Prophet Equity LP v. Twin City Fire Ins. Co.
Dallas Court of Appeals, No. 05-17-00927-CV (August 19, 2019)
Justices Bridges, Brown, and Whitehill (Opinion linked here)
A majority partner wrongfully fired his partner, and paid the judgment entered against him. After the first $10 million of insurance coverage was exhausted, he sued an excess insurer for another $4 million. Reversing the trial court, the Dallas Court of Appeals held the excess insurer must pay the balance of the judgment and additional attorney’s fees, summing up its decision in a nifty flow chart:


Cooke v. Karlseng
Dallas Court of Appeals, No. 05-18-00206-CV (August 14, 2019)
Justices Brown, Schenck, and Pedersen, III (Opinion, linked here)
In this looooong-running business dispute with a tangled and protracted procedural history, Cooke sued his ex-partners for alleged wrongs that occurred in 2005 and 2006. Originally, he asserted his claims individually, back in 2006. But the Dallas Court of Appeals concluded those claims were predicated on alleged injuries to the partnerships, rather than to Cooke directly (even though the value of his partnership interests may have been diminished in the process). Therefore, he lacked standing to bring those claims individually. But, Cooke argued, he surely had the right to assert the claims derivatively, and Tex. Bus. Org. Code § 21.563(c)(1) authorizes a court to treat a derivative claim “as a direct action” in certain circumstances. So, no problem, right? Wrong, said the Dallas Court. “Section 21.563 does not turn a derivative claim into an individual claim.” It just allows a court to treat a derivative claim like a direct claim in certain procedural respects, where appropriate. And here, even if Cooke could have brought his claims derivatively at the outset, “the fact remains he did not,” and he lacked standing to bring them as he did.

One door closed, Cooke tried another. In an amended petition he recharacterized all his claims as asserted both individually and derivatively on behalf of the partnerships. But he waited until 2014 to do that. When his ex-partners argued the newly asserted derivative claims were barred by limitations, Cooke contended (1) the derivative claims clearly arose from the same facts as the substantially identical claims he had asserted on an individual basis back in 2006, and (2) the derivative claims therefore “related back” to that original filing under Tex. Civ. Prac. & Rem. Code § 16.068. Wrong again, the Court concluded. Remember, Cooke lacked standing to pursue those claims as originally filed. “For that reason, the trial court never obtained jurisdiction over his [original] claims.” Consequently, there was nothing to which the amended, derivative claims could relate back. And so they were barred by limitations.


Gutman v. Richard Wayne Wells and Real Estate Arbitrage Partners, Inc.
Dallas Court of Appeals, No. 05-18-01227-CV (August 5, 2019)
Justices Whitehill (Opinion, linked here), Partida-Kipness (Dissent, linked here), and Pedersen
In a split panel decision, the Dallas Court of Appeals held that a “petition alleging that a defendant has repeatedly harassed and threatened the plaintiff because he refuses to accede to the defendant’s unlawful demands presents” a judiciable controversy under the Declaratory Judgments Act.

The Court considered this issue in an appeal of the trial court’s dismissal under Rule 91a. In previous lengthy litigation, Greg Gutman had obtained a judgment against one defendant, Real Estate Arbitrage Partners, LLC (“Arbitrage”) but not against the other defendant, Richard Wayne Wells. After the judgment was affirmed, Arbitrage paid the judgment, and Gutman delivered to Arbitrage a fully executed release of judgment. But Defendants wanted more. According to the petition, they repeatedly demanded an executed release of judgment against Wells, and harassed and threatened Gutman for his refusal to do so.

The majority held there was a real and substantial dispute under the Declaratory Judgments Act: “This sets out a controversy—whether Gutman must provide the requested release—that is real and not hypothetical.” And a declaratory judgment resolving that issue “will serve a useful purpose of terminating the parties’ controversy and ending the harassment and threats.” The dismissal was therefore reversed.

Justice Partida-Kipness dissented. Gutman did not seek construction of a contract or any other written instrument. Justice Partida-Kipness construed Gutman’s petition as asserting a claim for civil harassment, which sounds in tort, and does not fall within the parameters of the Declaratory Judgments Act. She disagreed “with the majority’s expansion of the statute,” and would have affirmed the trial court’s dismissal.

So, this case is precedent that a dec action can be used to resolve all sorts of disputes, not just those involving contracts, deeds, wills, and other writings.


CKJ Trucking, L.P. v. City of Honey Grove
Dallas Court of Appeals, No. 05-18-00205-CV (July 23, 2019)
Justices Partida-Kipness (Opinion, linked here), Pedersen, III, and Carlyle
In May, the Supreme Court of Texas confirmed that State statutes “explicitly contemplate[] that peace officers will, in certain circumstances, stop crime wherever it occurs” and “whenever it occurs.” Garza v. Harrison, 574 S.W.3d 389 (Tex. 2019). Because of that, the Court concluded, an off-duty police officer was acting in his official capacity when he fatally shot a suspect during the course of an attempted arrest outside the officer’s primary jurisdiction; the decedent’s parents therefore could sue only the “governmental unit” for which he worked—the City of Navasota—and not the officer, individually. Looking at the other side of that coin, the Dallas Court of Appeals has now applied Garza to deny governmental immunity to another city, Honey Grove, regarding a claim based on the off-duty acts of one of its police officers outside his primary jurisdiction.1

Williamson, a Honey Grove police officer, was driving in or near Trenton, Texas (another Fannin County town) while off duty. In the parking lot of a “liquor store attached to a gun shop,” Williamson observed suspicious activity—including a Trenton police car with its lights activated, blocked in by other cars, with no one in sight. Because he “was concerned that a crime was being committed in the parking lot,” Williamson quickly switched on the red and blue emergency lights on his squad car and made a U-turn to go back and investigate and help the missing Trenton officer, if needed. Unfortunately, his abrupt U-turn led to an accident with other vehicles traveling on that same road. The driver and owner of one of those vehicles sued the City of Honey Grove, arguing the accident was caused by the negligent acts of Williamson while operating a motor vehicle within the scope of his employment—allegations that, if true, were sufficient to bring the claims within a statutory waiver of the city’s governmental immunity under the Texas Tort Claims Act, specifically, TCPRC § 101.021(1)(A). Honey Grove filed a plea to jurisdiction, arguing that Williamson was not acting within the scope of his employment, because he was off duty, was not being paid, was outside his jurisdiction, and had not been acting pursuant to an assignment from or under the supervision of the Honey Grove police department. The trial court granted the plea to jurisdiction and dismissed Honey Grove from the case.

The Dallas Court of Appeals reversed. Applying the freshly minted reasoning of the Supreme Court in Garza, the Court ruled that because Williamson’s actions were “triggered by reasonable suspicions” of criminal activity and potential safety concerns he was bound to address as a peace officer, he was acting within the scope of his employment. Therefore, the allegations against Honey Grove fell within the statutory waiver of governmental immunity.

1 The website of the City of Honey Grove reports how the town supposedly got its name: “According to legend, in 1836 as Davy Crockett was traveling to join the Texas Army at San Antonio, he camped in a grove just west of the present town square, on the bank of Honey Grove Creek. In letters he wrote to Tennessee, he told of the ideal place where he had camped, the ‘honey grove.’ It was so named due to the abundance of honey in the hollow trees.”


In re Peter Swart
Dallas Court of Appeals, No. 05-19-00015-CV (July 9, 2019)
Justices Brown, Schenck (Opinion, linked here), and Reichek
The Texas Family Code provides that a divorce proceeding cannot be maintained in Texas “unless at the time the suit is filed either the petitioner or the respondent has been … a domiciliary of this state for the preceding six-month period.” Nina Morales, a Bolivian citizen and resident of Costa Rica, sought to divorce Peter Swart, also a resident of Costa Rica but a Dutch citizen, in a Dallas family court—seemingly doing so because similar proceedings in Costa Rica weren’t going her way. Swart lodged a special appearance, arguing that neither he nor Morales fulfilled the statutory requirements for a divorce here. The district court denied the special appearance, but the Dallas Court of Appeals disagreed.

As a threshold matter, the appeals court held for the first time that mandamus review is available when a special appearance is denied in a case filed under the Family Code—joining other Texas appeals courts in that stance. Absent such review, the Court explained, “jurisdictional and other like issues … would be rendered effectively meaningless.” Of course, TCPRC 51.014(a)(7) authorizes interlocutory appeal of the grant or denial of a special appearance in a civil case, but it expressly carves Family Code cases out of that authorization, creating the need for mandamus review here.

On the merits, the Court observed that, to establish domicile, Morales had to demonstrate both an objective element and a subjective element: physical presence in Texas for the statutory period, and the intent to make Texas her principal place of residence. Morales’s case foundered on the subjective element of intent, because at present she is precluded by law from relocating permanently to Texas. To obtain her B1/B2 visa, Morales was required to represent to the State Department (1) that she was entering the United States temporarily, (2) that she planned to remain only for a specific period, and (3) that she maintained a residence and other ties outside the United States that would ensure her departure. So, the Court explained, “it is precisely Morales’s representation that Texas is not the place she intends to make her permanent home that explains her presence” in Texas. And it defeated her attempt to pursue a divorce here.

The Dallas Court’s holding, rejecting domiciliary status on the basis of Morales’s temporary visa and the representations she made to secure it, sets up an apparent conflict with the decision of the Austin Court of Appeals in Palau v. Sanchez—a conflict the Dallas Court acknowledged. So, there may yet be another chapter in this story.


Barrow-Shaver Resources Co. v. Carrizo Oil & Gas, Inc.
Supreme Court of Texas, No. 17-0332 (June 28, 2019)
Opinion by Justice Green (linked here); Concurring and dissenting opinion by Justice Guzman (linked here); Dissenting opinion by Justice Boyd (linked here)
Last Friday, the Supreme Court of Texas delivered a reminder that when drafting contracts, you should say what you mean and mean what you say. The Court also reaffirmed that reliance on oral representations directly contrary to the terms of a written agreement between sophisticated parties is not justifiable.

The case considered a farmout contract between Barrow-Shaver Resources Company and Carrizo Oil & Gas for Barrow-Shaver to build a well on a lease held by Carrizo in exchange for an interest in the mineral rights. The contract contained a consent-to-assign provision prohibiting Barrow-Shaver from assigning its rights under the agreement “without the express written consent of Carrizo.” During negotiations, Barrow-Shaver reportedly raised concerns about the consent-to-assign provision and sought to add language that would prohibit Carrizo from withholding consent unreasonably. But Barrow-Shaver relented when Carrizo’s representative in the negotiations allegedly offered assurances that Carrizo would work cooperatively with Barrow-Shaver in the event assignment became an issue.

Assignment did become an issue, and when Barrow-Shaver approached Carrizo about assigning its rights to another company, Carrizo refused and instead offered to allow Barrow-Shaver to buy its rights to the lease for $5 million, thereby removing the need to have its consent. Barrow-Shaver sued, claiming fraud, breach of contract, and tortious interference, and ultimately obtained a $26-million-dollar jury verdict. The Court of Appeals relied on evidence of contract negotiations excluded by the trial court to conclude that Carrizo was within its rights to withhold consent as a matter of law, because the consent-to-assign provision was unambiguous. The court also rejected Barrow-Shaver’s fraud claim on the basis that oral promises could not justifiably be relied upon when the parties had a written agreement. A divided Texas Supreme Court affirmed that result.

Considering the breach-of-contract claim first, the Supreme Court read the term “consent” as it is traditionally defined, to mean simply “approval.” It rejected Barrow-Shaver’s argument that Carrizo’s right to withhold that approval or consent was somehow qualified or constrained.

The Court then distinguished between material terms to a contract, which might be supplemented or made more precise to ensure enforceability, and immaterial terms, which may not. The Court found all material terms in both the farmout agreement and the consent-to-assign provision were present and sufficiently definite to determine the parties’ rights and obligations. With respect to the consent-to-assign provision specifically, the Court viewed the obligations of each party as clear: “Barrow-Shaver has the right to assign its rights under the farmout agreement, but Barrow-Shaver must first satisfy its obligation to obtain Carrizo’s express and written consent; Carrizo has no obligation.” In the Court’s view, terms related to withholding consent did not require supplementation.

Both parties also sought to have extrinsic evidence considered alongside the language of the contract. Carrizo urged consideration of the prior drafts, which showed that a limitation on Carrizo’s ability to withhold consent had been considered and rejected. Barrow-Shaver proffered expert testimony on industry usage and custom, which it argued could explain the contract’s silence regarding circumstances in which consent could and could not be withheld. Citing the parol evidence rule, the Court declined to consider the earlier drafts of the contract because it found the agreement was unambiguous. The Court also declined to consider the expert testimony regarding industry usage because ‘“express written consent’ within a contract is clear, is not susceptible to more than one meaning, and is not industry or vocation specific.” It further explained that allowing a jury to consider such testimony would invite the creation of ambiguity where none exists.

Because the Court ultimately concluded the consent-to-assign provision “unambiguously allowed Carrizo to refuse its consent for any reason,” Carrizo’s refusal to consent to the assignment could not constitute a breach of contract as a matter of law.

Rejecting Barrow-Shaver’s fraud claim, the Court found Barrow-Shaver was not justified in relying on the oral statements of Carrizo’s contract negotiator. The Court cited long-standing principles requiring that a party take reasonable diligence in protecting his affairs and interests, as well as precedent holding that reliance on oral promises that are directly contradicted by an unambiguous written agreement is not reasonable as a matter of law. The Court viewed Carrizo’s agent’s promises that Carrizo would provide consent to be directly contradicted by the plain language of the consent-to-assign provision, such that Barrow-Shaver could not have reasonably relied upon them.

Justice Guzman, writing for herself, Justice Hecht, and Justice Busby, dissented from the court’s holding on the breach of contract claim and argued forcefully that use of trade usage and custom evidence considered by the jury was appropriate and that the majority was wrong to reject it and the conclusions the jury reached from hearing it. The three Justices would have reached the same outcome on the fraud claim, but for different reasons. Justice Boyd dissented to argue for the inclusion of both custom and usage evidence and evidence of the contract negotiations and would have remanded for a new trial including both types of evidence.

While this case arose in an oil and gas context, the Supreme Court’s opinion underscores the importance of insuring that any agreement reflects the actual intent of the parties. As Barrow-Shaver found out the hard way, often if it isn’t in the written contract, it isn’t part of the deal.


Erdner v. Highland Park Emergency Center, LLC
Dallas Court of Appeals, No. 05-18-00654-CV (May 22, 2019)
Justices Whitehill (Concurrence/Dissent, linked here), Molberg (Opinion, linked here), and Reichek
Highland Park Emergency Center, LLC (“HPEC”) sued one of its doctor-members for breach of fiduciary duty. HPEC claimed Erdner usurped an opportunity to expand its freestanding-emergency-room (“FSER”) business to new locations. Contending HPEC’s claim was based on or related to his exercise of his rights of association and free speech—specifically, his communications with other investors about forming a new company to pursue FSER locations—Erdner moved to dismiss under the Texas Citizens Participation Act. The trial court denied the motion and, in a split decision, the Dallas Court of Appeals affirmed, holding the TCPA does not apply to the communications at issue.

The panel majority explained that prior Dallas Court decisions had held that, for a communication to qualify as an exercise of the right of association protected by the TCPA, that communication must be “between individuals who join together” and “must involve public or citizen’s participation.” And a TCPA-protected exercise of free speech requires a “communication made in connection with a matter of public concern.” The majority then held the communications in issue satisfied neither test. They were “private communications relating to establishing a business,” not “public [communications] or citizens’ participation,” and therefore not protected exercises of the right of association. The majority acknowledged that, under Texas Supreme Court precedent, a communication need have no more than a “tangential relationship” to a matter of public concern to be protected as free speech under the TCPA. But, the majority said, “A private communication made in connection with a business dispute is not a matter of public concern under the TCPA.” Relying heavily on a federal district court opinion from the Southern District of Texas, the majority held that “a communication cannot have a ‘tangential relationship’ to a matter of public concern that does not yet exist”—in this case, the FSER facilities that might, or might not, be built in the future.

Writing separately, Justice Whitehill concurred in—but disagreed with—the holding on the right of association, but dissented on free speech. Whitehill acknowledged that prior decisions from the Dallas Court had imposed a “public or citizen’s participation” requirement for protection of the right of association under the TCPA, and that this panel was bound to follow them. But, he said, “those controlling precedents were wrongly decided,” because the statute itself says nothing about such an additional requirement. Dissenting on the free-speech issue, Justice Whitehill noted that a “tangential” relationship to a matter of public concern, all the Supreme Court has found to be required under the TCPA, “is a very broad” standard, one that “conjures wispiness.” He would have found the communications at issue, regarding potential FSERs, to be sufficiently “tangentially related to” a matter of public concern—health and community well-being—to be covered by the TCPA.


Krasnicki v. Tactical Entertainment, LLC
Dallas Court of Appeals, No. 05-18-00463-CV (May 17, 2019)
Justices Bridges, Partida-Kipness (opinion available here), and Carlyle
Silence is not speech and is not protected under the TCPA. Tactical Entertainment entered into an agreement with Krasnicki to develop a smart-phone game application called “The Art of Combat.” A big factor in Tactical’s selection of Krasnicki was his approach of using two different servers to perform two different functions: one to handle all account data, and another to relay in-game activity in real time. At some point in the process, however, Krasnicki abandoned the two-server architecture and developed the project to use only one server. Tactical alleges Krasnicki never communicated this “massive” deviation from the original concept, thus fraudulently inducing Tactical to continue with the project.

Krasnicki filed a motion to dismiss Tactical’s lawsuit under the Texas Citizens Participation Act (TCPA), alleging that Tactical’s claims against him were based on or related to his exercise of free speech. The trial court disagreed, and so did the Dallas Court of Appeals. The TCPA provides a procedure for expeditiously dismissing a non-meritorious legal action that is based on, relates to, or is in response to the party’s exercise of the right of free speech. “Free speech” is defined as a communication made in connection with a matter of public concern, and “communication” is defined as the making or submitting of a statement or document in any form or medium, including oral, written, audiovisual, or electronic. Here, Tactical’s claims focused on Krasnicki’s silence—or failure to disclose—rather than affirmative statements. The Court held that “communications” could not be interpreted to include “non-communication,” and so the TCPA did not apply.


Dallas/Fort Worth International Airport Board v. Vizant Technologies, LLC
Supreme Court of Texas, No. 18-0059 (May 17, 2019)
Opinion by Justice Boyd (linked here)
This case explores two key issues: (1) the distinction between “governmental” and “proprietary” functions of a “special purpose governmental entity” like the DFW Airport Board, which determines whether the entity is protected by governmental immunity; and (2) whether a “good-faith-efforts” clause is an enforceable agreement subject to the waiver of immunity provided by Local Government Code § 271.152.

Vizant Technologies entered into a consulting contract with the Airport under which Vizant would receive a specified percentage of any resulting savings in the Airport’s payment-processing costs. Upon completion of its work, Vizant asserted the agreed formula entitled it to be paid over $300,000. The contract, however, required Airport Board approval for any amount over $50,000, and promised a “good faith effort to receive board authorization to increase the compensation.” Vizant was paid $50,000, but the board denied the request to amend the contract to increase the compensation. Vizant sued for breach of contract (as well as various torts).

The district court denied the Airport’s plea to the jurisdiction, holding that governmental immunity did not bar Vizant’s claims because the Airport’s management of payment-processing costs is a proprietary, not a governmental, function. The court based its holding on its interpretation of Wasson Interests v. City of Jacksonville, 559 S.W.3d 142 (Tex. 2018), in which the Texas Tort Claims Act’s governmental/proprietary dichotomy was applied to contract disputes.

On the Airport’s interlocutory appeal, the Dallas Court of Appeals held the contract involved airport operations, which are statutorily defined as a governmental function and thus trigger immunity against both contract and tort claims. The court held, however, the Airport’s immunity was waived for contract claims by Local Government Code § 271.152, as construed by the Texas Supreme Court in Zachry Construction Corp. v. Port of Houston Authority, 449 S.W.3d 98 (Tex. 2014). It therefore affirmed the trial court’s ruling on the contract claim and remanded for trial on the merits of that claim.

The Airport sought review by the Texas Supreme Court on whether the alleged breach of contract was subject to section 271.152 of the Local Government Code, which waives immunity for certain contract claims, and whether any waiver was negated because the alleged damages were barred by section 271.153. Vizant argued the Airport breached the “good-faith-efforts” provision of the contract, causing damages that were not barred by the statute. Vizant also argued the appellate court’s judgment could be upheld by reversing that court’s holding that the contract involved the Airport’s governmental, rather than proprietary, functions.

The Texas Supreme Court reversed and rendered a take-nothing judgment against Vizant. The Court agreed with the appellate court that the contract involved the Airport’s governmental functions of “maintenance, operation, [and] regulation” of an airport, so immunity applied unless waived. But the Court disagreed with the lower court’s application of chapter 271’s waiver provisions. First, it held the good-faith-efforts clause did not “state the essential terms of a legally enforceable agreement” under section 271.151(2), so chapter 271 did not apply. Second, even if the contract were enforceable, the Court held the damages sought by Vizant were consequential damages that were not recoverable under section 271.153(b). The statute therefore did not waive the Airport’s governmental immunity against Vizant’s claims.


Garcia v. City of Willis
Supreme Court of Texas, No. 17-0713 (May 3, 2019)
Opinion by Justice Brown (linked here)
Texans will have to wait to learn whether enforcing traffic rules through the use of red-light cameras infringes an individual’s constitutional rights. The Texas Supreme Court held a plaintiff making that challenge lacked standing because he paid his fine and did not argue “he plans to violate red-light laws in the future.”

Luis Garcia filed a class action against the City of Willis, challenging the constitutionality of the Texas “Red Light Camera Statute,” chapter 707 of the Texas Transportation Code, as implemented by the City’s “Red Light Camera Ordinance.” Garcia sought equitable relief and restitution of penalties paid.

As required by the statute, the ordinance provided an “administrative adjudication hearing” for contesting civil penalties imposed on vehicle owners for violations captured by a red-light camera. Failure to timely contest liability is deemed an admission of liability and a waiver of the vehicle owner’s right to appeal. Additionally, the City’s municipal court was given “exclusive appellate jurisdiction” in cases arising under the statute. After being cited for a traffic violation apparently captured on camera, Garcia did not appeal his citation to the municipal court, and ultimately paid the fine.

In response to Garcia’s suit, the City filed a plea to the jurisdiction seeking dismissal on the grounds of governmental immunity and failure to exhaust administrative remedies. The district court denied the plea, and the City filed an interlocutory appeal. The Beaumont Court of Appeals reversed and rendered judgment for the City, without reaching the constitutional issue. The court held Garcia’s failure to exhaust the administrative process was fatal, depriving the district court of jurisdiction.

The Texas Supreme Court accepted review to consider: “(1) whether the trial court lacked jurisdiction because Garcia failed to exhaust administrative remedies … and (2) whether the ultra-vires exception to governmental immunity applies because the city allegedly … use[d] improperly installed and operated cameras.” However, when the State of Texas filed an amicus brief arguing lack of standing as an alternative ground for affirming the dismissal of Garcia’s claims, the Supreme Court agreed with the State. The Court explained: “Garcia may earnestly believe that red-light cameras are unconstitutional and bad public policy. But, having paid his fine without arguing he will potentially break the law in the future, he has no particularized interest in the issue from a member of the public at large.” Nor could he obtain standing by the failure of other class members to pay their fines. Because the named plaintiff lacked “an individual and justiciable interest in the case … [w]hether any other class member has standing is irrelevant.”

The Court further held the City’s governmental immunity barred Garcia’s claim for reimbursement of his fine. Although the Court recognized “a narrow exception to immunity when a plaintiff seeks reimbursement of an allegedly unlawful tax, fee, or penalty,” that exception applies only if the payment was made “involuntarily and under duress.” Garcia’s failure to pursue an administrative appeal “that would have entitled him to an automatic stay of the enforcement of his fine” was fatal to his claim of duress. That failure also derailed his claim of an unconstitutional taking; although the Court did not reach the question whether a person making constitutional challenges is “generally required to exhaust his administrative remedies,” it held following the available procedure was a necessary step here because it could have resulted in cancellation of the fine, which would have mooted the takings claim.

In the end, the Court affirmed the judgment of the appellate court, but for very different reasons.