NO, YOU CANNOT USE A TEMPORARY INJUNCTION TO SEQUESTER FUNDS UNRELATED TO YOUR CLAIM JUST SO YOU CAN COLLECT A POTENTIAL FUTURE JUDGMENT.

RWI Construction, Inc. v. Comerica Bank
Dallas Court of Appeals, No. 05-18-00265-CV (April 12, 2019)
Justices Brown, Schenck (Opinion, linked here), and Pedersen, III
Comerica Bank sued Lone Star, a private equity fund, and several of its portfolio companies after those portfolio companies failed to pay a loan guaranteed by Lone Star. The accounts receivable, inventory, equipment, fixtures, and other personal property of the portfolio companies served as collateral for the loan. Because the portfolio companies were insolvent and did not have assets adequate to cover the balance of the loan, Comerica sought and obtained a temporary injunction preventing Lone Star from dissipating funds received from a recent capital call to prevent those funds from becoming unavailable to satisfy Comerica’s claim on the loan and guarantee. On appeal, Lone Star argued the district court had abused its discretion because Comerica had not established it would suffer irreparable injury for which it had no adequate remedy at law.

The Dallas Court of Appeals held the lower court had abused its discretion by failing to follow established precedent prohibiting trial courts from issuing injunctions to freeze defendants’ assets simply to assure payment of future judgments. The Court echoed concerns expressed by the United States Supreme Court that allowing for such injunctions would create a race to the courthouse among creditors where insolvent or nearly insolvent debtors were concerned—with the fastest creditor “licensing himself, as first hog to the trough, to all of its contents.” Further, the Court said, such a practice would render obsolete statutory remedies like garnishment, attachment, and receivership.

The Court distinguished this general rule, however, from instances in which “there is a logical and justifiable connection between the claims alleged and the acts sought to be enjoined, or where the plaintiff claims a specific contractual or equitable interest in the assets it seeks to freeze.” Of the millions Comerica sought to sequester, $800,000 was an accounts receivable payment received by one of the insolvent portfolio companies, which Lone Star had then transferred to itself and refused to turn over to Comerica. Because that money was collateral for the loan in question, the Court found it was logically and justifiably connected to Comerica’s breach-of-contract claim. It therefore affirmed the trial court’s temporary injunction with respect to that amount.

Finally, the Court rejected Lone Star’s argument that the trial court’s failure to find it insolvent prevented Comerica from demonstrating an inadequate remedy at law. While insolvency can be sufficient to show an inadequate remedy, the Court explained, it is not necessary. Inadequacy might be shown, as in this case, by a defendant’s limited resources and an unwillingness to pay.

LACHES IN THE CYBER AGE: WHEN THE JUDGE SAYS “GRANTED” BY EMAIL, CAN YOU WAIT FOR A SIGNED ORDER BEFORE PURSUING MANDAMUS?

In re Yamaha Golf-Car Co.
Dallas Court of Appeals, No. 05-19-00292-CV (April 8, 2019)
Justices Bridges, Osborne, and Carlyle (Opinion, linked here)
In this mandamus proceeding, the Dallas Court of Appeals held that the relator waived its right to pursue mandamus relief by failing to timely challenge a trial court ruling contained in an email to the parties, even though no signed, written order was issued until months later.

The underlying lawsuit involved injuries to a child caused by a golf-car accident. The defendant, Yamaha, moved to designate emergency medical care providers as responsible third parties under Chapter 33. Plaintiffs filed a motion to strike, asserting that Yamaha had failed to meet the pleading and proof requirements of Chapter 74 concerning medical-care providers in emergency situations.

A month after the court held a hearing on that and other motions, the Judge sent an email to the court administrator stating that she needed “the following orders,” and listing the pending motions with an indication as to the court’s ruling on each, including that the motion to strike was “Granted.”  The court administrator forwarded the Judge’s email to all counsel, and requested orders be submitted.

The court did not sign a formal order denying the motion to strike for another seven months. Yamaha filed its mandamus petition one month after that, only three weeks before trial. Without considering the merits of the order striking the designation, the Court of Appeals determined that Yamaha’s mandamus was barred by laches because it had waited eight months after the Judge’s email announcing her decision before seeking mandamus relief. The Court rejected Yamaha’s argument that the Judge’s email was not sufficiently specific, and found that “signing the order was merely a ministerial act.”

So, the next time a court announces a ruling orally, in an email, or in some other informal fashion, think twice about waiting for a signed, written order before pursuing mandamus.

THUS SAYETH THE TEXAS SUPREME COURT: LIMITATIONS FOR CONSPIRACY GOVERNED BY LIMITATIONS FOR THE UNDERLYING TORT

Agar Corp. v. Electro Circuits International, LLC
Supreme Court of Texas, No. 17-0630 (April 5, 2019)
Opinion by Justice Devine (linked here)
Dirty Harry Callahan famously warned, “A man’s got to know his limitations.” Well, thanks to the Supreme Court’s decision in Agar v. Electro Circuits, we now know our limitations with respect to civil conspiracy claims here in Texas. The Supreme Court held that “civil conspiracy is a derivative claim that takes the limitations period of the underlying tort that is the object of the conspiracy.” “Having determined that civil conspiracy is not an independent tort,” the Court said, “it follows that the claim does not have its own statute of limitations.” Instead, “a civil conspiracy claim is connected to the underlying tort and survives or fails alongside it.”

As a corollary, the Court also held a conspiracy claim accrues and limitations begin to run along with the underlying tort; it rejected a separate last-overt-act accrual rule for conspiracy. If the claimant alleges conspiracy to commit multiple torts, the claim accrues and limitations run separately with respect to each such underlying tort.

The ruling brings Texas into line with the majority of other jurisdictions throughout the country. But reaching this conclusion required the Court to disapprove the decisions of all Texas intermediate courts of appeals to have addressed the issue, because they had held conspiracy to be governed by the two-year statute of limitations in TEX. CIV. PRAC. & REM. CODE § 16.003. Invoking that previously unbroken chain of Texas precedent, Electro protested that the Court “should not overturn the court of appeals’ decades-long uniform application of the two-year limitations period to civil conspiracy.” But the Supreme Court demurred, observing that “a long history of mistaken application alone is insufficient to counsel against correcting the error.”

ARBITRATION AGREEMENT IN NDA DID NOT EXTEND TO SEXUAL ASSAULT CLAIM

Alliance Family of Companies v. Nevarez
Dallas Court of Appeals, No. 05-18-00622-CV (April 4, 2019)
Justices Whitehill, Molberg, and Reichek (opinion linked here)
The Alliance Family of Companies and its CEO moved to compel arbitration of an employee’s claims that the CEO sexually assaulted her. In connection with her employment, the employee had signed two non-disclosure agreements, agreeing to keep confidential the information she learned about the company and the CEO. Each NDA included an agreement to arbitrate “[a]ny dispute under this Agreement.” The defendants argued that, because the alleged assault occurred in the course and scope of both the employee’s and the CEO’s employment, the claims were covered under the “broad language” of the arbitration agreements. The trial court denied the defendants’ motion to compel arbitration, and the defendants appealed.

The Dallas Court of Appeals sided with the employee, holding that her claims for sexual assault did not arise “under the [NDA] Agreement,” and so were outside the scope of the agreement to arbitrate. It concluded that “under the Agreement” requires a direct relationship between the agreement and the dispute and limits application to actions that arise as a result of the agreement. The Court distinguished other cases involving “broad provisions,” including an agreement to arbitrate “all disputes related to the employment relationship.” Here, there was no such broad language. And because the NDAs address the non-disclosure of confidential information, and not the type of intentional tort alleged by the employee, the dispute did not arise under the NDAs.

The Court also refused to consider arguably broader language contained in the recitals or “whereas clauses” of the NDAs, noting that contract recitals “are not strictly part of a contract and will not control a contract’s operative clauses unless those clauses are ambiguous.”

GOVERNMENTAL IMMUNITY: CITIES WIN ONE, LOSE ONE IN SCOTx

City of Denton v. Rushing
Supreme Court of Texas, No. 17-0336 (March 15, 2019)
Opinion by Justice Devine (linked here)

Hays Street Restoration Group v. City of San Antonio
Supreme Court of Texas, No. 17-0423 (March 15, 2019)
Opinion by Chief Justice Hecht (linked here)
The Texas Supreme Court issued two opinions today interpreting and applying the Local Government Contracts Act in cases in which cities had claimed governmental immunity. The Court found immunity had been waived in one case, but not the other.

City of Denton v. Rushing involved a claim against the City for breach of a unilateral contract based on a City policy referenced in the City’s employment manual promising pay for “on-call” services, where the manual expressly disclaimed that its provisions were contractual. The issue was whether the claim is encompassed by the waiver of immunity provided in Local Government Code § 271.052:
A local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of contract, subject to the terms and conditions of this subchapter.
The district court denied the City’s plea to the jurisdiction, and the Fort Worth Court of Appeals affirmed. The core issue was whether the employment manual was a “contract subject to this subchapter,” defined as “a written contract stating the essential terms of the agreement for providing goods or services to the local governmental entity that is properly executed on behalf of the … entity.” §271.151(2). The Court of Appeals held the “unilateral contract” reflected in the employment manual was subject to the statute, and affirmed the trial court’s denial of the City’s plea to the jurisdiction. The Supreme Court reversed, holding that the City’s policy did not create an enforceable contract because the disclaimer effectively negated any intent to do so.

In Hays Street Bridge Restoration Group v. City of San Antonio, it was undisputed that a contract was formed by a Memorandum of Understanding between the parties concerning funding for restoration of the Hays Street Bridge and creation of a park. When the City decided not to use the property for a park and sold it to Alamo Beer Company, the Restoration Group sued for specific performance of the MOU. The City claimed immunity, but the trial court rejected that argument and entered judgment requiring the City to comply with the agreement. The San Antonio Court of Appeals reversed and rendered judgment for the City. The Supreme Court, citing its 2014 Zachry Construction opinion, held that Local Government Code § 271.153 limited damages that can be awarded against the City for breach of contract, and thus narrowed the waiver of immunity provided by § 271.152 (quoted above). However, because § 271.153 says nothing about the equitable relief of special performance, § 271.152 waives the City’s immunity for such claims. The Court remanded to the Court of Appeals for consideration of other defenses raised by the City that had not previously been addressed.

INTERLOCUTORY APPEAL OF AN ORDER DENYING AN MSJ THAT INVOLVES FREE SPEECH OR PRESS GROUNDS ENCOMPASSES THE ENTIRE ORDER

Dallas Symphony Association, Inc. v. Reyes
Supreme Court of Texas, No. 17-0835 (March 8, 2019)
Opinion by Chief Justice Hecht (linked here)
Jose Reyes was “a low-level customer-call-center employee of Bank of America [who] participated in [Dallas Symphony] Orchestra events as a volunteer and small donor for some ten years.” But he “acquired a reputation for crashing [DSO] events uninvited, photobombing, and speaking to the media purportedly on the Orchestra’s behalf but without authorization.” The DSO terminated Reyes as a volunteer and informed the Orchestra’s contact at the Bank about that. Reyes responded with an aggressive email from his Bank computer, purporting to express the Bank’s displeasure. The DSO forwarded that email to the Bank, which then terminated Reyes’s employment for a variety of reasons. When the DSO issued a brief “media advisory” about Reyes’s termination as a volunteer, D Magazine investigated and published an article about the entire saga, branding Reyes a “social butterfly” who “misrepresented his role with charities.”

Reyes sued D Magazine and the DSO for, among other things, defamation, tortious interference, and conspiracy. Both defendants moved for summary judgment, partly on the basis that some of the statements at issue were constitutionally protected, and partly on other, nonconstitutional grounds. When the trial court granted the motions in part and denied them in part, the magazine and the DSO appealed under § 51.014(a)(6) of the Civil Practice & Remedies Code, which provides for interlocutory appeal when a trial court “denies a motion for summary judgment that is based in whole or in part” on a defense grounded in the First Amendment’s free speech and free press guarantees. The Dallas Court of Appeals, however, concluded it lacked jurisdiction to review the trial court’s denial of the DSO’s motion regarding tortious interference, saying interlocutory review under § 51.014(a)(6) “is limited to the denial of summary judgment on claims or defenses implicating rights of free speech or free press”—an issue on which intermediate courts of appeals had disagreed.

The Supreme Court reversed, holding that whenever an appeal is triggered under § 51.014(a)(6), the statute’s plain language extends review to the entire order denying summary judgment and not just to those portions of the order addressing constitutional claims or defenses. The Court discounted earlier characterizations of the interlocutory-appeal statute as a “narrow exception” to general rules of appealability, an exception that must be “strictly construed.” “Characterizations of textual interpretations as ‘strict,’ liberal,’ ‘narrow,’ ‘broad,’ and the like,” the Court said, “are not helpful when, as is usually the case, the real goal is simply a ‘fair’ reading of the language.” Carefully parsing that language here—and particularly the statute’s authorization of an appeal from an order that denied a motion “based in whole or in part” on constitutional guarantees—the Court held that § 51.014(a)(6) allowed the DSO to appeal from the entire order denying its motion, on all grounds. The Court therefore proceeded to review the trial court’s denial of the DSO’s motion for summary judgment on tortious interference, a review that involved no constitutional defenses. It reversed that denial and remanded for the trial court to render judgment for the DSO.

PREMISES DEFECT VERSUS CONDITION OF TANGIBLE PERSONAL PROPERTY

City of Richardson v. Slaver
Dallas Court of Appeals, No. 05-18-00562-CV (February 28, 2019)
Justices Whitehill, Molberg, and Reichek (opinion linked here)
Plaintiff Slaver alleges she was injured when a water-meter cover flipped open under her, causing her to fall. The City of Richardson argued Slaver’s claim against it should be dismissed on the grounds of sovereign immunity because it was based on an alleged premises defect about which the City had no knowledge. Slaver argued the claim was based on the condition or use of tangible personal property, so knowledge of the alleged defect was not necessary for waiver of immunity. The trial court agreed with Slaver and denied the City’s motion to dismiss.

The Dallas Court of Appeals sided with the City. There was no dispute that the water meter was in the ground under the level of the parking lot where Slaver fell, and when allegedly defective property is affixed to land or other property, the case involves a premises defect. The Court ruled that the water meter included all of its integral parts, including the cover, regardless whether the cover could be removed. But even if the cover itself could be considered tangible property, an item of personal property that creates a dangerous condition on real property is a premises defect. “The distinction lies in whether it is the actual use or condition of the tangible personal property itself that allegedly caused the injury, or whether it is a condition of real property—created by an item of tangible personal property—that allegedly caused the injury.” Because the Court concluded the case involved a premises defect and there was no evidence the City had actual knowledge of the dangerous condition, the Court reversed the trial court’s order denying the City’s plea and dismissed Slaver’s claims for lack of jurisdiction.

YOU DON’T HAVE TO CHOOSE BETWEEN DESIGNATING YOUR CLIENT AS AN EXPERT AND MAINTAINING THE ATTORNEY-CLIENT PRIVILEGE

In re: City of Dickinson
Supreme Court of Texas, No. 17-0020 (February 15, 2019)
Opinion by Justice Devine (linked here)
Rules 192.3 and 194.2 permit a party to request discovery of all materials that have been provided to, reviewed by, or prepared by or for an expert in anticipation of the expert’s testimony. If you have designated your own client or a client representative as an expert witness, does that mean you have to turn over documents provided to the client that would otherwise be protected by the attorney-client privilege? The Supreme Court of Texas says no. 

The City of Dickinson sued Texas Windstorm, asserting a claim for property damage caused by Hurricane Ike. In response to the City’s summary judgment motion, Texas Windstorm submitted an affidavit from Paul Strickland, its corporate representative and senior claims examiner. The affidavit included both factual and expert opinion testimony. The City subsequently learned that Strickland’s affidavit had been revised in a series of emails between Strickland and Texas Windstorm’s counsel. Not surprisingly, the City wanted to see those emails, and the trial court ordered their production. Texas Windstorm sought mandamus relief, and the court of appeals held that the emails were privileged and that the trial court abused its discretion in ordering their production. The City then sought mandamus relief from the Texas Supreme Court.

Siding with Texas Windstorm and the court of appeals, the Supreme Court held the documents were privileged and protected from discovery. The Court noted that, although the discovery rules permit a party to request documents provided to the other side’s testifying expert, they do not necessarily require the other side to produce such documents. Any such request must be evaluated in light of the other discovery rules. In addition, the official comments to Rule 194 explain that, although a party cannot withhold such documents based on the work-product doctrine, it “may assert any [other] applicable privileges.” The Court also focused on the importance of the attorney-client privilege and noted that a “lawyer’s candid advice and counseling is no less important when a client also testifies as an expert.” It therefore held that the documents were privileged and the court of appeals did not abuse its discretion in vacating the trial court’s discovery orders.

POLICY’S LIMITATION ON LIABILITY COVERAGE DID NOT APPLY TO DEFENSE COSTS

Anadarko Petroleum Corp. v. Houston Casualty Co.
Supreme Court of Texas, No. 16-1013 (January 25, 2019)
Opinion by Justice Boyd (linked here)
In yet another insurance dispute arising out of the 2010 Deepwater Horizon drilling-rig catastrophe, the Texas Supreme Court rejected the insurer’s argument that its policy limited coverage for defense costs to a fraction of the actual costs. The opinion is another lesson in the Court’s approach to interpreting insurance policies.

Anadarko owned a 25% minority interest in BP’s Deepwater Horizon operation. After a federal court held BP and Anadarko jointly and severally liable for damages under the Oil Pollution Act, Anadarko reached a settlement with BP, under which Anadarko paid BP $4 billion and relinquished its 25% interest in exchange for BP’s agreement to indemnify Anadarko for any additional liability. BP did not agree to pay Anadarko’s defense costs, so Anadarko sought to recover those costs, which exceeded $100 million, under an excess liability policy purchased on the Lloyd’s London market. The policy provided coverage up to $150 million for Anadarko’s “Ultimate Net Loss,” which included both liability and defense costs. The Underwriters, however, took the position that a joint-venture endorsement limited the insurers’ responsibility to 25 % of the limit, i.e., $37.5 million, which it paid. Anadarko acknowledged the $37.5 million limit applied to the $4 billion settlement payment, but argued it did not limit its right to recover defense costs up to $112.5 million—the remaining balance of the $150 million policy limit.
The joint-venture endorsement had three clauses. The first provided the basic coverage limitation: [A]s regards any liability of [Anadarko] which is insured under this Section III and which arises in any manner whatsoever out of the operation or existence of any joint venture … in which [Anadarko] has an interest, the liability of Underwriters under this Section III shall be limited to the product of (a) the percentage interest of [Anadarko] in said Joint Venture and (b) the total limit afforded [Anadarko] under this Section III.
The second and third clauses provided exceptions to the limit imposed by the first clause. The trial court granted part of the relief sought by Anadarko, finding the first clause applied but was modified by the third clause, so that Anadarko was entitled to recover some, but not all, of the costs it requested. The Beaumont Court of Appeals granted the parties’ cross-petitions for permissive appeal, reversed the judgment, and granted judgment for the Underwriters. The appellate court agreed the first clause’s limitation was triggered, but held neither of the exceptions applied. On review, the Texas Supreme Court disagreed with both of the lower courts, and held the limitation imposed by the first clause applied only to Anadarko’s liability, not to defense costs.

The Court parsed the first clause, quoted above, in the context of the policy’s defining “Ultimate Net Loss” to mean:
the amount [Anadarko] is obligated to pay, by judgment or settlement, as damages resulting from an “Occurrence” covered by this policy, including the service of suit, institution of arbitration proceedings and all “Defence Expenses” in respect of such “Occurrence.”
After consulting dictionaries, cases describing common uses in insurance and other legal contexts, and other provisions in the policy using the term “liability,” the Court construed the term as referring to the insured’s “legally imposed obligation to pay for a third party’s damages in response to a written claim.” As such, the term does not encompass defense costs, i.e., the “voluntarily assumed obligation to pay lawyers, investigators, or others for services provided to defend against the liability.” Consequently, the Court held, “the liability insured and defense expenses are two separate components of the Ultimate Net Loss,” and only the former is limited by the joint-defense endorsement.

The Court reversed the judgment of the court of appeals, rendered judgment granting Anadarko’s motion for partial summary judgment, and remanded to the trial court “for further proceedings consistent with this opinion”—a determination of the amount of defense costs incurred up to the remaining policy limit.

COURT ERRED IN HOLDING THAT WELLS FARGO FAILED TO PROVE ITS CAPACITY TO SUE FOR NON-JUDICIAL FORECLOSURE

Wells Fargo Bank, N.A. v. Kingman Holdings, LLC
Dallas Court of Appeals, No. 05-17-01240 (January 17, 2019)
Justices Schenck, Reichek (opinion linked here), and Nowell
The Woomers’ home mortgage went through several assignments before they defaulted on their payments in 2016. The only contested issue in this declaratory judgment action was Wells Fargo’s capacity to bring suit to establish its lien and to proceed with a non-judicial foreclosure on the property as trustee for Lehman ABS Mortgage Loan Trust 2007-1, Mortgage Pass-Through Certificates, Series 2007-1. Wells Fargo introduced several documents proving its capacity, including copies of the note, the security instrument, and documents showing the chain of assignments of the security instrument from the original mortgage holder to Wells Fargo. In an attempt to contest Wells Fargo’s capacity to bring suit, Kingman Holdings (which had purchased the home subject to the mortgage) submitted an “attestation” by a records and information management specialist for the Securities and Exchange Commission that “[a] diligent search has this day been made of the records and files of this Commission, and the records and files do not disclose that any filings have been received in this Commission under the name of Lehman ABS Mortgage Loan Trust 2007-1, or Lehman ABS Mortgage Loan Trust 2007-1, Mortgage Pass-Through Certificates, Series 2007-1, pursuant to any of the Acts administered by the Commission.” Kingman argued the attestation showed that the trust of which Wells Fargo claimed to be trustee did not exist “or at least [was] not found in the records of the Securities and Exchange Commission.” The trial court found Wells Fargo had failed to meet its burden to prove capacity and entered judgment against Wells Fargo.

The Dallas Court of Appeals disagreed. It held that Kingman had failed to show Wells Fargo was required to make any filings with the SEC or that the lack of any filings with the SEC prevented Wells Fargo from bringing suit on behalf of the trust. Absent such proof, the attestation was meaningless, and Wells Fargo’s evidence that it was the last entity to which the security interest was assigned was sufficient to conclusively show it had capacity to bring the action. So the appellate court reversed the trial court and rendered judgment declaring that Wells Fargo has a valid and subsisting superior lien on the property.

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