedy testified that a man wearing “a gray top and blue pants” told her that “they should’ve have had that fixed a long time ago.” But this testimony did not raise a fact issue regarding the City’s knowledge of the allegedly dangerous condition because there was no evidence the man worked for the City or ever reported the condition to the City. The Court therefore rendered judgment granting the City’s plea to the jurisdiction and dismissing Kennedy’s claim.

TEXAS LOTTERY OPERATOR NOT IMMUNE FROM FRAUD CLAIMS

Nettles v. GTECH Corp. (consolidated with GTECH Corp. v. Steele)
Supreme Court of Texas (June 12, 2020)
Opinion by Justice Busby (linked here)
Concurrence and dissent by Chief Justice Hecht (linked here)
Concurrence and dissent by Justice Boyd (linked here)
In two cases from different appeals courts that were consolidated for argument, a splintered Supreme Court of Texas sent fraud claims against GTECH Corp., which operates the Texas Lottery under a contract with the Lottery Commission, back to trial courts in Dallas and Austin, holding GTECH was not protected from suit by “derivative sovereign immunity.”

The cases involved fraud claims by lottery participants based on misleading instructions on the tickets describing the criteria for winning the “Fun 5” scratch-off game. See Nettles v. GTECH Corp., 581 S.W.2d 234 (Tex. App.—Dallas 2017) (affirming trial court’s granting GTECH’s plea to the jurisdiction); GTECH Corp. v. Steele, 549 S.W.3d 768 (Tex. App.—Austin 2018) (affirming denial of jurisdictional plea on fraud claims, but reversing on conspiracy claims). The misleading language was apparently the result of changes requested, and ultimately approved, by the Commission. The two courts, applying the Supreme Court’s reasoning in Brown & Gay Engineering, Inc. v. Olivares, 461 S.W.3d 117, 127 (Tex. 2015), agreed that GTECH would have derivative immunity “to the extent … Plaintiffs are substantively attacking actions and underlying decisions or directives of [the Commission] and not GTECH’s discretionary actions.” The Dallas Court in Nettles held the fraud claims against GTECH failed that test, but the Austin Court in Steele disagreed.

The Texas Supreme Court was sharply divided in addressing the doctrine of derivative sovereign immunity. The “opinion of the Court,” authored by Justice Busby and joined by only three other justices, noted the Court had not—in Brown & Gay or any other case—adopted the doctrine of derivative immunity, but held GTECH wouldn’t be immune to fraud claims even if the court were to adopt the “control standard” discussed in Brown & Gay. The opinion held, however, that GTECH was immune from claims of conspiracy and aiding and abetting fraud by the Lottery Commission, because such claims “are wholly derivative of an alleged underlying fraud by the Commission alone,” which is not a viable underlying tort on which conspiracy could be predicated.

Three justices, in an opinion authored by Chief Justice Hecht, dissented from the rejection of GTECH’s immunity from fraud claims in these cases, but joined in extending immunity to the conspiracy claims. Justice Boyd, on the other hand, believed the court should reject the doctrine of derivative immunity altogether, and “reach the simple, logical conclusion that sovereign immunity only protects the sovereign.” He thus joined Justice Busby’s opinion in denying GTECH immunity on the fraud claims, but dissented from finding GTECH immune from the conspiracy claims. Justice Guzman did not participate in the decision.

Importantly, all the participating justices agree GTECH can assert a government-contractor defense to avoid liability for actions taken at the Lottery Commission’s direction, alleging “any fraud was solely the result of the Commission’s representations.” It is not, however, immune from suit on those claims.

DOCTORS’ DISPUTE IS NOT A “HEALTH CARE LIABILITY CLAIM”

Baylor Scott & White Health v. Roughneen
Dallas Court of Appeals, No. 05-18-00966-CV (June 9, 2020)
Justices Whitehill, Schenck, and Pedersen, III (Opinion, available here)
Doctors Conferring
Not all claims involving doctors and hospitals are health care liability claims subject to the procedural protections of TEX. CIV. PRAC. & REM. CODE Chapter 74. Roughneen involves a long-running dispute among various doctors and other health care providers. In 1999, Dr. Roughneen joined a group of physicians practicing cardiology, cardiothoracic surgery, and vascular surgery (CSANT). Dr. Roughneen left CSANT in 2005, and the following year he filed suit against the practice. The litigation ended in a settlement, with the CSANT physicians agreeing that “they would voluntarily recuse themselves from any voting, deliberation and/or decision-making relating to any peer review matters involving [Dr.] Roughneen.” Years later, when the doctors worked together at Heart Hospital and Baylor Grapevine, the CSANT doctors participated in purportedly “sham peer review proceedings” against Roughneen in alleged violation of their settlement agreement. Other disputes followed, resulting in claims and counterclaims for breach of contract, tortious interference, improper restraint of trade, and other causes of action. The CSANT parties filed a motion to dismiss under Chapter 74, arguing that Roughneen’s claims were health care liability claims and that he had failed to timely serve an expert report as required by the statute.

The trial court and the Dallas Court of Appeals both held that the claims were not health care liability claims under the statute and so the expert report requirement did not apply. The CSANT parties argued that all of Roughneen’s claims arose out of the peer review process and that “credentialing activities are an inseparable part of the medical services” a patient receives. The Court disagreed, noting that “at their heart, appellees’ complaints do not relate to how any patient was treated, but to how Dr. Roughneen was treated in the business of practicing medicine.” The Court distinguished a prior opinion holding that a claim that a faulty peer review process caused harm to a patient is a covered health care liability claim. In contrast, Dr. Roughneen’s causes of action did not involve any specific patient-physician relationship and were not rooted in the care and treatment of any patient. When claims against a health care provider “do not directly relate to any patient’s medical care, treatment, or confinement,” those claims are not health care liability claims. The motion to dismiss was, therefore, appropriately denied. 

COLLUSION POKES HOLE IN EIGHT-CORNERS RULE

Loya Insurance Co. v. Avalos
Supreme Court of Texas (May 1, 2020)
Opinion by Justice Busby (linked here)
The Texas Supreme Court has for the first time explicitly adopted an exception to the venerable “eight-corners rule” for determining an insurer’s duty to defend.

The rule, which the Court recently reinforced in Richards v. State Farm Lloyds, mandates that a liability insurer’s duty to defend a lawsuit against its insured is determined solely by reference to the facts alleged in the underlying complaint and the terms of the insurance policy, without reliance on extrinsic evidence. (See my post on Richards here.) In Loya, the Court held the rule is nullified by deliberate collusion between an insured and a third-party plaintiff. That is, “an insurer owes no duty to defend when there is conclusive evidence that groundless, false, or fraudulent claims against the insured have been manipulated by the insured’s own hands in order to secure a defense and coverage where they would not otherwise exist.”

The facts in Loya were stark. Kara Flores Guevara was the sole insured under an auto liability policy issued by Loya Insurance. Her husband, Rodolfo Flores, who was explicitly excluded from coverage, was driving Guevara’s car when it collided with a car owned by Osbaldo Hurtado Avalos and Antonio Hurtado (the “Hurtados”). But Guevara, Flores, and the Hurtados agreed to tell the responding officer and the insurer that Guevara was driving her car at the time of the accident. The Hurtados then sued Guevara, and Loya hired an attorney to defend her. When Guevara told the attorney her husband had been driving the car, the insurer immediately withdrew its defense and denied coverage. The Hurtados obtained judgment against Guevara, who assigned them any rights she had against the insurer.

The Hurtados sued Loya for breach of the insurance policy and the usual tort and statutory claims. Loya counterclaimed and deposed Guevara, who admitted the truth about her husband’s role in the accident. The trial court concluded the Hurtados were asking the court “to ignore every rule of justice and help [them] perpetuate a fraud,” and granted summary judgment for Loya.

The Hurtados appealed, and the San Antonio Court of Appeals reversed, holding that the eight-corners rule barred reliance on extrinsic evidence of collusion. One justice concurred in the judgment, urging the Supreme Court to create a narrow exception to the rule that would encompass “undisputed fraud and collusion.”

The Supreme Court reviewed the history of the eight-corners rule and its reluctance to create exceptions, but noted it had previously indicated “that collusive fraud by the insured might provide the basis for an exception.” The Court concluded the facts of this case presented “such a circumstance,” emphasizing that the evidence conclusively established Guevara was not driving her car at the time of the accident, and the “parties to the underlying case conspired to lie about who was driving to trigger insurance coverage.”

The Court also rejected the argument that the insurer was required to obtain a judicial declaration it had no duty to defend before withdrawing its defense. While the Court encourages declaratory judgment actions to resolve such issues, it does not mandate them. This does not, however, give insurers carte blanche to abandon their insureds “where there is a real controversy regarding the duty to defend.” The Court emphasized the substantial risks of common law or statutory bad-faith liability facing an insurer who refuses to defend without seeking judicial confirmation of its position. It reversed the Court of Appeals and reinstated the trial court’s judgment.

SCOTX VACATES SANCTIONS AGAINST BREWER, FINDING NO BAD FAITH

Brewer v. Lennox Hearth Products, LLC
Supreme Court of Texas, No. 18-0426 (April 24, 2020)
Justice Guzman (opinion available here)
Justice Boyd, concurring and dissenting (available here)
The Supreme Court of Texas reversed an attorney sanctions award of over $133,000, holding there was no evidence of bad faith by the sanctioned attorney. The movants alleged that attorney Bill Brewer, as counsel for the plaintiffs in a serious personal injury matter, conducted a “push poll” shortly before trial with the intention of influencing the potential jury pool. After seven days of evidentiary hearings, the trial court did not find that Brewer violated any disciplinary rules or other applicable authority, but instead concluded that Brewer’s conduct “taken in its entirety,” including actions of his agents and subordinates, was “an abusive litigation practice that harms the integrity of the justice system and the jury trial process” and was “intentional[,] in bad faith[,] and abusive of the legal system and the judicial process specifically.” The trial court also found Brewer’s attitude in response to the sanctions motion “concerning” due to his (1) “nonchalant and uncaring” demeanor and (2) allegedly “repeatedly evasive” responses to questioning.

The Amarillo Court of Appeals affirmed, holding that the trial court had the authority to impose the sanctions and that the record supported the trial court’s “perce[ption] [that] Brewer’s ‘intentional and bad faith’ conduct in connection with the telephone survey” imperiled the court’s core judicial functions of “empanel[ing] an impartial jury and try[ing] a case with unintimidated witnesses.”

But the Supreme Court disagreed. First, it concluded that a court’s inherent power to sanction attorney conduct requires a finding of bad faith. It defined “bad faith” as “not just intentional conduct but intent to engage in conduct for an impermissible reason, willful noncompliance, or willful ignorance of the facts.” “Errors in judgment, lack of diligence, unreasonableness, negligence, or even gross negligence—without more—do not equate to bad faith.” Next, although the Court agreed that certain aspects of the survey were “reasonably disconcerting to the trial court,” it found “no evidence of bad faith in the attorney’s choice to conduct a pretrial survey or in the manner and means of its execution.” The Court focused on the common use of surveys in pre-trial preparation; the lack of guidelines or rules in the particular jurisdiction concerning the proper use of surveys; the use of third-party professionals in the drafting and execution of the survey; and Brewer’s limited involvement in drafting the survey questions and selecting the potential survey participants.

Finally, the Court considered whether Brewer’s demeanor and attitude during the sanctions hearing could provide an alternate basis for the sanctions. It concluded it did not, finding no evidence in the record that Brewer’s behavior interfered with the administration of justice, detracted from the trial court’s dignity and integrity, or even prolonged the hearing to any measurable degree. The Court therefore vacated the sanctions order.

In his concurring and dissenting opinion, Justice Boyd questioned how the Court could find “no evidence” of bad faith given that the “trial court entered specific fact findings after conducting a hearing over the course of seven days, and three distinguished appellate jurists—after making ‘an independent inquiry of the entire record,’ including ‘the evidence, arguments of counsel, written discovery on file, and the circumstances surrounding the party’s sanctionable conduct’—unanimously agree that some evidence supports the trial court’s findings.” But, he found it “far more important and concerning” that the Court’s requirement of “bad faith” in order for a trial court to exercise its inherent authority to sanction “unnecessarily handcuffs our state’s trial courts and undermines the very reason they possess inherent authority in the first place.”

UNDERESTIMATING WORK DOESN’T MAKE CONTRACT AMBIGUOUS

Bright Excavation, Inc. v. Pogue Construction Co., L.P.
Dallas Court of Appeals, No. 05-18-00820-CV (April 21, 2020)
Justices Myers, Osborne, and Nowell (Opinion linked here)
The Dallas Court of Appeals affirmed summary judgment for a general contractor, holding its subcontractor was bound by the contract price, even if the subcontractor underestimated the amount of work required to complete the project.
Lancaster ISD hired Pogue Construction to build two elementary schools. Pogue subcontracted the excavation work on one of the sites to Bright Excavation for $945,000. The subcontract required Bright to “excavate to the top of the tan limestone as verified by the geotechnical representative.” The bid package had instructed bidders to “assume six feet of remove and replace would be necessary.” After reviewing the initial geotechnical report of subsurface conditions, Bright estimated only between two and four feet of excavation would be required, and priced its bid accordingly. Unfortunately, this estimate proved to be inadequate, and Bright claimed it incurred over $325,000 in expenses beyond what it had projected. Pogue rejected Bright’s request for a change order increasing the contract amount, and Bright sought unsuccessfully to recover over $760,000 from Pogue’s payment bond surety, Hartford Insurance.

Bright sued Pogue and Hartford for breach of contract, payment on the bond, and assorted torts. Pogue counterclaimed to recover its attorney’s fees under the terms of the subcontract. The trial court entered summary judgment for Pogue and awarded its fees.

On appeal, Bright argued summary judgment was improper because the subcontract was ambiguous regarding the depth to which Bright was required to excavate within the $945,000 subcontract price. The Court of Appeals summarized Texas law governing the determination of contractual ambiguity, and reviewed the terms of the subcontract and related documents on which Bright relied. The Court concluded the subcontract was not ambiguous: “Bright, not Pogue or the school district, assumed the risk of the conclusions and interpretations Bright made based on the subsurface information contained in the geotechnical report.” Absent a breach of contract, Bright’s claim on the payment bond and tort claims against Pogue also failed.

CONCLUSORY OPINIONS ARE NOT COMPETENT EVIDENCE

NexBank, SSB v. Winstead, PC
Dallas Court of Appeals, No. 05-18-01345-CV (April 21, 2020)
Justices Bridges, Partida-Kipness, and Nowell (Opinion, available here)
In this legal malpractice case, the Dallas Court of Appeals confirmed that an expert’s conclusory causation opinion cannot create a fact issue to defeat summary judgment. NexBank filed suit against its former lawyers, alleging the lawyers were negligent in connection with a loan and subsequent non-judicial foreclosure. The foreclosure resulted in a deficiency, and NexBank claimed the lawyers’ negligence prevented it from fully recovering the deficiency from the loan guarantor and forced NexBank to settle with the guarantor for less than it should have.

The lawyers filed a no-evidence summary judgment motion arguing, among other things, that NexBank had no evidence of causation. In response, NexBank offered the affidavit of an expert witness who opined that the lawyers should have taken several identified steps to ensure a valid foreclosure and that, because of the lawyers’ alleged negligence, NexBank would have lost the litigation against the guarantor had that case gone to trial. The Court of Appeals agreed with the trial court’s determination that this testimony was conclusory and constituted no evidence of causation. It held the expert did not “explain how an invalid foreclosure would have caused NexBank to lose the Guarantor Litigation had that case gone to trial.” “Instead, without linking any facts to his conclusion, he summarily announces it is more likely than not that NexBank would not have prevailed.” An expert’s “conjecture, guess, or speculation will not suffice” as proof of what would have occurred had the litigation against the guarantor proceeded to trial. Summary judgment for the lawyers, therefore, was appropriate.

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