$500 MILLION JUDGMENT REVERSED—NO PARTNERSHIP WHEN CONDITIONS NOT SATISFIED OR WAIVED

Enterprise Products Partners, L.P. v. Energy Transfer Partners, L.P.
Dallas Court of Appeals (July 18, 2017)
Justices Myers (Opinion here), Stoddart, and Whitehill
ETP convinced a jury it had formed a partnership with Enterprise to develop a pipeline to transport oil from Cushing, Oklahoma to Houston, and that Enterprise had breached its duty of loyalty by contracting with another company on a similar pipeline project. The trial court entered judgment awarding ETP over $500 million in damages, interest, and disgorgement. The Dallas Court of Appeals held no partnership was formed because conditions stated in the parties’ agreement had not been satisfied or waived. So it reversed and rendered a take-nothing judgment.

APPEALING A NO-EVIDENCE SUMMARY JUDGMENT? DON’T DO THIS.

Sung Sik Choi v. Juggernaut Transportation, Inc.
Dallas Court of Appeals, No. 05-16-01386-CV (June 26, 2017)
Justices Frances, Brown (Opinion, linked here), and Schenck
Plaintiffs suffered a no-evidence summary judgment in the trial court. On appeal, Plaintiffs argued they’d produced sufficient evidence to create a fact issue. The problem? Plaintiffs didn’t designate their summary judgment response for inclusion in the record on appeal. The appeals court, therefore, was required to presume that the omitted evidence supported the trial court’s judgment, rather than undermined it. Plaintiffs argued that the response should be considered because they included it in the appendix to their opening brief on appeal. But they took no action to supplement the record, and placing something in the appendix to one’s brief “is not formal inclusion in the appellate record.” Plaintiffs also asked the appeals court to take judicial notice of their summary judgment response. But the Court declined this invitation, explaining it would “not [be] an appropriate use of judicial notice and would render the rules and case law regarding designation of the appellate record meaningless.” So, the no-evidence summary judgment was affirmed. The moral? Be sure all necessary items are designated for inclusion in your record on appeal. And if you discover an omission, formally supplement under TEX. R. APP. P. 34.5(c); don’t try alternative shortcuts.

SABINE PILOT: SOLE MEANS SOLE

Watkins v. Rolling Frito-Lay Sales, LP
Dallas Court of Appeals, No. 05-16-00367-CV (June 21, 2017)
Justices Evans, Stoddart (Opinion, linked here), and Boatright
The Sabine Pilot exception to Texas’s employment-at-will doctrine holds that, at-will or not, an employee can’t lawfully be fired if “the sole reason [is] that the employee refused to perform an illegal act.” But “an employer who discharges an employee both for refusing to perform an illegal act and for a legitimate reason or reasons cannot be liable for wrongful discharge.”Texas Dep’t of Human Services v. Hinds, 904 S.W.2d 629, 633 (Tex. 1995). And that’s where Watkins’s lawsuit ran aground.

Watkins alleged he was terminated from his job as a route sales representative for a Frito-Lay distributor because he refused his supervisor’s directive to “short” or falsify his delivery manifest—to say that fewer products were delivered to him than were actually received—a practice Watkins characterized as theft under Texas Penal Code § 31.03(a). After a protracted back-and-forth with the employer dealing with Watkins’s accusations against the supervisor and some of Watkins’s own arguable failures to comply with company policy—and a lengthy suspension with pay—the company gave Watkins an ultimatum: return to work by a date certain, subject to a disciplinary agreement, or be terminated under the company’s “no-show policy.” Watkins rejected the ultimatum as “unfair,” did not return to work, and was fired.

Watkins sued, invoking Sabine Pilot. But the trial court granted a directed veridct against him at the close of his evidence at trial, and—emphasizing that Sabine Pilot is a “very narrow [public policy] exception to the employment-at-will doctrine”—the Dallas Court of Appeals affirmed.

There was “indisputable evidence” that Watkins failed to return to work, which gave the employer cause to fire him. So, the Court said, it didn’t matter whether the supervisor’s directive would’ve amounted to theft, because Watkins’s refusal to follow that directive was not the “sole” cause for his termination. The Court rejected Watkins’s argument that his failure to report was a mere excuse or pretext, finding it to be a legitimate, independent reason for termination. It also declined to find he had been constructively discharged earlier, because the constructive-discharge doctrine—which may operate to preserve a Sabine Pilot claim when an employee feels compelled to resign rather than wait to be formally discharged—did not apply to the facts here, since Watkins testified he continued to be employed after raising the illegal-conduct issue, did not resign, and was paid even during his suspension.

NO HEARING, NO EVIDENCE ADMITTED

Analytical Technology Consultants, Inc. v. Axis Capital, Inc.
Dallas Court of Appeals, No. 05-16-00281-CV (June 19, 2017)
Justices Bridges, Myers (Opinion, linked here), and Brown
Axis sued Analytical Technology Consultants (“ATC”) for breach of a lease agreement, seeking past and future lease payments and the return of leased equipment. ATC answered, but did not assert any affirmative defenses. Eventually, ATC returned the leased equipment, but did not respond to or appear at the hearing on Axis’s motion for summary judgment. The trial court granted the motion, awarding Axis damages for past and future amounts due under the lease. The court also awarded Axis the right to sell the leased equipment and apply the proceeds to the money judgment.

ATC filed a motion for new trial, asserting, among other things, that the judgment miscalculated the future payments awarded under the lease agreement. In response, Axis filed an affidavit showing that it had sold the leased equipment, and applied the proceeds to reduce the outstanding judgment. The court denied the motion, and this appeal followed.

In considering the amount of future damages, the Court analyzed the provisions of the lease agreement, and determined that the evidence in the summary judgment record was insufficient to support the amount of damages awarded. Upon default, the lease agreement provided Axis two options concerning the repossessed equipment: (i) sell the equipment and credit ATC for the proceeds, or (ii) retain it, and provide a credit for the reasonable rental value for the remainder of the lease’s term.

In its motion for summary judgment, Axis provided evidence of neither. Although Axis eventually filed an affidavit showing it had chosen option (i)—to sell the equipment and apply the proceeds—that affidavit was never admitted into evidence. The Court explained that evidence filed as an exhibit to a motion for a new trial or a response thereto does not supplement the summary judgment record unless the trial court expressly grants leave to supplement or admits the evidence at a hearing on the motion for new trial. Here, there was no hearing, and the affidavit was never admitted into evidence. On appeal, the Court could not consider the affidavit concerning the sale of the equipment in reviewing the order granting summary judgment: “To constitute evidence, the attachment must be introduced at the hearing on the motion for new trial.” The Court therefore reversed and remanded the cause for further proceedings.

SCOTX PUNTS DELAWARE CORPORATE–OPPORTUNITY ISSUE

Longview Energy Co. v. The Huff Energy Fund LP
Supreme Court of Texas, No. 15-0968 (February 9, 2017)
Opinion by Justice Johnson (Opinion, linked here)
Declining an opportunity to weigh in on the Delaware corporate-opportunity doctrine, the Texas Supreme Court instead focused on the common-law remedies for a breach of fiduciary duty. The Court set aside a $95.5 million damages award and a constructive trust because there was no evidence tracing any specific mineral leases acquired by the defendant directors to the conduct the Court assumed to be a breach of fiduciary duty to the company. But because the Court took the path it did, Texas lawyers and lower courts will continue to dispute how to deal with corporate-opportunity claims governed by Delaware law.

WHEN THE PRESIDING JUDGE BECOMES A FORMER JUDGE, WHO SIGNS FINDINGS OF FACT?

Ad Villarai, LLC v. Pak
Supreme Court of Texas, No. 16-0373 (May 12, 2017)
Per Curiam (Opinion linked here)
You try your case to the court. It’s complicated and close. You win—Huzzah! But your opponent requests findings of fact under Rule 296 and, before your judge issues those findings, he leaves office, having lost in the primary or general election. Now what? In the absence of written findings, an appellate court sometimes may presume the trial court made all findings necessary to support its judgment. But when material facts are truly disputed, the “preferred remedy is for the appellate court to direct the trial court to file the missing findings.” If the trial court fails or refuses to do so, “the appellate court must reverse the trial court’s judgment and remand the case for a new trial.” When the judge who heard your trial is no longer around, who can issue those missing findings so you can avoid trying the case all over again? The original—now former—judge? His successor? No one?

In Villarai, the departing judge failed to issue the requested findings before he left office. His successor tried to remedy the situation by signing findings. But, the Supreme Court said, the successor—who heard none of the evidence—had no authority to issue those findings. Rule 18 allows a successor judge to decide pending motions when her predecessor “dies, resigns, or becomes unable to hold court.” And § 30.002(b) of the Civil Practice and Remedies Code authorizes a successor judge to file findings if her predecessor dies before making findings of his own. But a judge who leaves office because he lost an election has not died, resigned, or become disabled within the meaning of Rule 18 or § 30.002(b), and so neither Rule 18 nor § 30.002(b) grants the successor judge the power to issue the requested findings in that situation.

Nevertheless, the Court explained, there is a solution—if the former judge cooperates. Section 30.002(a) of the Civil Practice and Remedies Code provides, “If a … judge’s term of office expires … during the period for filing findings of fact and conclusions of law, the [departing] judge may … file findings of fact and conclusions of law in the case” even after leaving the bench. Timing is crucial here. If the time for filing findings expires before the departing judge leaves office, § 30.002(a) does not apply, and “there would be no judges with power to file findings.” If the clock is still running when the departing judge’s term ends, however, he may be asked to file the requested findings. And if he complies, the findings he files are effective, and the case may proceed on appeal. If the former judge fails or refuses to file findings as requested, however, now that he’s no longer on the bench, the appeals court must remand for a new trial.

NO FRACTURING? NO PROBLEM. BUT A WORD OF WARNING FOR LEGAL MALPRACTICE EXPERT WITNESSES.

Ashton v. KoonsFuller, P.C.
Dallas Court of Appeals, No. 05-16-00130-CV (May 10, 2017)
Justices Francis, Fillmore, and Stoddart (Opinion, linked here)
KoonsFuller represented Ashton in her divorce, but withdrew during the process. After the divorce was finalized, Ashton sued KoonsFuller for negligence, breach of fiduciary duty, and fraud, attacking the firm’s approach to various matters and the fees it charged along the way. KoonsFuller secured a no-evidence summary judgment against Ashton’s fraud and breach-of-fiduciary-duty claims, and the Dallas Court of Appeals affirmed. But there were some twists along the way.

First, when the trial court granted judgment against Ashton’s fraud and fiduciary-duty claims, it denied summary judgment on her negligence claim. But she nonsuited it nonetheless. We don’t know why.

Second, KoonsFuller’s “primary argument” on appeal was predictable: dismissal of the fraud and fiduciary-duty claims was appropriate because they violated the “anti-fracturing” rule in legal malpractice cases. But under Rule 166a, summary judgment can only be granted—or affirmed—on a ground specified in the motion. KoonsFuller had not raised fracturing as a ground for its summary judgment motion; it didn’t articulate the argument until its reply brief below (again, we don’t know why). So, the Court of Appeals held the anti-fracturing rule could not be considered on appeal, to support the summary judgment.

Finally, although the trial court had overruled KoonsFuller’s objections to Ashton’s summary judgment evidence, the Court of Appeals disagreed, and with apparently devastating effect. Ashton had tendered the affidavit of an expert witness, as well as excerpts from his deposition, to challenge KoonsFuller’s billings and several of the firm’s practices and decisions during the divorce proceeding. As described and quoted in the opinion, the affidavit was hardly terse or cryptic. And no defects in the witness’s experience or expertise were noted. Nevertheless, the Court found the testimony to be “conclusory and … not adequate summary-judgment evidence.” The recurring theme in this determination was the Court’s condemnation of the expert’s testimony that fees or practices were unreasonable, but his failure to articulate the other side of the coin, i.e., what “would have been reasonable.” The holding here at least implies that, to fend off a no-evidence summary judgment—much less, carry the burden of proof at trial—a plaintiff’s qualified legal malpractice expert witness must not only opine about shortcomings of the defendant attorney’s conduct, but must also explain what the proper course of conduct would have been.

TEXAS SUPREME COURT USES HURRICANE IKE CASE TO CLARIFY INSURANCE “CON-TORT” ISSUES

USAA Texas Lloyds Insurance Co. v. Menchaca
Supreme Court of Texas (April 7, 2017)
Justice Boyd’s Opinion available here
Acknowledging its own precedents had “led to substantial confusion among other courts,” the Texas Supreme Court in Menchaca attempts to clarify “the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.”

Hurricane Ike hit Galveston Island in September 2008, and Gail Menchaca filed a claim under her USAA homeowner’s policy. Based on its adjusters’ findings that the damages were less than the deductible, USAA refused to pay anything under the policy. Menchaca sued, and the case went to a jury, which found (1) USAA did not fail to comply with the terms of its policy; (2) USAA did refuse to pay the claim without conducting a reasonable investigation; and (3) the amount USAA should have paid for Menchaca’s damages was $11,350. The trial court disregarded the jury’s answer to the first question, and awarded Menchaca $11,350 plus $130,000 in attorney’s fees.

USAA appealed, and the Corpus Christi Court of Appeals affirmed. The Supreme Court granted USAA’s petition for review, reversed the judgment, and remanded for a new trial. The primary purpose of the opinion, however, was to answer a question that had long been brewing in Texas insurance jurisprudence: Under what circumstances, if any, may policy benefits be recovered as actual damages for an Insurance Code violation?

LESS ONEROUS NOTICE REQUIREMENTS APPLY TO RULE 202 PETITION WHEN SUIT IS NOT “ANTICIPATED”

Glassdoor, Inc. v. Andra Group, LP
Dallas Court of Appeals, No. 05-16-00189-CV (March 24, 2017)
Justices Francis, Stoddart, and Whitehill (Opinion, linked here)
Glassdoor operates a website that allows users to post anonymous reviews of their employers. Andra discovered negative reviews posted on Glassdoor’s site and filed a Rule 202 petition seeking a pre-suit deposition from Glassdoor. In the petition, Andra asserted it did not anticipate claims against Glassdoor. Rather, Andra desired to learn the identities of the anonymous reviewers to investigate potential defamation and business disparagement claims against the reviewers.

Rule 202 permits a deposition before a lawsuit is filed for two purposes: (1) “to perpetuate or obtain . . . testimony . . . for use in an anticipated suit” and (2) “to investigate a potential claim or suit.” Before the petition is heard, notice must be given to the proposed deponent, and if suit is “anticipated,” notice must also be given to persons expected to be adverse to the petitioner in the anticipated suit. Notice can be given to unnamed persons by publication.

Andra gave notice to Glassdoor but failed give notice to the anonymous reviewers. The trial court concluded Andra’s petition sought to investigate a “potential” claim, not an “anticipated” claim, such that the reviewers need not be given notice. The court of appeals held this was not an abuse of discretion. The petition largely tracked the language of the “potential claim” portion of Rule 202. The Court also questioned whether a Rule 202 petition filed solely to identify anonymous reviewers seeks “testimony” within the meaning of the rule.

Glassdoor argued suit was “anticipated” because Andra already had the negative reviews and only sought the identity of the reviewers. The Court disagreed. Even if Andra learned the reviewers’ identities, suit would not inevitable. Andra would then need to learn more about the reviewers and their relationship with the company to evaluate certain defenses, such as substantial truth, before deciding whether to file suit.

SCOTX REMINDS PLAINTIFFS TO CHECK ALL THE BOXES BEFORE FILING A CLAIM AGAINST AN ARCHITECT

Levinson Alcoser Associates, L.P. v. El Pistolón II, Ltd.
Supreme Court of Texas, No. 15-0232 (February 24, 2017)
Justice Brown (Opinion, linked here); Justice Boyd (Concurring)
El Pistolón sued Levinson, its architect, after it became dissatisfied with Levinson’s services on a commercial retail project. In a suit concerning professional services rendered by an architect (or certain other licensed professionals), Chapter 150 of the Civil Practice and Remedies Code requires a plaintiff to submit a sworn certificate of merit. The certificate of merit must be prepared by a third-party professional who (a) has the same professional license as the defendant; (b) is licensed in Texas; (c) is actively engaged in practice; and (d) is knowledgeable in the defendant’s area of practice.

El Pistolón submitted an affidavit from Payne, an actively practicing Texas-licensed professional architect. But the affidavit was silent as to Payne’s knowledge of Levinson’s practice area, shopping centers and similar commercial construction. After the trial court denied Levinson’s motion to dismiss, Levinson brought an interlocutory appeal. The court of appeals affirmed, but the Supreme Court did not. The Court recognized that an architect’s knowledge may be established outside the affidavit, but concluded there was no record evidence that could satisfy the knowledge requirement. So the Court remanded to the trial court with instructions to dismiss, leaving it to the trial court to decide whether the dismissal should be with or without prejudice.

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