PRIOR MATERIAL BREACH—IT’S AN ELECTION; CHOOSE WISELY

Richardson Communications & Consulting, Inc. v. McNeese
Dallas Court of Appeals, No. 05-17-00969-CV (December 12, 2018)
Justices Francis, Stoddart, and Schenck (Opinion, linked here)
When McNeese sued RCC for breach of a settlement agreement, RCC defended by arguing that McNeese’s prior material breaches of the agreement excused RCC’s continued performance under that contract. But the trial court granted summary judgment to McNeese, and the Dallas Court of Appeals affirmed, rejecting RCC’s prior-material-breach defense. The appeals court acknowledged that, generally, when one party to a contract commits a material breach, the other party is excused from further performance. But, the Court cautioned, “[t]he non-breaching party must elect between two courses of action, either continuing performance or ceasing performance…. If the non-breaching party elects to treat the contract as continuing and insists the party in default continue performance, the previous breach constitutes no excuse for nonperformance on the part of the party not in default and the contract continues in force for the benefit of both parties.” Here, after one set of alleged breaches by McNeese, RCC both continued making payments under the contract and filed a motion for contempt against McNeese, arguing he had violated an agreed injunction entered as part of the settlement agreement. This was fatal to RCC’s prior-material-breach defense to McNeese’s claim against RCC for breach of the agreement. “By seeking a contempt order after discovering these alleged violations of the injunction, which was put in place pursuant to the Agreement, RCC treated McNeese’s obligations under the Agreement as continuing, and therefore, it could not cease its own performance thereunder,” the Court explained. Judgment for McNeese on his claim that RCC had violated the Agreement, therefore, was affirmed. Moral of the story: If someone breaches a contract to which you or your client is a party, think carefully about your “election” under the prior-material-breach rule and your own obligation to continue performance under that contract, depending on which course you elect.

“DEATH PENALTY” SANCTIONS UPHELD

Ayati-Ghaffari v. Farmers Insurance Exchange
Dallas Court of Appeals, No. 05-17-00864-CV (December 11, 2018)
Justices Myers, Evans, and Brown (Opinion linked here)
Trial courts in civil cases are reluctant to impose “death penalty” sanctions (like striking a party’s pleadings) based on abuse of the discovery process, at least in part because such orders are often reversed on appeal. In this case, however, the Dallas Court of Appeals affirmed the ultimate sanction against a plaintiff whose “flagrant disregard” of the trial court’s discovery orders “demonstrated bad faith in the litigation process as a whole.” The case offers a roadmap to the type of record and extent of documentation required to justify death-penalty sanctions.

Citing alleged misrepresentations of material facts the policyholder (Ayati), Farmers Insurance denied a claim under a homeowner’s policy for $600,000 worth of property (including “bricks or bundles of Zimbabwean currency, a 103” TV, an antique King-size bed, and several Persian rugs”) reported stolen from a second-story condominium. Ayati sued Farmers, and the discovery battles began. Farmers repeatedly complained to the court of Ayati’s incomplete answers to written discovery, as well as evasive or untruthful deposition testimony.

The trial court held five discovery hearings in 14 months, and repeatedly ordered Ayati to produce requested documents and information related to his financial condition; claims, litigation, and criminal history; acquisition of the allegedly stolen currency and other property; eBay transactions; and other matters. (During this period, Ayati was represented by a series of at least three attorneys; the first two withdrew because of “irreconcilable differences” or lack of communication.) Finally, after finding Ayati had not complied with its previous orders and had provided testimony that “strains credibility,” the trial court struck Ayati’s pleadings, dismissed his claims with prejudice, and ordered him to pay court costs.

The Dallas Court of Appeals reviewed the record, including the trial court’s 13-page order detailing the chronology and explaining its conclusion that less stringent sanctions would be insufficient. Applying the standards articulated in its own opinions and by the Supreme Court of Texas, the Court held the trial court had not abused its discretion. In short, the Court determined the sanction “had a direct relationship to Ayati’s conduct and was not excessive.”

NO SUMMARY JUDGMENT ON AMBIGUOUS CONTRACT

Ticer v. Reed Migraine Centers of Texas, PLLC
Dallas Court of Appeals, No. 05-17-00721-CV (December 4, 2018)
Justices Lang, Fillmore, and Schenck (Opinion linked here)
Although the facts are a little complicated, this case reiterates a basic principle—ambiguous contract terms create fact issues that ordinarily cannot be resolved by summary judgment.

Mark Ticer represented Reed Migraine Centers and related entities (the “Reed parties”) in two lawsuits (state and federal) alleging breach of contract and unfair competition by Universal General Hospital and three doctors (the “UGH parties”). That suit resulted in a mediated settlement requiring the UGH parties to make a series of payments to the Reed parties. Shortly after the mediation, Ticer’s representation ended and a fee dispute arose; he withdrew as counsel and intervened in the state court lawsuit to recover his fees. The Reed parties counterclaimed for malpractice, and Ticer filed a third-party petition against his two former co-counsel for contribution. The Reed parties and the attorneys then entered into a separate settlement agreement (the “Ticer agreement”) under which Ticer would receive a portion of the UGH parties’ payments to the Reed parties and the settling parties would exchange mutual releases and dismiss all claims against each other.

Two months later, before making any payments under the previous settlement with the Reed parties, UGH filed bankruptcy, triggering an automatic stay of the state court action. The following year, the Reed parties again settled with the UGH parties, and the federal court ordered the entire settlement amount be deposited in the court’s registry and not distributed pending disposition of the state court action. After the state court lifted the stay and severed the claims against the UGH parties, the Reed parties sought summary judgment declaring Ticer’s claims had been released by the Ticer agreement. The court granted that motion. Ticer appealed.

The Dallas Court of Appeals reversed and remanded. The primary issue on appeal was whether the mutual releases were effective immediately upon execution of the agreement, or only after the contemplated payments were made. The court reviewed several provisions of the Ticer agreement and found some terms suggested immediate effect (e.g., “hereby releases”) while others suggested the releases were contingent on the contemplated payment (e.g., dismissal “within 3 days following the receipt of payments”). Finding it was “unable to harmonize the … provisions to give effect to all provisions,” the Court concluded the agreement was “reasonably susceptible to more than one meaning” and thus ambiguous. The ambiguity created a fact issue that made summary judgment improper, requiring remand to the trial court for resolution.

THE TCPA’S FINAL FRONTIER? COURT OF APPEALS DECLINES TO ADDRESS WHETHER TCPA APPLIES TO FAMILY LAW CASE

Smith v. Malone
Dallas Court of Appeals, No. 05-18-00216-CV (November 27, 2018)
Justices Myers, Evans (Opinion, linked here), and Brown
Recently, Texas courts have applied the Texas Citizens Participation Act (TCPA) to cases far afield from the defamation claims typically targeted by anti-SLAPP statutes. For instance, the TCPA has been wielded in commercial disputes to secure expedited dismissal of fraud and misappropriation-of-trade-secrets claims. In Smith v. Malone, the Dallas Court of Appeals was asked to apply the TCPA in an even more unexpected context: a family law dispute.

Malone and Smith had a son together. Several years later, Malone filed a suit requesting that both parents be named joint managing conservators of the child, with Malone having the right to designate the child’s primary residence. Smith moved to dismiss under the TCPA, alleging that Malone filed the suit in response to her request that the Texas Attorney General assist her in obtaining child support from Malone (an alleged exercise of her “right to petition,” protected by the TCPA). Smith provided text messages purporting to show that when she told Malone she was seeking child support, Malone responded that he would seek custody of their son. The trial court denied Smith’s motion, and Smith brought an interlocutory appeal, as the TCPA permits.

Although the Court of Appeals acknowledged that the TCPA does not contain an express exception preventing its application to custody proceedings or family matters (as it does for other types of claims), the Court declined to address whether the TCPA applied to Malone’s suit. Instead, the Court concluded that even if the TCPA applied, dismissal would be inappropriate because Malone established a prima facie case on the challenged claim, as the TCPA requires for a plaintiff to avoid dismissal. As the undisputed father of the child, Malone was entitled to an order determining conservatorship without proving any more. Evidence about what would be in the child’s best interest—the standard used to determine the substance of the conservatorship order—was not necessary to establish Malone’s prima facie case. The Court therefore affirmed the denial of Smith’s TCPA motion to dismiss.

PRESIDENT’S DIRECTION DID NOT SURVIVE MOTION TO SHOW AUTHORITY

Candle Meadows Homeowners Ass’n v. Jackson
Dallas Court of Appeals, No. 05-17-01227-CV (November 27, 2018)
Justices Lang-Miers, Fillmore (Opinion linked here), and Myers
You are hired by an organization to investigate claims against certain parties, and the organization’s president later directs you to file a lawsuit on those claims. Do you have authority to file suit? Maybe not, a recent case reveals.

The Board of Directors of Candle Meadows Homeowners Association voted to retain a lawyer to investigate certain expenditures by former board members. The HOA’s president later told the lawyer the board had voted to file suit against the former directors, and directed him to proceed. After the lawsuit had been pending about a year, the defendants filed a Motion to Show Authority under Rule 12 of the Texas Rules of Civil Procedure. At a hearing on the motion, the president testified the board had voted to authorize the lawyer to file the lawsuit, but he could not recall the date of the meeting and had no minutes documenting such an action. The other directors confirmed they had discussed the claims, but there was no formal vote on the matter. They were, however, aware of the suit after it was filed and did not seek to have it dismissed. Finding the board had not authorized the litigation, the trial court granted the motion and struck the HOA’s pleadings.

The Dallas Court of Appeals affirmed. Although the lawyer apparently received authorization from the HOA’s president, there was no evidence the board had delegated that authority to the president. The Court deferred to the trial court’s assessment of the conflicting testimony of the president and the directors. Additionally, the absence of any notice to HOA members, agenda, or minutes of a meeting reflecting official action complying with the Open Meetings Act was dispositive. The Court rejected the argument that the board had “ratified” the president’s decision “by acquiescence” (i.e., failing to take action after learning of the suit) because there was no evidence the board had been given “all material facts.”

For lawyers, the lesson is: Be sure you have the necessary authority before filing a lawsuit on behalf of an entity, especially one that may be subject to the Open Meetings Act. And for directors and officers of such an organization, the lesson is: Follow the procedures required by statute and the organization’s bylaws.

IT JUST AIN’T RIGHT: NO-ANSWER DEFAULT JUDGMENT AGAINST DEFUNCT CORPORATION DOESN’T BIND ITS OFFICERS AND DIRECTORS

Christian v. Venefits, LLC
Dallas Court of Appeals, No. 05-17-01218-CV (November 27, 2018)
Justices Bridges, Francis (Opinion, linked here), and Lang-Miers
It’s one of those things that just doesn’t seem right, but still, you’re not 100% sure about it. You represent a party who’s alleged to be vicariously liable for, or jointly and severally liable with, a co-defendant who fails to answer and suffers a default. Is the wrongful conduct that would lead to your client’s vicarious or joint liability now established by that default judgment? Nope, says the Dallas Court of Appeals —at least if your client had no right to answer for the defaulting co-defendant or defend in its behalf.

Venefits sued VIPCO and its officers and directors for, among other things, breach of contract. Before the alleged breach, VIPCO had failed to file a franchise tax report and therefore had forfeited its right to do business in Texas, as well as to sue or defend in a court of this State. Under §§ 171.252 and 171.255 of the Texas Tax Code, directors and officers are personally liable for a corporation’s debts incurred after its corporate privileges are forfeited and before those rights are revived. VIPCO failed to appear and answer, and Venefits secured a no-answer default against it. Then, relying on that default judgment against VIPCO and §§ 171.252 and 171.255 of the Tax Code, Venefits obtained summary judgment for that corporate “debt”against Christian—the former president of VIPCO and the only defendant who had filed an answer in the case. Christian appealed, arguing a no-answer default against one party does not bind another party or deny that party an opportunity to assert defenses. And the Dallas Court of Appeals agreed, citing its own prior opinions in Mayfield v. Hicks and Winnard v. J. Grogan, as well as the Corpus Christi court’s decision in Brazos Valley v. Robinson. In Mayfield, the Dallas Court had held that answering guarantors were wrongly saddled with the no-answer default of their principal in a lease dispute. And in Winnard and Brazos Valley, rejected arguments that answering employers were vicariously liable based on defaults entered against their non-answering employees. In each case, as in this one, the bases for holding the answering party vicariously liable—if the primary defendant were found to have committed the alleged wrong—were not in dispute. Nevertheless, the Court said, it is a “fundamentally unfair use of a default judgment” to bind an answering party, based solely on a non-answering party’s default, where the answering party is given no opportunity to defend the charges of wrongful conduct on the merits. The Dallas Court of Appeals therefore reversed the summary judgment against Christian and remanded for further proceedings.

MANDAMUS GRANTED TO SORT OUT POST-JUDGMENT “PROCEDURAL QUAGMIRE” IN CONDEMNATION PROCEEDING

In re State of Texas
Dallas Court of Appeals, No. 05-18-00685-CV (November 14, 2018)
Justices Lang, Myers (Opinion, linked here), and Whitehill
The State of Texas condemned part of EnergyTransfer Fuel’s pipeline easement, as well as other property, for a TxDOT road-widening project. The State and ETF reached a joint-use agreement that included an agreed dismissal of the condemnation claims against ETF. The remainder of the condemnation case proceeded to a jury trial that ended on May 5, 2017. On that same day, ETF filed a claim for statutory attorney’s fees incurred prior to its dismissal, under Texas Property Code §§ 21.019 & 21.0195. On May 12, the trial court issued its judgment on the jury verdict. That judgment did not specifically address ETF’s request for fees, but it ordered ETF dismissed and contained “magic” finality language: “This Judgment is a final judgment as to all claims of all parties to this action and is appealable. All other relief not expressly granted in this Judgment is denied.” And then the fun began. The “procedural quagmire” went like this:

  • May 5 — Jury verdict and ETF notice of request for fees
  • May 12 — “Final” judgment
  • May 17 —ETF files fee evidence
  • July 5 —ETF files motion to vacate and modify the May 12 judgment
  • July 6 — Trial court issues order denying ETF’s fee request
  • August 4 — Trial court holds hearing on ETF’s motion to vacate and modify
  • August 9 — Trial court issues order granting motion to vacate May 12 judgment and awards fees to ETF
  • August 23–February 1 —Trial court issues six more orders correcting or adjusting the fee award, vacating prior orders, etc.

The State filed a mandamus petition, arguing all orders after the May 12 judgment were void because they were issued after the trial court’s plenary power expired. ETF countered that (1) the May 12 judgment was not final until the trial court ruled explicitly on its fee request, and so the trial court had plenary power to issue its subsequent orders; and (2) the State’s request for mandamus relief was barred by laches. 

The Dallas Court of Appeals took something of a middle road, but in the end granted the State the relief it sought. First, it summarily rejected ETF’s laches argument, observing that the State had tried at every turn to preserve its rights in the trial court. Next, the Court explained that a claim for statutory fees in a condemnation case does not accrue until after the condemnation proceeding is dismissed, and that a post-judgment claim for fees extends the trial court’s plenary power. Here, however, the May 12 judgment contained “finality language” that purported to dispose of all claims—presumptively including ETF’s May 5 fee claim, especially since it followed a jury verdict. So, the Court concluded that ETF’s May 5 request for statutory fees should be treated as a timely, albeit premature, motion to modify the May 12 judgment, which did extend the trial court’s plenary jurisdiction. ETF’s July 5 motion to modify, however, had no such effect, because it was directed to the May 12 judgment, from which plenary power had already been extended, and because it was filed outside the time limit of Rule 329b(a) & (b). When the trial court issued its July 6 order denying ETF’s fee request—effectively denying the premature, de facto motion to modify the May 12 judgment—that started the 30-day clock again. No motions were filed between then and August 7, so plenary power expired. All orders and modified judgments signed after August 7 therefore were void. The Court of Appeals therefore ordered them vacated and the May 12 judgment reinstated as final. No statutory fees for ETF. Moral: Carefully track the timing of final judgments and post-judgment motions to extend plenary power, even in a quagmire.

ARBITRATORS HAVE TO FOLLOW THE CERTIFICATE-OF-MERIT RULES, BUT THERE IS NO INTERLOCUTORY REVIEW IF THEY DON'T

SM Architects, PLLC v. AMX Veteran Specialty Services, LLC
Dallas Court of Appeals, No. 05-17-01064 (November 8, 2018)
Justices Bridges, Francis (opinion linked here), and Lang-Myers

In a court action or arbitration based on the provision of professional architectural services, a plaintiff must file a certificate-of-merit affidavit by a third-party licensed architect in support of its claims. TEX. CIV. PRAC. & REM. CODE § 150.002. If a trial court denies a motion to dismiss the case for failure to comply with this requirement, that ruling is immediately appealable under § 150.002(f). But what is the remedy if an arbitrator refuses to dismiss?

 In this case of first impression, the Dallas Court of Appeals concluded there is no remedy—at least not before the arbitration is over. The courts’ jurisdiction over arbitration proceedings is limited to enforcing the agreement and rendering judgment on an “award.” TEX. CIV. PRAC. & REM. CODE §171.081. An “award” is a “judgment, sentence, or final decision” and does not include interlocutory orders. The Court acknowledged that, by enacting § 150.002(f), the legislature intended to provide parties the right to immediately challenge a trial court’s decision about whether a plaintiff has met the certificate-of-merit requirement, but it found no evidence of an intent to “significantly alter the jurisdictional limitations on courts with respect to arbitration proceedings.” The defendants tried several different approaches and arguments to obtain review of the order denying their motion to dismiss, but the Court concluded “there is no further relief we can grant, or action we can compel the trial court to take, with respect to the panel’s decision.”

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JUST PLEADING AN AFFIRMATIVE DEFENSE WON'T DEFEAT SUMMARY JUDGMENT

Matkin v. American Express Centurion Bank
Dallas Court of Appeals, No. 05-17-01438-CV (November 7, 2018)
Justices Bridges, Francis (Opinion linked here), and Lang-Miers



In this brief opinion, the Dallas Court of Appeals affirmed summary judgment for American Express despite the cardholder's affirmative defense of limitations.  In doing so, the Court reminded us of a couple of fundamental rules:


  •  "A plaintiff is under no initial obligation to negate affirmative defenses when moving for summary judgment and the mere pleading of an affirmative defense will not prevent summary judgment in favor of a plaintiff who establishes an absence of fact issues on his own claim for relief"; and

  • The four-year statute of limitations for breach of contract based on credit-card debt begins to run "on the date the last payment on the account is made."

UNCONDITIONAL SEVERANCE ORDER STARTS THE APPELLATE CLOCK, EVEN BEFORE THE NEWLY SEVERED CASE IS DOCKETED

AZS Holding Company LLC v. Khosh-Sirat
Dallas Court of Appeals, No. 05- 18-00845-CV (October 24, 2018)
Justices Stoddart, Whitehill (Opinion, linked here), and Boatright
AZS suffered a default judgment in May of 2017. But because there were other parties to the case, that judgment didn’t become final until August of 2017 when the trial court severed the claims and judgment against AZS. As is common, the severance order directed that those claims and that default judgment be severed from the existing case “into a new cause … which will be docketed as Cause No. ________________.” The filing fee for this new cause was not paid and the new cause was not opened until May of the following year. AZS filed a motion for new trial in the new cause, which was not granted, and then attempted to appeal the default judgment.

The Dallas Court of Appeals, however, dismissed the appeal as untimely. Although the severance order contained a blank for the “new cause” number and despite the fact the new cause was not actually docketed for several months, the order of severance was not conditioned on the opening of that new cause. “Whether the trial court clerk ever creates a physically separate file or assigns a new cause number,” the Court said, “does not affect the finality of an unconditional severed judgment.” Consequently, the appellate clock began ticking when the order of severance was entered. So, AZS’s appeal, filed almost a year later, was untimely.

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