DENTIST IS QUALIFIED TO TESTIFY REGARDING CAUSE OF CARDIAC INFECTION

Bell v. Markham
Dallas Court of Appeals, No. 05-19-00041-CV (January 30, 2020)
Justices Molberg, Reichek, and Evans (Opinion, available here)
In this dental malpractice case, the Dallas Court of Appeals confirmed a dentist may be qualified to offer expert opinions regarding the cause of a cardiac infection. To fulfill their obligations to serve Defendants with a qualifying expert report under Chapter 74, Plaintiffs proffered the report of Robbie Henwood, DDS. Defendants objected to the report, arguing that, as a “general dentist,” Henwood was not qualified to render an expert opinion that a bacterial infection in a person’s mouth caused a cardiac infection.

The Dallas Court disagreed, noting that Chapter 74 provides that “a dentist or physician” may provide the causation testimony in a professional liability case against a dentist, if the witness is qualified to do so under the rules of evidence. Here, Henwood’s report addressed his “knowledge, skill, experience, training or education” regarding the specific issue before the court—how an infection in the mouth developed into endocarditis. The Court also focused on the fact that, in addition to being a dentist, Henwood obtained additional training and expertise in doctoral pharmacology studies and teaches premedical students cardiovascular physiology. Additionally, Henwood testified that he had provided patients with treatment plans to prevent the spread of streptococcus mitis, the bacterium at issue in this case. In his report, Henwood provided a detailed explanation of how streptococcus mitis can spread from an infected tooth to the heart and cause endocarditis. Accordingly, the Court rejected Defendants’ argument that Henwood needed a medical degree or other specialization in treating infections to qualify as an expert witness on causation.

REVERSAL OF $535 MILLION JUDGMENT AFFIRMED—NO PARTNERSHIP WHEN CONTRACTUAL CONDITIONS NOT SATISFIED OR WAIVED

Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.
Supreme Court of Texas (January 31, 2020)
Opinion by Chief Justice Hecht (linked here)
The Supreme Court of Texas today affirmed the 2017 decision of the Dallas Court of Appeals to throw out a $535 million judgment for alleged breach of a partner’s fiduciary duty, holding no statutory partnership was created when contractual conditions precedent were not satisfied.

In 2015, 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 around $535 million in damages, interest, and disgorgement. The Dallas Court of Appeals in July 2017 held no partnership was formed because conditions stated in the parties’ written agreement had not been satisfied or waived. So it reversed and rendered a take-nothing judgment. See my previous blog post with a full discussion of the intermediate court’s opinion here.

The core issue in the case was the relationship between Chapter 152 of the Texas Business Organizations Code and the parties’ own prior written agreements. TBOC § 152.051(b) provides that “an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether … the persons intend to create a partnership.” Section 152.052(a) then provides a list of factors “indicating that persons have created a partnership.” But the parties’ agreements stated that no partnership obligations would arise without definitive written agreements negotiated, executed, and approved by both companies’ boards of directors. The Texas Supreme Court noted, “Section 152.003 expressly authorizes supplementation of the partnership-formation rules of Chapter 152 with other ‘principles of law and equity,’ and perhaps no principle of law is as deeply ingrained in Texas jurisprudence as freedom of contract.” It also reiterated its “view expressed decades ago in Ingram [v. Deere, 288 S.W.3d 886, 898 (Tex. 2009)] that the Legislature did not ‘intend[] to spring surprise or accidental partnerships’ on parties.” Accordingly, the Court held “that parties can contract for conditions precedent to preclude the unintentional formation of a partnership under Chapter 152 and that, as a matter of law, they did so here.” And, although conditions can be waived or modified, ETP failed to either “obtain a jury finding on waiver or to prove it conclusively.”

COMPANY MANAGER PERSONALLY LIABLE FOR CONTRACT BREACH

PMC Chase, LLP v. Turnbow
Dallas Court of Appeals, No. 18-01383 (January 28, 2020)
Justices Myers, Schenck, and Carlyle (opinion linked here)
This is a cautionary tale for anyone who signs contracts or purchase orders for their company: Unless you want to be personally responsible for performing the contract, be sure the document clearly indicates you’re signing as the company’s representative.

BSS contracted to perform structural steel construction at PMC’s business. The one-page contract was directed to “Attention: Steve Turnbow,” and Turnbow, PMC’s manager, signed it. After substantial completion, BSS sent its invoice to Turnbow at PMC’s address. When it did not receive payment, BSS sued both Turnbow and PMC for breach of contract and (alternatively) quantum meruit. At trial, BSS abandoned its contract claim against PMC, insisting “the contract was with just Mr. Turnbow individually.” BSS retained its quantum-meruit claim against PMC.

PMC and Turnbow argued Turnbow acted only as an agent for PMC and was not, therefore, individually liable for any breach. After a bench trial, the court entered judgment against Turnbow for breach of contract and against PMC for quantum meruit, awarded the same damages and attorney’s fees for both causes of action, and held the defendants jointly and severally liable. The Dallas Court of Appeals affirmed the judgment.

Citing the “well-settled [principle] that the law does not presume agency,” the Court of Appeals held that because the contract “bears Mr. Turnbow’s signature and does not mention PMC Chase or indicate representative capacity in any way … it unambiguously shows it is the obligation of Mr. Turnbow personally.” This conclusion could not be altered, the Court held, by parol evidence of the parties’ intent, including both signatories’ testimony “that they understood Turnbow to have signed the contract for PMC Chase.”

The Court also affirmed the quantum-meruit judgment against PMC, holding that “appellants’ position that ‘there can be no recovery under quantum meruit where the same transaction is covered by a valid contract’ is contrary to established construction contract law,” citing Gentry v. Squires Construction, Inc., 188 S.W.3d 396, 402-03 (Tex. App.—Dallas 2006, no pet.). Finally, the Court noted that the judgment imposing joint and several liability for the same damages under the two causes of action precluded a double recovery.

LIMITATIONS: NO FRAUDULENT CONCEALMENT BASED ON NONDISCLOSURE AFTER PHYSICIAN-PATIENT RELATIONSHIP ENDS

Tarrant v. Baylor Scott & White Medical Center-Frisco
Dallas Court of Appeals, No. 05-18-01129-CV (January 15, 2020)
Justices Myers, Carlyle (Opinion, linked here), and Evans
Stephen Courtney, an orthopedic surgeon, performed back operations on plaintiffs Tarrant and Kendrick at Baylor-Frisco, a physician-owned hospital in which Courtney holds an interest. During the surgeries, Courtney used devices and monitoring services supplied by entities that also were largely owned by him. Alleging Courtney performed the operations improperly and used inappropriate products and services to increase his profits, Tarrant and Kendrick sued. Although their lawsuit was filed after the statute of limitations had expired, plaintiffs contended Courtney and his associated entities should be barred from asserting a limitations defense because Courtney had fraudulently concealed his wrongdoing.

The Dallas Court of Appeals agreed that under the equitable doctrine of fraudulent concealment, “a defendant who conceals his wrongful conduct, either by failing to disclose it when under a duty to disclose or by lying about his conduct, is estopped to assert the statute of limitations.” But, the Court explained, silence constitutes fraudulent concealment only when there is a duty to disclose. And, although the physician-patient relationship gives rise to fiduciary obligations by the physician, including the duty to make certain disclosures, that duty ends when the physician-patient relationship ends. Here, the plaintiffs’ fraudulent-concealment argument rested entirely on Courtney’s alleged silence and failure to disclose. But the physician-patient relationships ended shortly after the surgeries, beyond the limitations period. The appeals court, therefore, affirmed summary judgment for the defendants.

In so doing, the Court rejected plaintiffs’ argument that the tolling of limitations in a fraudulent-concealment case like this one should extend until the plaintiff discovers or reasonably could have discovered the physician’s fraudulent nondisclosure, rather than having the limitations clock begin ticking when the physician-patient relationship ends. The Court acknowledged the “logical force” of the argument but could find no authority to support it, and therefore declined to adopt that approach here.

IN A DERIVATIVE SUIT, CAN THE SAME LAWYERS REPRESENT THE LLC AND MEMBERS ACCUSED OF BEING ADVERSE TO THE LLC? MAYBE.

In re Murrin Brothers 1885, Ltd.
Supreme Court of Texas, No. 18-0737 (December 20, 2019)
Opinion by Justice Blacklock (linked here)
“Gone are the days when a family feud over a dance hall and saloon in the Fort Worth Stockyards would be solved by six-shooters. These days, we use lawyers instead of lead.” Still, the process can be unpleasant, if not deadly, for the lawyers as well as the parties.

Almost by definition, a derivative lawsuit pits a group of stakeholders who do not control an entity against other stakeholders or officers who do. Frequently, especially during the early rounds of these complex cases, the same lawyers are engaged to represent both the “inside” stakeholders and the entity itself—which is named as a plaintiff but also joined as a “nominal defendant” in such cases. In this particular derivative case—arising from a struggle for control of Billy Bob’s, the legendary Fort Worth honkytonk—the Texas Supreme Court was asked to decide whether attorney-conflicts rules and public policy prohibit a law firm from pursuing such a dual representation of both the entity and the controlling insiders. Its answer? Dual representation is okay this time, the Court decided, but maybe not in every case.

The Texas Supreme Court announced “no categorical rule governing dual representation in derivative litigation,” even though some jurisdictions have done so. The mere labels applied to the entity as both plaintiff and nominal defendant are not determinative, the Court said. Instead, the Supreme Court held “the proper inquiry is to look to whether the substance of the challenged representation requires the lawyer to take conflicting positions or to take a position that risks harming one of his clients”—i.e., a case-specific, functional analysis to decide “[w]hether a company and the individual defendants are ‘opposing parties’ for purposes of [Disciplinary] Rule 1.06(a).” This lawsuit, the Court observed, “is a fairly straightforward case about which ownership group controls the company’s decisions.” The true adversity, therefore, was between the “warring ownership factions,” rather than between either faction and the entity, so there was no disqualifying conflict. In fact, the Court said, in situations like this, involving a closely held entity, a trial court could simply treat the case “as a direct action” brought by one stakeholder against another, leaving the entity out of the conflicts equation entirely. Of course, if the derivative allegations in a case raised true questions of injury to the corporation purportedly caused by the insiders (for example, allegations of self-dealing or stripping corporate assets), the analysis of the propriety of dual representation of the entity and insiders might yield a different outcome. But that’s a question for another day.

GOVERNMENTAL IMMUNITY SUBJECT TO NO-EVIDENCE MSJ, NOT WAIVED BY OPEN MEETINGS ACT

Town of Shady Shores v. Swanson
Supreme Court of Texas, No. 18-0413 (December 12, 2019)
Opinion by Justice Lehrmann (linked here)
Sarah Swanson sued the Town of Shady Shores for wrongfully terminating her employment as town secretary in retaliation for her having reported violations of the Texas Open Meetings Act (TOMA) and Public Information Act. The Town filed a plea to the jurisdiction asserting governmental immunity, and Swanson amended her petition to add claims for declaratory judgment and constitutional free-speech violations. The Town then amended its plea and filed traditional and no-evidence motions for summary judgment. The trial court dismissed some of Swanson’s claims on jurisdictional grounds, but denied summary judgment on other claims, including her claim for declaratory judgment.

The Town filed an interlocutory appeal on the jurisdictional issues. The Fort Worth Court of Appeals affirmed in part and reversed in part. Specifically, the court held: (1) the trial court correctly denied the Town’s no-evidence motion for summary judgment because that was not a proper procedural vehicle to challenge jurisdiction; (2) the Uniform Declaratory Judgment Act (UJDA) does not “provide a general waiver of immunity,” but TOMA waives immunity with respect to Swanson’s request for declarations on certain statutory violations; (3) the Town’s jurisdictional evidence did not “negate” jurisdiction, so its traditional summary judgment motion was properly denied; (4) TOMA did not waive immunity on Swanson’s claim for back pay; and (5) Swanson failed to alleged viable constitutional claims so the Town was immune from those claims.

Swanson did not seek supreme court review of the dismissal of her claims for back pay or constitutional violations. The Town filed a petition for review of other rulings, which the Supreme Court granted. After confirming its jurisdiction, the Court reversed the appellate court’s ruling on two issues and remanded for resolution of remaining issues.

First, resolving a split among the lower courts, the Court held jurisdiction could properly be determined on a no-evidence summary judgment motion, provided the nonmovant was accorded “adequate time for discovery” and other safeguards provided by the rule.

Second, the Court held that the mandatory provisions of TOMA are enforceable only by mandamus or injunction under Government Code § 551.142, not by declaring an offending action “void” under § 551.141. The Court explained that “while the Legislature has expressly authorized a suit for declaratory judgment against the government in other statutes, it has not done so in the Open Meetings Act.” And the UDJA waives immunity only for requests to determine a “question of construction or validity arising under [a statute] and obtain a declaration of rights, status, or other legal relations thereunder.” CPRC § 37.004(a).

The Court acknowledged it had previously “affirmed or rendered declaratory judgments premised on violations” of TOMA, but noted the jurisdictional issue had not been presented or addressed in those cases. It declined to “ascribe to tacit acceptance the same significance we would give to an express consideration and analysis of the issue.”

Finally, the Court considered Swanson’s “standalone” claim under TOMA. Although she had not sought review of the appellate court’s sua sponte ruling she had not asserted such a claim, the Supreme Court held she had not waived her objection to that ruling because it was not part of the judgment. Reviewing the record, the Court held Swanson had asserted claims for mandamus and injunctive relief under TOMA that the lower court had not addressed. The case was therefore remanded for further consideration by the court of appeals.

RECEIVER ENTITLED TO “DERIVED JUDICIAL IMMUNITY”

Manning v. Jones
Dallas Court of Appeals, No. 05-18-01140-CV (December 4, 2019)
Justices Pedersen III (Opinion, linked here), Reichek, and Carlyle
Jones was appointed as Receiver in a divorce case, to take charge of, maintain, and sell a building that was part of the marital estate. When Jones ended up selling the building for far less than had been hoped, Manning, one of the divorcing parties, sued Jones for her supposed failures in managing and selling the property. The trial court, however, granted summary judgment to Jones based on “derived judicial immunity,” and the court of appeals affirmed.

Judges enjoy absolute immunity for “all judicial acts unless such acts fall clearly outside the judge’s subject-matter jurisdiction.” When a judge delegates his or her authority or appoints someone to perform services for the court, that person may have “derived judicial immunity” for performing those delegated responsibilities. A “person entitled to derived judicial immunity receives the same absolute immunity from liability as a judge acting in his or her official judicial capacity.”

Texas uses a “functional approach” to decide whether a party is entitled to derived judicial immunity. One may claim such immunity if he or she carried out duties “intimately associated with the judicial process” and “exercised discretionary judgment comparable to a judge, as opposed to ministerial or administrative tasks.” Such immunity has been extended to trustees and receivers, among others.

The acts and omissions of which Manning complained were clearly the product of discretionary judgments by Jones on matters delegated to her by the court. So, just as the NFL’s all-time leading receiver Jerry Rice (above) seemed immune from defenders seeking to hold him in check, so also was Jones immune from Manning’s attempts to hold her accountable for her actions as Receiver here.

CLASS ARBITRABILITY IS A “GATEWAY ISSUE” TO BE DECIDED BY COURT, NOT ARBITRATOR, ABSENT “CLEAR AND UNMISTAKABLE” CONTRARY AGREEMENT

Robinson v. Home Owners Management Enterprises, Inc.
Supreme Court of Texas, No. 18-0504 (November 22, 2019)
Opinion by Justice Guzman (linked here)
This past summer, the United States Fifth Circuit held that whether arbitration under the Federal Arbitration Act may proceed on a class rather than an individual basis is a “gateway issue” to be decided by the court and not the arbitrator, absent the parties’ “clear and unmistakable” agreement to the contrary—joining every other circuit court to have considered the issue. 20/20 Communications, Inc. v. Crawford, 930 F.3d 715 (5th Cir. 2019). Fifteen years earlier, in In re Wood, the Supreme Court of Texas had held the opposite, that “issues of class arbitration are for the arbitrator to decide.” 140 S.W.3d 367, 368 (Tex. 2004). But the ruling in Wood was predicated on language in federal cases that has been “walked back” in more recent decisions. And so, given the opportunity, the Texas Court has now recanted, overruled In re Wood, and joined the majority of courts in holding that class arbitrability is for the court to decide rather than the arbitrator, unless the parties have clearly and unmistakably agreed otherwise.

The Robinsons sued Home Owners Management Enterprises (clever acronym, “HOME”) for poor construction of their new house and for HOME’s failure to repair defects. HOME moved to compel arbitration of the Robinsons’ claims based on provisions in their home warranty. While the matter was pending in arbitration, the Robinsons attempted to add class-action allegations. The arbitrator bifurcated those class issues and proceeded to hearing on the Robinsons’ individual claims. After the arbitrator ruled in their favor on those claims, the Robinsons returned to court, asserted class claims, and demanded that HOME be compelled to arbitrate those claims on a class-wide basis. The trial court, however, held that the issue of class arbitration was for it to decide, rather than the arbitrator, and then ruled that the HOME arbitration agreement did not provide for class arbitration. The Fort Worth Court of Appeals affirmed. The appeals court duly noted that the Supreme Court of Texas previously had held in In re Wood that class arbitrability would be delegated to the arbitrator, rather than the trial court. But it went on to analyze the federal decisions that had addressed the issue after In re Wood, determined that this more recent authority “effectively abrogated the legal premise on which Wood was based,” and concluded the Court likely would now decide the issue differently. It was right.

After reviewing the more recent federal authority for itself, the Supreme Court overruled In re Wood and held, “with the benefit of a more full-bodied jurisprudential debate,” that class arbitrability is “not a procedural question presumptively for the arbitrator,” but, instead—
“(1) arbitrability of class claims is a ‘gateway’ issue for the court unless the arbitration agreement ‘clearly and unmistakably’ expresses a contrary intent;
(2) ‘[a] contract that is silent on a matter cannot speak to that matter with unmistakable clarity’; and
(3) an agreement to arbitrate class claims cannot be inferred from silence or ambiguity—an express contractual basis is required.”
The HOME arbitration agreement did not provide for delegation of arbitrability to the arbitrator or even mention class arbitration. And the Court rejected the Robinsons’ argument that the “broad and sweeping” language of the agreement’s arbitration clause was sufficient to support an inference of intent to delegate. The Court therefore could not infer the parties “clearly and unmistakably” intended to entrust such issues to the arbitrator, and affirmed the lower courts’ rulings on this issue, as well. 

The Supreme Court left two issues unresolved, or at least unaddressed. First, the Robinson decision, like the federal cases it found persuasive, dealt with arbitration under the FAA, because the HOME agreement specifically referenced that statute. The Court did not discuss whether the same result would follow under the Texas Arbitration Act. But there is little reason to think it would not. Second, the Court noted that many courts have found “clear and unmistakable” intent to delegate threshold issues to the arbitrator where the agreement expressly incorporates the broad AAA arbitration rules. The HOME agreement however, neither referenced nor incorporated the AAA rules. So, the question whether incorporation of those rules would demonstrate the necessary “clear and unmistakable” intent to delegate arbitrability to the arbitrator was “not presented here,” and the Supreme Court declined to address it.

NO BACK-UP = NO BILL OF REVIEW

Mitchell v. City of Dallas
Dallas Court of Appeals, No. 05-18-01208-CV (November 20, 2019)
Chief Justice Burns and Justices Molberg and Reichek (Opinion, linked here)
A defendant can attack a default judgment through a bill of review after it’s too late to appeal or move for a new trial. Ordinarily, to secure bill-of-review relief, a party must prove (i) he has a meritorious defense (ii) that he was prevented from making because of fraud, accident, or a wrongful act by the opposing party (iii) through no fault or negligence of his own. If the defendant wasn’t served with process, however, that by itself entitles him to relief. But there’s a catch: An officer’s return of service is prima facie proof of service “that cannot be rebutted by the uncorroborated proof of the moving party.”

Here, a private “certified process server” filed a return of service stating he personally served Mitchell at a specified time and place. Mitchell didn’t answer and was defaulted. At trial of the bill of review, Mitchell testified he had not been served. But no other competent evidence corroborated that testimony. Mitchell offered affidavits from two other witnesses that might have cast doubt on service as reported, but those affidavits were properly excluded as hearsay. Consequently, the trial court denied the bill of review. The Dallas Court of Appeals affirmed, because “the testimony of a bill of review plaintiff alone, without corroborating evidence, is insufficient to overcome the presumption [from the return of service] that the [bill-of-review] plaintiff was served.”

JUDGES CAN TESTIFY AS FACT WITNESSES IN ATTORNEY DISCIPLINE CASES

Commission for Lawyer Discipline v. Cantu
Supreme Court of Texas, No. 18-0879 (October 25, 2019)
Per Curiam (opinion available here)
Judge Isgur was the primary witness against attorney Mark Cantu at the disciplinary trial that resulted in Cantu’s disbarment. Judge Isgur had presided over Cantu’s personal bankruptcy proceeding. He denied a bankruptcy discharge because of misconduct by Cantu during that proceeding and prepared a 72-page Memorandum Opinion explaining his decision, which he forwarded to the State Bar. Based on the conduct outlined in the Opinion, the Commission for Lawyer Discipline brought a disciplinary action against Cantu, and Judge Isgur testified at the trial. “Judge Isgur’s testimony was relatively brief but certainly damaging to Cantu.” Among other things, Judge Isgur testified that Cantu: “displayed a pattern of omission, obfuscation and noncompliance”; “had given false oaths in the bankruptcy court”; “improperly concealed and transferred assets”; “refused to comply with lawful Court orders”; “failed to keep adequate records” as required by the Bankruptcy Code; and “withheld information from the trustee.” The jury found against Cantu, and he was disbarred.

The Corpus Christi Court of Appeals reversed, however, finding that the trial court committed reversible error by allowing Judge Isgur to testify. The appellate court relied heavily on the Texas Supreme Court’s precedent in Joachim v. Chambers, in which the Court disapproved of the admission of expert testimony by a judge in a legal malpractice case. The Supreme Court disagreed with this application of Joachim. It distinguished the Cantu situation from that present in Joachim, because Judge Isgur was testifying as a fact witness regarding conduct he personally observed, as opposed to the judge in Joachim who had no involvement in the underlying trial and was testifying as a retained expert. The Court noted that nothing in the case law or the Texas Code of Judicial Conduct prevents a judge from testifying as a fact witness in a case. And disallowing such testimony in disciplinary proceedings would “place judge-initiated grievances at an artificial disadvantage relative to other grievances in which the complainant may freely testify.” Judges have an ethical responsibility to report instances of attorney misconduct, and it would not make sense to then prevent the complaining judge from testifying at the disciplinary proceeding. So the Court reversed the Court of Appeals decision and remanded the case for consideration of Cantu’s other arguments.

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