“Actual Knowledge” Standard for Owner’s Liability to Contractor’s Employee Sets Lower Bar than “Actual, Subjective Awareness” Requirement for Exemplary Damages

Paniagua v. Weekley Homes, LLC

Dallas Court of Appeals, No. 05-19-00439-CV (October 29, 2024)

Justices Molberg, Carlyle (Opinion, linked here), and Smith 


Weekley Homes hired Leobardo Maravilla as an independent contractor to install siding on townhomes in Dallas. Leobardo’s crew included his brother, Jose Maravilla, and John Paniagua. On May 31, 2016, rain had been falling intermittently in the area and there had been lightning strikes nearby. Weekley’s builder, Holmes, allegedly told Leobardo that he needed to move aluminum scaffolding while it was raining. While moving the scaffolding on a rain-soaked driveway, Jose was electrocuted to death and Paniagua was injured by electric shock. Paniagua and the representatives of Jose’s estate sued Weekley.

Texas Civil Practice & Remedies Code § 95.003 provides that a property owner is not liable for the personal injury or death of a construction contractor or subcontractor’s employee unless (1) the owner either exercises or retains control over the work, and (2) as relevant here, the owner “had actual knowledge of the danger or condition resulting in the personal injury, death, or property damage and failed to adequately warn.” The trial court granted Weekley’s no-evidence motion for summary judgment, and the plaintiffs appealed.

The Dallas Court of Appeals twice reversed the trial court’s grant of summary judgment. Twice, the Supreme Court of Texas reversed the court of appeals in per curiam opinions and remanded for further proceedings. 

In the most recent remand, the court of appeals addressed whether the trial court properly granted summary judgment on § 95.003’s “actual knowledge” requirement. In the first opinion issued by the court of appeals, although the court reversed summary judgment on the plaintiffs’ negligence claim, it affirmed summary judgment against the plaintiffs’ gross negligence claim. Per Civil Practice & Remedies Code § 41.001(11)(B), a plaintiff alleging gross negligence must prove, among other things, that a defendant had “actual, subjective awareness of the risk involved, but nevertheless proceed[ed] with conscious indifference to the rights, safety, or welfare of others.” In the first opinion, the court of appeals held that plaintiffs presented no evidence showing Weekley had “actual, subjective awareness” of the lightning. So, on the most recent remand, the court of appeals considered whether its holding on “actual, subjective awareness” for Chapter 41 was law of the case, which would govern the question of “actual knowledge” under Chapter 95.

The court of appeals answered this question in the negative. It noted that the Legislature adopted Chapters 41 and 95 in the same legislative session but chose to use different phrasing. “Actual, subjective awareness,” in the court’s view, set a higher bar than “actual knowledge.” Therefore, the law of the case doctrine did not preclude the court of appeals from examining whether the plaintiffs had created a fact issue on Chapter 95’s “actual knowledge” requirement.
 
Nevertheless, the court of appeals affirmed summary judgment. It explained that it stood by its statement in its prior opinion that Weekley was not aware of the thunder and lightning strikes in the area. It pointed to the fact that Weekley’s builder Holmes left before the electrocution and no evidence showed that he perceived anything other than rain. 


Fair Notice of Pleadings

Hyde v. GACP Finance Co., LLC 

Dallas Court of Appeals, No. 05-23-00873-CV

Justices Reichek, Nowell (Opinion, available here), and Wright

Kelli Hinson

The “fair notice of pleadings” doctrine requires that the parties’ pleadings give adverse parties notice of their claims and defenses, as well as notice of the relief sought. Plaintiff GACP learned that lesson the hard way when the Dallas Court of Appeals reversed a $1.8 million judgment in its favor and rendered judgment for the Defendants. 

The GACP sued Defendants Hyde and Winspear alleging fraud in connection with a Credit Agreement. The parties to the Credit Agreement were Excel as the borrower, GACP as the “administrative agent and collateral agent,” and GACP, L.P. (“GACP Lender”). GACP alleged that Defendants, who were principals of Excel, paid themselves deferred compensation in violation of the Credit Agreement. On the third day of trial, Defendants argued that GACP did not have capacity to seek its requested damages. GACP admitted that the damages alleged were suffered by GACP Lender, but it argued it was pursuing those damages “as the agent on behalf of the lender.”  The trial court asked where that was stated in the Petition, and GACP was at a loss. It pointed to one reference in the Factual Allegations section to its capacity “as agent for various Lenders.” Although the trial court recognized this was a case-dispositive issue, it allowed the trial to continue and ultimately entered a judgment in favor of GACP for more than $1.8 million.

The Court of Appeals reversed and rendered. Texas Rule of Civil Procedure 301 requires the trial court’s judgment to be supported by the pleadings. This “fair notice” pleading standard “looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant.” The Court of Appeals held that GACP’s “passing reference” to its role as agent was not sufficient to give Defendants notice it was seeking damages on behalf of GACP Lender as its agent. Defendants were not required to raise this issue before trial through special exceptions or a verified denial because they were entitled to rely on GACP’s pleading asserting it was seeking its own damages. Because GACP admitted it had not suffered any damages of its own, it did not have standing to pursue claims against the Defendants.  

Insurer’s Proposed Permissive Interlocutory Appeal Rejected: Won’t Materially Advance Ultimate Termination of Litigation

Zurich Am. Ins. Co. v. MB2 Dental Solutions, LLC

Dallas Court of Appeals, No. 05-24-00288-CV (September 20, 2024)

Justices Molberg (Opinion, linked here), Pedersen, III, and Carlyle 


After Zurich denied coverage under three insuring agreements for MB2’s losses arising from COVID-19 pandemic government orders, MB2 sued Zurich, asserting breach-of-contract and extra-contractual claims. Three years into the suit, the parties filed cross-motions for partial summary judgment on one of the insuring agreements, which covered interruption-by-communicable-disease (“ICD”). After briefing, a hearing, and more briefing, the trial court issued an omnibus order granting and denying in part each party’s motion, ruling that civil-authority orders triggered coverage by prohibiting access to MB2’s locations only in a subset of the implicated states and localities. Zurich sought leave to pursue a permissive appeal, which the trial court granted.

The court of appeals denied the petition, however, ruling Zurich had not satisfied the requirements for permissive interlocutory appeal under section 51.014(d) of the Texas Civil Practice and Remedies Code. Section 51.014(d) provides that a trial court may permit an appeal from an interlocutory order if: “(1) the order to be appealed involves a controlling question of law as to which there is a substantial ground for difference of opinion; and (2) an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Then, the court of appeals may accept the appeal if the appealing party timely files “an application for interlocutory appeal explaining why an appeal is warranted under Subsection (d).” 

In Texas, appeals generally are limited to final judgments. Statutes providing for interlocutory appeal are strictly construed. Applying these rules, the court concluded that Zurich failed to establish an appeal from the partial summary judgment order would materially advance the ultimate termination of the litigation. The court pointed out that the appeal could only determine contractual liability for one of the three coverage grants in dispute. MB2’s breach-of-contract claims under the other two coverage provisions would remain pending, as would its extra-contractual claims. The outcome of the proposed interlocutory appeal would not affect any of these remaining claims. While a party seeking interlocutory appeal under section 51.014(d) need not establish that such an appeal would completely resolve the litigation, it must show that an appeal “may materially advance” termination of the litigation. Here, because issues and claims would remain unresolved and unaffected by resolution of ICD coverage alone on appeal, an interlocutory appeal would not materially advance the ultimate termination of the litigation.



Arbitration and Not-So-Evident Partiality

Aspen Strategic Holdings, LLC v. Transitus Capital, L.L.C.

Dallas Court of Appeals, No. 05-23-00249-CV (August 27, 2024)

Justices Partida-Kipness (Opinion, here), Pedersen III, and Carlyle


A court will vacate an arbitration award where there is “evident partiality” of the arbitrator. See, e.g., Tex. Civ. Prac. & Rem. Code § 171.088(a)(2)(A). The Supreme Court of Texas has explained that a “neutral arbitrator … exhibits evident partiality if he or she does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Burlington Northern Railroad Co. v. TUCO, Inc., 960 S.W.2d 629, 636 (Tex. 1997). Further, “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. But according to the Dallas Court of Appeals, that test isn’t quite as simple as it may seem.

Aspen secured an arbitration award against Transitus and sought to have that award confirmed by a district court. Transitus, however, moved to vacate because (a) it discovered that one of Aspen’s attorneys in the arbitration had appeared before the arbitrator in another arbitration several years earlier, and (b) the arbitrator had not disclosed that prior appearance as required by the applicable AAA rules. The trial court granted the motion to vacate based solely on that nondisclosure. 

But the appeals court reversed, ruling that the trial court had “stopped too soon.” Although the facts of the prior appearance and the arbitrator’s nondisclosure were not contested, analysis under the TUCO standard does not end there, the Court explained. Instead, “the proper question then becomes whether the undisclosed facts might, to [an] objective observer, create a reasonable impression of the arbitrator’s partiality. …  Only by evaluating the facts of the specific case can the trial court conclude that the undisclosed facts were sufficiently material to meet the evident impartiality [sic] standard.” The appeals court therefore reversed and remanded for the trial court to revisit the motion to vacate under that second prong of the TUCO standard. It also overturned the trial court’s order quashing Aspen’s “subpoena calling for the arbitrator to testify concerning the circumstances or reasons for the nondisclosure.” The appeals court considered that testimony (a) to be potentially important to determining “whether an objective observer might form a reasonable impression that the arbitrator was partial,” and (b) not to be forbidden by “either AAA rules or the Civil Practice and Remedies Code.”



Substantial Invocation of the Judicial Process Waives Arbitration under the FAA Even Without a Showing of Prejudice

Dallas Excavation Systems, Inc. v. Orellana

Dallas Court of Appeals, No. 05-23-01149-CV (August 21, 2024)

Justices Molberg (Opinion, here), Nowell, and Kennedy (Dissenting, here)


In a case arising from an arbitration agreement governed by the Federal Arbitration Act, the Texas Supreme Court has held that, “[A] party waives an arbitration clause by [1] substantially invoking the judicial process [2] to the other party’s detriment or prejudice.” Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). More recently, however, the United States Supreme Court has said that under the FAA, it is “wrong to condition a waiver of the right to arbitrate on a showing of prejudice.” Morgan v. Sundance, 596 U.S. 411, 417 (2022).

Dallas Excavation Systems (“DES”) commenced two separate but related lawsuits against Orellana and others. After those cases were consolidated, and only 48 days before trial, DES moved to compel arbitration pursuant to an arbitration clause in one of the contracts at issue. That clause provided for arbitration under the FAA, 9 U.S.C. § 1 et seq. The trial court denied the motion to compel, ruling that DES had waived arbitration by “substantially invoking the judicial process.” A divided panel of the Dallas Court of Appeals affirmed, finding that DES’s actions in the trial court, viewed “together as a whole,” “evidence[d] an election to litigate, not arbitrate.” The majority further held that, even though the Texas Supreme Court has not yet considered the issue, “the second Perry Homes factor—prejudice to the nonmovant—… no longer applies, at least in cases involving arbitration agreements governed by the FAA.”

Justice Nancy Kennedy dissented, arguing that DES had not sufficiently “invoked the judicial process”—i.e., had not “actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration”—to be deemed to have waived its right to arbitrate. As a result, she would not have reached the question whether the second Perry Homes factor, prejudice to the party resisting arbitration, has been eliminated in Texas for FAA cases, based on intervening SCOTUS precedent. 

When a Non-Solicitation Agreement Applies Even If There’s No Solicitation

Bain & Schindele Tax Consulting, LLC  v. EW Tax and Valuation Group, LLP

Dallas Court of Appeals , No. 05-23-00560-CV (August 7, 2024) 

Justices Molberg, Nowell (Opinion, linked here), and Kennedy



Sarah Schindele sold the assets of her tax and bookkeeping business (“BSTC”) to EW Tax for a little over $800,000—$162,500 up front and a note for the balance that called for 60 monthly payments of $7300 and a sizeable balloon payment at the end of the payout period. As part of the arrangement, Schindele agreed that for a five-year “Restrictive Period”she would not (a) solicit work from any of BSTC’s clients listed in the sales agreement or (b) accept work from any of them. The agreement set the fair market value of that non-solicitation provision at $300,000.

Just over a year after the deal closed, Schindele started a new business and began providing tax services for several former BSTC clients. Upon learning of this, EW Tax stopped making its monthly payments under the note and sued for breach of contract; BSTC counterclaimed for the payments remaining under the note. After a bench trial, the district court found Schindele had materially breached the parties’ agreement by accepting work from BSTC clients within the non-soliciation period. But it nevertheless awarded BSTC about $275,000—the note balance minus (a) the payments EW Tax had already made and (b) the value of that portion of the “Restrictive” non-solicitation period lost to EW Tax by virtue of Schindele’s breach. 

The Dallas Court of Appeals reversed and rendered judgment that BSTC take nothing on its claim. Although Schindele argued she had not solicited former BSTC clients, saying they had approached her, she and BSTC did not contest the trial court’s finding that she accepted work and payment from those former BSTC clients during the Restrictive Period. That was enough to support the trial court’s finding of material breach of this particular agreement, which expressly barred her from accepting work from former BSTC clients, as well as from soliciting such work. “It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance,” the appeals court observed. It therefore held Schindele’s material breach discharged EW Tax from its obligation to make any payments after the breach—even though those were obligations under the note, rather than the sales agreement itself.

Rule 91a Dismissal Based on Affirmative Defense of Derived Judicial Immunity

Sposito v. Rollins-Threats

Dallas Court of Appeals, No. 05-23-00597-CV (July 10, 2024)

Justices Justices Partida-Kipness (Opinion, linked here), Pedersen III, and Carlyle


In a suit affecting the parent-child relationship (SAPCR), the family court appointed Dr. Rollins-Threats as a “parenting facilitator.” Displeased with the SAPCR process and outcome, Sposito sued Rollins-Threats for malpractice, “child endangerment,” and slander, alleging she had “violated state and federal laws,” “told multiple lies,” and “violated [Sposito’s] rights,” in the course of the SAPCR proceedings. Rollins-Threats responded with a motion to dismiss under Rule 91a, asserting  the affirmative defense of “derived judicial immunity” in her role as a court-appointed parenting facilitator. The trial court granted that motion, dismissing Sposito’s case, and the Dallas Court of Appeals affirmed. 

Under Rule 91a, a court may dismiss a cause of action that has no basis in law or fact. A claim has no basis in law “where the allegations in the plaintiff’s own pleading establish a complete legal bar to the plaintiff’s claims by affirmatively negating entitlement to the relief requested.” That can include dismissal on the basis of an affirmative defense, if (1) the plaintiff’s own pleading establishes that affirmative defense, and (2) the affirmative defense has been pleaded by the defendant and is properly before the court. 

Here, as noted, Rollins-Threats had pleaded the affirmative defense of derived judicial immunity. “When entitled to the protection of derived judicial immunity, an officer of the court receives the same immunity as a judge acting in his or her official judicial capacity—absolute immunity from liability for judicial acts performed within the scope of [his or her] jurisdiction.” Texas courts apply a “functional approach” to determine if a party is entitled to such immunity, focusing on whether the conduct of the person appointed by the court is like that of the delegating or appointing judge. “If the tasks necessitate the exercise of discretion, judicial immunity will apply.”

The Court of Appeals found no cases addressing whether a court-appointed parenting facilitator is entitled to derived judicial immunity. But after examining Dr. Rollins-Threats’s assigned duties, the Court held that she met the standard for immunity, that Sposito’s claims all rested on Rollins-Threats’s performance of her duties as a court-appointed parenting facilitator, and therefore that the trial court properly dismissed Sposito’s claims under Rule 91a. 

Owner Testimony about Value: “Because I Said So” Isn’t Enough

Hernandez v. Ayala

Dallas Court of Appeals, No. 05-23-00549-CV (June 18, 2024)

Justices Smith (Opinion, linked here), Miskel, and Breedlove

Customarily, an owner may testify about the value of his or her property in a Texas trial court. Testimony of an independent expert isn’t required. But to be legally sufficient, an owner’s testimony about value must embody and convey more than the owner’s unsupported, unsubstantiated guess.

A partnership dispute arose between Hernandez and Ayala. At trial, the jury awarded Ayala $104,000 in damages based on the value of partnership property Ayala testified Hernandez had wrongfully withheld from him. The Dallas Court of Appeals, however, reversed that damages award.

The sole evidence establishing the value of the disputed property came from Ayala. Although an owner may testify to the value of his or her own property, “valuations may not be based solely on a property owner’s ipse dixit. An owner may not simply echo the phrase ‘market value’ and state a number …; he must provide the factual basis on which his opinion rests.” Nat. Gas Pipeline Co. v. Justiss, 397 S.W.3d 150, 159 (Tex. 2012). “Because property owner testimony is the functional equivalent of expert testimony, it must be judged by the same standards.” Id. 

Ayala “provided no basis for his valuations of the property. He did not testify that he was familiar with the market value of the partnership property or otherwise explain how he determined the value of each item.” Ayala’s testimony therefore was legally insufficient to support the jury’s damages verdict. 

Designating an Unknown Person as a Responsible Third Party

In re Chitkara

Dallas Court of Appeals, No. 05-24-00482-CV (June 12, 2024)
Justices Pedersen III, Smith (Opinion, linked here), and Garcia 

If a defendant wants to designate an unknown person as a responsible third party, Civil Practice & Remedies Code § 33.004(j) prescribes unique requirements—distinct from those governing designation of known persons— that must be closely followed.

Chitkara sued Ortiz and his employer, Hellas Construction, when Ortiz abruptly pulled in front of Chitkara on the Dallas North Tollway, causing a collision. Ortiz and Hellas alleged in their answer that “the occurrence in question was the result of a person not a party to the suit.” They subsequently sought to designate this “John Doe” as a responsible third party under CPRC Chapter 33. The trial court granted that request, but the Dallas Court of Appeals disagreed on mandamus, directing that the order be vacated.

Section 33.004(j) provides the “exclusive” procedure and delineates the specific requirements for a defendant to designate an “unknown person” as a responsible third party:
  • The defendant must allege in the answer “that an unknown person committed a criminal act that was a cause of the loss or injury that is the subject of the lawsuit” and must plead “facts sufficient for the court to determine that there is a reasonable probability that the act of the unknown person was criminal";
  • The defendant must state in its answer “all identifying characteristics of the unknown person, known at the time of the answer”; and
  • The pleading containing these required allegations must be filed “not later than 60 days after the filing of the defendant’s original answer.”
Although Ortiz and Hellas vaguely alleged that “the occurrence in question was the result of a person not a party to the suit,” they did not allege criminal conduct or facts sufficient to show criminal conduct. Nor did they allege “all identifying characteristics of the unknown person.” The trial court therefore abused its discretion by granting the motion to designate. The Court of Appeals also rejected defendants’ argument that they should be allowed to replead to add the required allegations, saying that would undermine the “explicit timing requirement” of § 33.004(j).

Oh Deer...No TRO During Appeal

 In re: Texas Parks and Wildlife Department

Dallas Court of Appeals, No. 05-24-00582-CV (May 23, 2024)
Justices Reichek, Carlyle, and Miskel (opinion available here)
Lesson learned: serving an out-of-state registered agent for the out-of-state defendant is not proper service under Texas law. 

The owners of a commercial deer-breeding facility brought suit to enjoin the Texas Parks and Wildlife Department from carrying out a “deer depopulation order” after the detection of Chronic Wasting Disease at the facility. The trial court denied the Department’s plea to the jurisdiction and entered a temporary injunction, and the Department filed an interlocutory appeal. The Dallas Court of Appeals entered a temporary order preventing the depopulation pending resolution of the appeal, but the Supreme Court stayed that Order. The trial court then entered a TRO regarding the manner of the depopulation. The Department sought mandamus to vacate that TRO.

The Court of Appeals conditionally granted the writ, holding that the TRO violated CPRC §51.014(b)’s automatic stay. Section 51.014(b) stays the commencement of trial pending most interlocutory appeals. But in the case of certain specified appeals, it goes further and “stays all other proceedings in the trial court pending resolution of [the] appeal,” as well. An appeal from the denial of a plea to the jurisdiction by a governmental unit—like that taken by the Department here—gives rise to that more extensive stay, which the appeals court held prohibits entry of a TRO. The trial court therefore abused its discretion in issuing a TRO in violation of the automatic stay.
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