NO PERMISSIVE APPEAL WHERE CONTROLLING ISSUES WERE NOT DECIDED BY THE TRIAL COURT

Home State County Mutual Insurance Co. d/b/a Safeco v. Taiwo
Dallas Court of Appeals, No. 05-20-00596-CV (August 12, 2020)
Chief Justice Burns (Opinion, linked here), and Justices Whitehill and Nowell
In a very short opinion, the Dallas Court of appeals rejected an insurer’s petition for a permissive interlocutory appeal. The briefs explain Taiwo was injured in a traffic accident allegedly caused by another driver. He settled for the limits of that driver’s insurance policy, an amount less than his purported damages. Taiwo then sued his own insurer, Safeco, relying on his UM/UIM coverage. Safeco sought summary judgment, arguing Taiwo was required to obtain a judicial determination that he was legally entitled to recover from an uninsured or underinsured motorist before proceeding against his own insurer—something he had not done. See Brainard v. Trinity Universal Ins. Co, 216 S.W.3d 809 (Tex. 2006). Taiwo, however, moved to postpone the summary judgment hearing in order to take discovery, and the trial court granted that motion.

Safeco sought permission to pursue an interlocutory appeal of that ruling under Civil Practice and Remedies Code § 51.014(d) & (f). It argued the trial court’s decision “turned on” three “controlling questions of law”—i.e., (1) whether an insured must obtain a judicial determination that he was legally entitled to recover from an uninsured or underinsured motorist before he can proceed against his own insurer on UM/UIM issues, and (2) whether a court can defer dismissal or abatement based on that ground and (3) allow discovery to proceed, without first resolving that threshold issue. The trial court granted permission for the appeal, pursuant to § 51.014(d). But the Dallas Court of Appeals rejected Safeco’s petition and denied the appeal under § 51.014(f).

The appeals court held that “to invoke this court’s permissive appeal jurisdiction, the trial court must make a substantive ruling on the controlling legal issues presented in the petition for permissive appeal.” It found the trial court had not done that here. The record reveals that although the trial court’s order refers to “the controlling questions of law decided by this order,” it actually contains no such decisions on those questions—at least no express decisions. The proposed form of order tendered by Safeco included such rulings, but the trial court manually lined through those passages and inserted the more generic statement that its order was predicated on “the argument and authority in the motion, the response, and papers on file.” This, the appeals court apparently concluded, did not constitute the “substantive ruling on the controlling legal issues” necessary to support a permissive appeal.

DALLAS COURT OF APPEALS CONTINUES TO REIN IN THE TCPA’S APPLICABILITY TO BUSINESS DISPUTES

Palladium Metal Recycling, LLC v. 5G Metals, Inc.
Dallas Court of Appeals, No. 05-19-00482-CV (July 28, 2020)
Justices Bridges, Molberg (Opinion, linked here), and Partida-Kipness

Woods Capital Enterprises, LLC v. DXC Technology Services, LLC
Dallas Court of Appeals, No. 05-19-00380-CV (July 29, 2020)
Justices Pedersen, III, Reichek (Opinion, linked here), and Carlyle (Concurrence, linked here)
In a pair of opinions this week, the Dallas Court of Appeals continued its trend of holding the TCPA inapplicable to many private business disputes. Palladium arose from a disagreement regarding a joint venture to acquire and re-sell scrap metals. Woods Capital grew out of a failed agreement for the sale of a large tract of commercial real estate. In each case, the Court of Appeals held the TCPA’s free-speech and right-of-association protections did not apply to communications and conduct focused on the business dealings of the parties involved. In each case, the Court referenced the stated purpose of the TCPA to protect “public participation” and drew upon the Supreme Court’s decision last year in Creative Oil & Gas, LLC v. Lona Hills Ranch, LLC, 591 S.W.3d 127 (Tex. 2019). A sampling of the Court’s observations in the two cases:

• “The TCPA’s purpose of curbing strategic lawsuits against public participation is not furthered by a construction finding a right of association based simply on communications between parties with a shared interest in a private business transaction.”

• Rejecting a TCPA free-speech attack, the Court held the allegations targeted by the motion “lack any communications regarding matters of public concern as opposed to private pecuniary interests and thus do not implicate the TCPA’s protection of Palladium’s exercise of the right of free speech.”

• Acknowledging that the TCPA defines “matters of public concern”—the linchpin of TCPA free-speech protection—to include “issues related to health or safety; environmental, economic, or community well-being; the government; a public official or public figure; or a good, product, or service in the marketplace,” the Court cautioned that “not every communication related to one of the broad categories set out in [the statute] always regards a matter of public concern.” Because the record was “devoid of allegations or evidence that the dispute had any relevance beyond the pecuniary interests of the private parties involved,” the Court refused to find TCPA free-speech protections applicable.

• “This Court has consistently held that to constitute an exercise of the right of association under the TCPA, the nature of the communication between individuals who join together must involve public or citizen participation.”

Beyond its pronouncements on the applicability of the TCPA to business disputes, each decision also included an additional holding to which litigants should be alert. In Palladium, the Court held the TCPA movant had waived its objections to the non-movants’ evidence because it had not obtained a ruling on those objections and had not objected to the trial court’s failure to rule.

In Woods Capital, the Court ruled that the movant had “forfeited its [TCPA] motion” by failing to schedule a hearing within the period prescribed by statute. The TCPA allows the parties to delay a hearing by agreement for up to 90 days after service of the motion. A hearing may be delayed up to 120 days only if the court, upon a showing of good cause, “allows” limited discovery related to the TCPA motion. Reaffirming its ruling earlier this summer in Walker v. Pegasus Eventing, LLC, the Court held that the parties’ agreement to conduct discovery and the court’s acquiescence does not equate to “allowance” by the court that triggers the extra 30 days. Consequently, failure to schedule a hearing within the 90-day period, without court “allowance” of discovery, resulted in forfeiture of the motion.

TAX-COLLECTION LAW FIRM IS NOT IMMUNE FROM VENDOR’S SUIT

Linebarger Goggan Blair & Simpson, LLP v. TinStar Title Inc.
Dallas Court of Appeals, No. 05-19-00614-CV (July16, 2020)
Justices Whitehill, Schenck, and Evans (Opinion linked here)
A law firm that collects delinquent tax accounts for Dallas County and other taxing entities is not protected by governmental immunity from lawsuits by its subcontractor, according to the Dallas Court of Appeals. Importantly, the case did not involve claims brought by taxpayers.

The Linebarger law firm contracted to perform tax-collection services for Dallas County and other taxing entities, and subcontracted title-abstract services to TinStar. When TinStar sued Linebarger for breach of contract and various business torts, Linebarger asserted governmental immunity in a plea to the jurisdiction. The trial court denied the plea, and Linebarger filed both an interlocutory appeal and a mandamus petition.

The Dallas Court of Appeals first held it lacked jurisdiction to consider Linebarger’s interlocutory appeal under Civil Practice and Remedies Code § 51.014(8), which authorizes interlocutory appeals from orders granting or denying a plea to the jurisdiction by a “governmental unit.” At least in the context of a private dispute between Linebarger and one of its subcontractors, the Court found Linebarger is not a “governmental unit” as that term is defined in the Tort Claims Act, CPRC § 101.003(a). The Court distinguished University of the Incarnate Word v. Redus, 518 S.W.3d 905 (Tex. 2017), in which the Supreme Court extended governmental immunity to a private university defending the actions of its police department created under express legislative authority because the “department was part of the state’s larger law enforcement system.”

The Court held it could address Linebarger’s mandamus petition under its original-proceeding jurisdiction, but denied mandamus relief. The Tort Claims Act retains governmental immunity for claims arising in connection with the assessment or collection of taxes by a governmental unit. CPRC § 101.055(1). Following Brown and Gay Eng’g v. Olivares, 461 S.W.3d 117 (Tex. 2015), however, the Court found that Linebarger’s contract with the County made Linebarger an independent contractor and that the County did not “control in any way how Linebarger used title abstractors to perform its contract with the County.” It distinguished several previous cases invoking governmental immunity, because those cases involved “taxpayers asserting claims for actions taken by the taxing authority through Linebarger as its agent”—not for the law firm’s “independent actions.”

EYE OF THE BEHOLDER: DOMINANT JURISDICTION AND PRIMARY VS. ANCILLARY RELIEF

In re Ahmed Zidan
Dallas Court of Appeals, No. 05-20-00595-CV (July 15, 2020)
Justices Bridges (Dissent, linked here), Osborne (Opinion, linked here), and Reichek
Ahmed Zidan and his uncle Alex had a falling out about their joint business venture. Ahmed sued Alex in Collin County. A couple months later, Alex sued Ahmed in Harris County. The Collin County court directed the parties to brief whether that court or the Harris County court had dominant jurisdiction. Ahmed argued Collin County acquired dominant jurisdiction because that case was first filed and venue was proper there. Alex responded that first-filed rules didn’t apply because venue was mandatory in Harris County and Ahmed lacked a bona fide intent to prosecute the Collin County suit. The Collin County trial court sided with Alex and abated and administratively closed that case. On mandamus, however, a divided panel of the Dallas Court of Appeals agreed with Ahmed that dominant jurisdiction lay with the Collin County Court.

The appeals court explained, “When two inherently interrelated suits are pending in two counties, the court in which suit is first filed generally acquires dominant jurisdiction to the exclusion of other courts if venue is proper there.” The Court had no difficulty concluding the two lawsuits were logically and “inherently interrelated,” because “the same facts will be dispositive in both suits.” It also brushed aside Alex’s argument that the “first-filed” rule should not apply because Ahmed had engaged in “inequitable conduct” and had no “bona fide intention to prosecute the [Collin County] suit.” Ahmed had excercised ample diligence in pursuing his lawsuit, the Court held, and brief delays in seeking citation and effecting service did not show otherwise.

The major point of contention was venue. In his Collin County action, Ahmed had sought injunctive relief against Alex, a Harris County resident, as well as the appointment of a receiver for the businesses, one of which allegedly was domiciled in Harris County, albeit ostensibly to protect real estate held by the company in Collin County. Section 65.023 of the Civil Practice and Remedies Code—regarding injunctions—and sections 11.401 and 11.402(b) of the Business Organizations Code—regarding receiverships—would seem to make venue in Harris County mandatory for such claims. But, the panel majority said, those mandatory venue provisions do not apply unless the request for injunctive or receivership relief is the “primary” focus of the lawsuit. Here, it reasoned, because Ahmed’s live pleadings sought a receiver only with respect to real property in Collin County and that and his request for injunctive relief were “simply to maintain the status quo pending resolution of the lawsuit,” those requests were “ancillary” and not the “primary” relief sought. Venue therefore was not mandatory in Harris County.

The dissent took a different view of Ahmed’s pleadings and requests for relief. It argued that Ahmed’s live pleading expressly sought permanent as well as temporary injunctive relief, and that the request for a receivership, even if focused on Collin County real property, extended to the Harris County entity that apparently owned that property. Neither request for relief, therefore, could be regarded as “ancillary,” the dissent contended, and therefore the statutes mandating venue in Harris County applied, supporting the trial court’s decision and rendering mandamus relief inappropriate.

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. 

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