BRIDAL SHOP’S CLAIM BASED ON THE “STIGMA” OF EBOLA IS A HEALTH CARE LIABILITY CLAIM

Texas Health Resources v. Coming Attractions Bridal and Formal
Dallas Court of Appeals, No. 05-17-00773-CV (May 16, 2018)
Wright, Fillmore, and Stoddart (opinion available here)
Coming Attractions Bridal and Formal sued Texas Health Resources (THR), claiming THR was responsible for the failure of its business. It alleged THR “negligently failed to heed the warnings” from the CDC and others regarding the imminent threat of an Ebola outbreak in the United States and did not provide its nurses with the necessary training, instruction, and protective equipment to prevent the spread of the disease. A nurse at a THR hospital treated an Ebola patient and contracted the disease. Before she was diagnosed, however, she traveled to Ohio and tried on wedding dresses at Coming Attractions. Once she was diagnosed with Ebola, the Ohio health authorities insisted the store close for cleaning. When the store reopened, it was unable to “dispel the perceived Ebola risk and stigma,” and the store closed permanently.

The Hospital moved to dismiss the claim on the grounds that it was a health care liability claim under Chapter 74 of the Texas Civil Practice & Remedies Code and that Coming Attractions failed to file an expert report as required by that statute. The trial court denied the motion, and the Hospital filed an interlocutory appeal. The Dallas Court of Appeals sided with THR, holding the claim was a health care liability claim and an expert report was required because the bridal shop’s allegations were “directly related to the provision of health care” and “directly implicate THR’s duties as a health care provider.” The safety duties THR allegedly violated are not “the types of duties that arise in an ordinary negligence case.” The appellate court also rejected Coming Attractions’ argument that it is not subject to Chapter 74 because it is not a “claimant” as defined in the statute. The Court noted that a claimant is any “person” who seeks to recover damages in a health care liability claim, and the term is not limited to patients or other natural persons.

LACHES BARS MANDAMUS IN ELECTION CASE

In re Martin
Dallas Court of Appeals, No. 05-18-00542-CV (May 10, 2018)
Francis, Evans (Opinion, available here), and Schenck
Christopher Martin and Tina Marie High Brumbelow are candidates in a run-off election for the office of district judge in Van Zandt County. A week before early voting was to begin, Martin sought a writ of mandamus ordering the Van Zandt County Republican Party Chair to declare Brumbelow ineligible to be a candidate in the run-off. Martin contended Brumbelow was not registered to vote in the district for six months prior to the election filing deadline as required by the Election Code. The Dallas Court of Appeals denied the petition, finding it was barred by laches. Mandamus is largely controlled by equitable principles, one of which is that “equity aids the diligent and not those who slumber on their rights.” The Court noted that Martin challenged Brumbelow’s eligibility almost two months after the primary election and less than a week before early voting in the run-off began and that Martin failed to explain why he did not challenge Brumbelow’s eligibility sooner. The timing of Martin’s petition effectively deprived Brumbelow of any opportunity to meaningfully respond, to marshal responsive facts and law, and to obtain counsel to defend the allegations before the early voting deadline. So, the Court concluded that Martin’s complaint was barred by laches. The Court also found that Martin failed to conclusively establish Brumbelow’s ineligibility and so did not establish that the Republican Party violated a “duty imposed by law” in refusing to declare her ineligible.

SPECIFIC-CAUSATION HURDLE TRIPS ANOTHER PLAINTIFF’S BENZENE JUDGMENT

E.I. DuPont de Nemours & Co. v. Hood
Dallas Court of Appeals, No. 05-16-00609-CV (May 8, 2018)
Justices Bridges (Opinion linked here), Myers, and Schenck
Holding the testimony of plaintiff’s experts was no evidence that benzene was the specific cause of a painter’s disease, the Dallas Court of Appeals reversed a $7 million judgment and rendered judgment for the defendant.

Virgil Hood worked for many years as an industrial painter, first for a tractor-trailer manufacturer and later for an airline. He was diagnosed with acute myelogenous leukemia (AML) in 2012, and filed a product liability lawsuit against several companies, including DuPont, alleging his exposure to benzene contained in products distributed by the defendants caused him to develop AML. After a jury trial, Hood was awarded just under $7 million.

The dispositive issue on appeal was whether the testimony of Hood’s experts was legally sufficient evidence to support the judgment. The Court followed the Texas Supreme Court’s direction in Havner to “undertake an almost de novo-like review and ... look beyond the expert’s bare testimony to determine the reliability of the theory underlying it.” Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 710 (Tex. 1997). As in Havner and many other cases, the plaintiff’s primary obstacle was to move beyond general causation—“benzene exposure is associated with AML”—and prove exposure to benzene (or other toxic substance) was the specific cause of his particular injury or disease.

Hood offered the testimony of industrial hygienist James Stewart, who “calculated Hood’s dose of lifetime benzene exposure,” and Dr. Sheila Butler, who used Stewart’s calculation and compared several epidemiological studies “to supply the alleged causal link between Hood’s lifetime cumulative benzene dose and his development of AML.” In excruciating detail, the Court analyzed the data, assumptions, methodology, and studies underlying the experts’ opinions, and found fatal flaws rendering them unreliable. Concluding the expert opinions were “no evidence of causation,” the Court reversed and rendered a take-nothing judgment.

DEFENSE COUNSEL AS “SUB-AGENT” OF INSURED CLIENT?

McCain v. Promise House, Inc.
Dallas Court of Appeals, No. 05-16-00714-CV (May 2, 2018)
Justices Bridges (Opinion linked here), Fillmore, and Stoddart
Citing a policy provision giving a liability insurer the right to settle a claim against its policyholder without the policyholder’s consent, the Dallas Court of Appeals enforced a Rule 11 settlement agreement signed by the policyholder’s attorney (retained by the insurer) despite the policyholder’s objection. The opinion provides a roadmap for enforcing Rule 11 agreements, while raising troubling issues about the relationships between an insured client, its insurer-retained attorney, and the insurer. Is an appointed counsel the “sub-agent” of the insured client?

McCain sued Promise House, alleging that his son had been physically and sexually abused while a resident there. Promise House had liability insurance with Arch, and the policy included a “sexual or physical abuse” endorsement. That endorsement provided Arch would have the “right and duty to defend” Promise House against any suit making such allegations. So, when McCain filed suit, Promise House filed a claim with Arch, and Arch retained counsel who began defending the lawsuit for Promise House. In the same paragraph imposing the duty to defend, the policy authorized Arch to, “at [its] discretion, investigate any act of ‘sexual or physical abuse’ and settle any claim or ‘suit’ that may result.” Within a month after answering the lawsuit, the attorneys for Promise House—provided by Arch—entered into a Rule 11 settlement agreement with McCain, securing a full and final release in exchange for a payment of $400,000. About two months later, however, Promise House objected to the “proposed settlement” and took the position its attorney—the attorney provided by Arch—did not have the authority to enter into the settlement agreement on its behalf. That’s where things got interesting.

Upon learning of Promise House’s position, McCain filed the Rule 11 agreement with the court, and amended his petition to assert breach-of-contract claims against both Promise House and Arch. McCain argued, among other things, that the signature of Promise House’s attorney alone made the agreement enforceable, and that Arch had both a right and a duty to accept the settlement. Promise House argued its attorney was not authorized to execute the Rule 11 agreement, and did so without Promise House’s knowledge, consent, authorization, or approval. Arch agreed the policy gave it the right to settle, but denied it was a party to any contract with McCain. The parties filed cross motions for summary judgment, and the trial court entered a take-nothing judgment against McCain.

On appeal, McCain argued Promise House’s policy gave Arch the absolute right to settle all claims, and “Arch, through its assigned defense counsel, authorized and approved the settlement”that bound Arch to pay the $400,000. The Court of Appeals agreed, and reversed and rendered judgment against both Promise House and Arch.

The Court’s analysis has two key components: enforcement of Rule 11 agreements and the relationships between the insurer, the insured, and defense counsel. The Court confirmed that “a written settlement agreement may be enforced even though one party withdraws consent before judgment is rendered on the agreement.” To enforce the agreement, the offended party must, as McCain did here, pursue a separate breach-of-contract claim and establish the elements of such a claim. Although the agreement in this case contemplated the settlement would be “memorialized in a final settlement agreement,” the Court held it contained all the essential terms and was enforceable. The Court did not discuss whether—apart from the insurance issues—Promise House had rebutted the presumption that “an attorney retained for litigation [has] authority to enter into a settlement on behalf of a client.” City of Roanoke v. Town of Westlake, 111 S.W.3d 617, 629 (Tex. App.—Fort Worth 2003, pet. denied); see also Karle v. Innovative Direct Media, Ltd., 309 S.W.3d 762, 765 (Tex. App.—Dallas 2010, no pet.). It does not appear from the opinion that McCain had any reason to question the authority of Promise House ‘s attorney of record at the time the settlement was negotiated.

The Court found the attorney’s authority to settle in the client’s insurance policy under which the lawyer was appointed: “Arch retained counsel to represent Promise House; thus Arch became Promise House’s agent, and the attorney became Promise House’s sub-agent.” To support this holding, the Court relied on language in Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex. 1987). The Court did not mention the Supreme Court’s later repeated characterizations of the cited language in Ranger as dicta. See State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex. 1998) (citing American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994)). In Traver, the Supreme Court reiterated the long-standing principle that a lawyer’s sole duty is “unqualified loyalty” to the client, even when the lawyer has been appointed and is being paid by an insurer. 980 S.W.2d at 627-28 (citing Employers Cas. Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973)). Although the Court in McCain does not articulate how Arch became a party to the settlement contract if the only signature was by counsel for Promise House, it appears to presume the same counsel represented both the insurer and the insured. While some other jurisdictions hold an appointed defense counsel effectively has two clients (the insurer and the insured), Texas is decidedly a “one-client” state.

Nevertheless, as the Court recognized, the policy granted Arch the right to settle claims in its discretion. (Disputes between Promise House and Arch remain pending in a separate lawsuit.) But as demonstrated here, exercising this right can be complicated without participation by the insured. An insured’s interference with its insurer’s right to settle could in some circumstances breach the insured’s duty to cooperate, and thus potentially undermine coverage under the policy. And because the Stowers duty is owed only to the insured, the insured’s objection to the settlement would negate the insurer’s duty to accept a reasonable settlement offer, though not its right to do so.

On the other hand, no one suggests McCain did not enter into the settlement in good faith, relying on the apparent authority of the defendant’s counsel of record. And Arch, from which the attorney received instructions, unquestionably intended to fund the settlement. So, a disinterested observer might conclude the Court reached the right, “common sense” result, but left a number of thorny issues unresolved.

Many, if not all, of these issues were briefed by the parties, but are not addressed in the opinion. Stay tuned for further developments.

YES, THE TCPA PROTECTS LAWYERS’ SPEECH, TOO

Youngkin v. Hines
Supreme Court of Texas, No. 16-0935 (April 17, 2018)
Justice Lehrmann (Opinion, linked here)
During trial in a property dispute, Youngkin, an attorney, negotiated a settlement between his clients, the Scotts, and Hines. Youngkin recited the terms of the settlement into the court record as prescribed by Texas Rule of Civil Procedure 11. Hines later argued the settlement entitled him to full ownership of a tract of land but that the Scotts deeded him only partial ownership. Hines sued the Scotts for fraud and breach of the settlement agreement. Hines also sued Youngkin for participating in the Scotts’ allegedly fraudulent scheme by, among other things, entering into the Rule 11 agreement on the Scotts’ behalf while purportedly knowing the Scotts had no intent to comply.

Youngkin moved to dismiss under the Texas Citizens Participation Act, Texas’s anti-SLAPP statute. The trial court and the court of appeals denied Youngkin’s request, but the Supreme Court of Texas disagreed, finding the claims against Youngkin should be dismissed. The Legislature enacted the TCPA for the purpose of “safeguard[ing] the constitutional rights of persons to petition, speak freely, [and] associate freely.” The TCPA applies when a claim is based on or related to the exercise of one of those rights. Once a court determines that the TCPA applies, a plaintiff must put forward prima facie evidence of each element of its claim to avoid dismissal. Alternatively, a defendant can obtain dismissal by establishing a defense by a preponderance of the evidence.

The TCPA defines the exercise of the right to petition to include “a communication in or pertaining to ... a judicial proceeding.” Hines argued that Youngkin was merely speaking for his clients and was thus not exercising any personal First Amendment right entitled to protection under the TCPA, pointing to the purposes provision of the statute. The Court disagreed. It explained that the TCPA’s application is not restricted to activities protected by the First Amendment because the portion of the statute defining the “exercise of the right to petition” contains no such limitation. The Court ruled that under the plain language of the TCPA, Youngkin’s recitation of the Rule 11 agreement in open court was an exercise of the right to petition triggering application of the TCPA.

The Court then concluded Youngkin was entitled to dismissal because he established the affirmative defense of attorney immunity under the Court’s 2015 decision in Cantey Hanger, LLP v. Byrd. In Cantey Hanger, the Court held that an attorney’s liability to non-clients is limited to conduct outside the scope of his or her representation of his or her client or for conduct foreign to the duties of a lawyer. At bottom, the dispute between Hines and the Scotts turned on a disagreement over the substance of the settlement agreement. Youngkin’s negotiation of and subsequent advocacy for a favorable interpretation of that agreement in the service of his clients—“even if done improperly”—fell within the scope of his representation and thus afforded him attorney immunity and dismissal under the TCPA.

TEXAS SUPREME COURT ORDERS DISCOVERY TO DETERMINE REASONABLENESS OF HOSPITAL’S RATES

In re North Cypress Medical Center Operating Co., Ltd.
Supreme Court of Texas, No. 16-0851 (April 27, 2017)
Justice Lehrmann (opinion available here); Chief Justice Hecht dissenting (dissent available here)
Plaintiff sued North Cypress Medical Center Operating Co. (the “Hospital”), challenging the enforceability of the Hospital’s lien for medical services rendered to Plaintiff, who was uninsured. Noting the standard for discovery is lower than the standard for admissibility, the Court held the reimbursement rates a hospital receives from private insurance and federal healthcare programs are relevant to the reasonableness of charges to uninsured patients. The Court therefore required the Hospital to produce that information in discovery.

After providing emergency hospital services to Plaintiff following a car accident, the Hospital billed Plaintiff at its full “rack-rate” and asserted a hospital lien on that amount pursuant to Texas Property Code § 55.002(a), which allows hospitals a lien on money a plaintiff receives for medical expenses caused by the negligence of another person. After the Hospital and Plaintiff failed to reach an agreement on a reduced bill, Plaintiff sought a declaratory judgment that the Hospital’s charges were unreasonable and the lien was invalid to the extent it exceeded the reasonable and regular rate for the services the Hospital rendered. The trial court required the Hospital to produce documents and information concerning its reimbursement rates from private insurers and public payers such as Medicare and Medicaid for the same medical services provided to Plaintiff at the time in question. The Hospital sought mandamus relief, arguing the discovery sought was not relevant to the reasonableness of charges to uninsured patients because uninsured patients are not entitled to the benefits of negotiated rates. Several hospital systems filed amicus briefs in support of the Hospital’s position.

In its opinion ordering production of the contested documents and information, the majority noted that hospitals increasingly charge or quote a “full-price” rate but rarely actually collect that amount. The Court concluded the rates a hospital accepts as payment from the majority of its patients, even if they are differently situated than uninsured patients, are relevant to—but not dispositive of—the reasonableness of its charges for uninsured patients like the Plaintiff here. Because discovery sought must only be relevant to the cause of action, meaning it has “any tendency to make a fact ... more or less probable than it would be without the evidence,” the insured or negotiated rates were discoverable. The Court rejected the Hospital’s argument that the rates were confidential and proprietary, noting the insurance contracts could be produced pursuant to a confidentiality agreement.

The dissent observed that each patient, whether insured or not, is charged the full rate. Only if there is a negotiated rate with an insurance company or the government does a hospital agree to accept a lower rate, usually due to the benefits to the hospital of having increased patient volumes and ease of collections. The dissent noted that Plaintiff failed to show the rates charged by the Hospital were different than the rates charged to any other similarly-situated patient. Consequently, the dissent argued, insurance or other negotiated reimbursement rates are wholly irrelevant to charges for uninsured patients.

TEXAS SUPREME COURT ADOPTS “SHAM AFFIDAVIT RULE”

Lujan v. Navistar, Inc.
Supreme Court of Texas, No. 16-0588 (April 27, 2018)
Justice Blacklock (opinion available here)
Most Texas appellate courts have adopted the “sham affidavit rule”—if a party submits an affidavit that conflicts with the affiant’s prior sworn testimony and does not provide a sufficient explanation for the conflict, a trial court may disregard the affidavit when deciding whether the party has raised a genuine fact issue to avoid summary judgment.

In this case, Lujan acquired a wholesale flower company and purchased five new delivery trucks from Navistar. Lujan sued Navistar, alleging repeated mechanical problems with the trucks, and a dispute arose about whether Lujan or his company, Texas Wholesale Flower Co., Inc., actually owned the trucks. Based on prior testimony, statements on the record by Lujan’s counsel, and documents such as corporate tax returns, Navistar filed a motion for summary judgment against Lujan on the grounds that Lujan did not own the trucks and did not have standing to bring suit. Lujan responded with an affidavit stating that “he did not transfer ownership of the trucks to the Corporation and that the Corporation had no assets or liabilities and ‘never conducted business.’” The trial court found that the statements regarding the Corporation’s assets and liabilities and that it never conducted business were demonstrably false and that the statement that Lujan never transferred ownership of the trucks to the Corporation contradicted other testimony and evidence in the case, a contradiction for which Lujan gave no explanation. So the trial court struck the affidavit as a “sham” and granted summary judgment. Lujan appealed. A divided panel of the 14th Court of Appeals affirmed and “adopt[ed] the sham affidavit doctrine,” which had never been explicitly recognized by that court.

The Texas Supreme Court granted review, adopted the sham affidavit rule, and affirmed the summary judgment. It acknowledged that sometimes a contradictory affidavit is warranted, but an explanation for the contradiction is required—for example, that new evidence was discovered or the witness was confused when originally answering the question. While a trial court must not weigh evidence at the summary judgment stage, the rules of procedure require the court to determine whether a proffered fact issue is “genuine,” which means “authentic or real.” A “sham” is, by definition, “not genuine.” And so the sham affidavit rule merely recognizes the authority of a trial court to require litigants to explain conflicting testimony that appears to be a sham designed to avoid summary judgment. The Court cautioned that “most differences between a witness’s affidavit and deposition are more a matter of degree and details than direct contradiction. This reflects human inaccuracy more than fraud.” The sham affidavit rule only provides that where the circumstances point to the likelihood of a sham rather than legitimate questions of fact, the trial court may insist on a sufficient explanation and may grant summary judgment if none is forthcoming.

CORPORATION CAN BE A TEXAS RESIDENT, EVEN IF IT WASN’T “BORN” HERE

Winnsboro Auto Ventures LLC v. Santander Consumer USA, Inc.
Dallas Court of Appeals, No. 05-17-00895-CV (April 19, 2018)
Bridges, Myers, and Schenck (opinion available here)
The Texas long-arm statute allows Texas courts to exercise personal jurisdiction over non-resident defendants “doing business” in Texas. Among other things, the statute provides that contracting with a “Texas resident,” where either party is to perform the contract in whole or in part in Texas, constitutes “doing business” in this state. This case involved a breach-of-contract claim brought against a Louisiana company, Winnsboro, by Santander, a company incorporated in Illinois but with its principal place of business and corporate headquarters in Texas. Winnsboro contested personal jurisdiction, arguing that Santander was not a Texas resident able to take advantage of the long-arm statute because it was incorporated in Illinois.

The term “Texas resident” is not defined; so Winnsboro looked to other statutes that define “non-residents” or “foreign corporations” as corporations formed under the laws of another state. It argued that, if corporations formed in another state are “non-residents” or “foreign corporations,” they cannot also be “residents.” The Court of Appeals disagreed, holding that the cited definitions are not applicable to the long-arm statute and, in any event, do not purport to define “resident.” The Court could find no language in the statute, and no logical rationale, to support the conclusion that the legislature meant to exclude corporations incorporated in another state but maintaining their principal place of business here from invoking the Texas courts’ long-arm power. To hold otherwise would have the practical effect of preventing businesses located in this state from having access to Texas courts, which would give rise to constitutional concerns.

JURY’S DAMAGES VERDICT OKAY IF IT’S SOMEWHERE IN BETWEEN, EVEN IF IT’S UNCLEAR HOW THEY GOT THERE

Baker v. Habeeb
Dallas Court of Appeals, No. 05-16-01209-CV (April 18, 2018)
Justices Lang, Brown (Opinion, linked here), and Whitehill
Habeeb develops and produces TV programs. He rented space from Baker’s partnership, 3900 Commerce. During the last few weeks of Habeeb’s occupancy, Baker had maintenance workers from 3900 Commerce begin clearing the space out, to prepare for a new tenant. Oops. During the clearing-out process, the workers mistakenly disposed of the master tapes of more than 50 episodes of two programs that Habeeb had stored in the rented space. At trial, Habeeb’s expert testified that the total discounted value of the lost episodes was $4,847,000. Baker’s expert disagreed, placing the value at $160,000. The jury returned a verdict for Habeeb and assessed damages in between, at $2,582,854.60. Baker appealed, but the Dallas Court of Appeals affirmed.

Most of the Court’s opinion was devoted to a careful application of the Texas Supreme Court’s Robinson standards to Habeeb’s expert witness and his valuation testimony in the unique setting of this case. But Baker also argued that the jury’s $2,582,854.60 damages award was not supported by legally sufficient evidence, and that the value of the lost tapes was not established with the requisite “reasonable certainty.” Although the jury’s damages number was something of a head-scratcher, the Court of Appeals held the “jury’s finding may not be set aside because its reasoning in arriving at the amount of damages is unclear.” The Court explained that a “jury is free to accept or reject all or any portion of an expert’s testimony” and “has discretion to award damages within the range of evidence presented at trial, so long as there is a rational basis for calculation.” So, “[w]hile it is not clear how the jury arrived at this figure, it had the discretion to award damages within the range presented at trial”—i.e., somewhere between the $4.8 million to which Habeeb’s expert testified, and the $160,000 urged by Baker’s expert.

TEXAS SUPREME COURT RETAINS MENCHACA RULES ON INSURANCE DAMAGES, BUT SPLINTERS ON REMEDY FOR CONFLICTING JURY ANSWERS

USAA Texas Lloyds Insurance Co. v. Menchaca
Supreme Court of Texas (April 13, 2018)
Justice Boyd (opinion here); Justice Green (dissent here); Chief Justice Hecht (concurrence here.)
As reported in this blog last April (available here), a unanimous Texas Supreme Court articulated “five distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context” and remanded to the trial court for a new trial. USAA Texas Lloyds Insurance Co. v. Menchaca, No. 14-0721, 2017 WL 1311752 (Tex. Apr. 7, 2017). After granting a motion for rehearing, the Court reached the same result, but while maintaining agreement “on the legal principles and rules announced” in the previous opinion, the justices splintered on “the procedural effect of those principles in this case.”

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