SCoTx HOLDS A SECOND PART OF THE EXPUNCTION STATUTE TO BE “OFFENSE-BASED” RATHER THAN “ARREST-BASED”

Ex parte R.P.G.P.

Supreme Court of Texas, No. 19-1051 (May 14, 2021)

Justice Guzman (Opinion, linked here), Justice Bland Dissenting (Opinion linked here)

Ken Carroll

Expunction is a statutory civil remedy that, when applicable, largely erases the record of an individual's arrest. It allows one who has been arrested to “deny the occurrence of the arrest and [deny even] the existence of the expunction order” itself, except in a criminal proceeding. It also prohibits governmental and private entities named in the expunction order from maintaining, disseminating, or using the expunged records “for any purpose.” A court will issue an expunction order if the prerequisites and conditions specified in the statute are met. See Tex. Code Crim. Pro. art. 55.01. The statute, however, is not a model of clarity. The Supreme Court of Texas describes it as “linguistically complex and present[ing] a statutory construction challenge that courts at all levels have grappled with.”

One particularly vexing problem arises when an individual is arrested on multiple charges, one or more of which later would qualify for expunction if viewed in isolation, while others would not. Until fairly recently, most Texas courts facing that situation had held the test for expunction to be “arrest-based” rather than “offense-based”—that is, if any of the multiple offenses for which the petitioner was arrested did not qualify for expunction, then none covered by that same arrest could be expunged. In 2018, however, the Supreme Court held that Article 55.01(a)(1)—which authorizes expunction on the basis of acquittal or pardon—is “offense-based” rather than “arrest-based,” such that an individual arrested on multiple charges could obtain “partial expunction” and redaction of arrest records for the charges on which he was acquitted or pardoned, even if other charges entailed in the same arrest did not qualify for that relief. State v. T.S.N., 547 S.W.3d 617 (Tex. 2018).

In R.P.G.P., the Court dropped the second shoe, answering a question left open in T.S.N. R.P.G.P. deals with Article 55.01(a)(2), which concerns potential expunction in the context of dismissals and plea bargains. Although that provision has different requirements and conditions than Article 55.01(a)(1), addressed in T.S.N., the Supreme Court reached the same conclusion as in T.S.N., guided by that prior decision—an intricate analysis of the language of the statute compels the determination that “Article 55.01(a)(2) is an offense-based expunction provision and with respect to misdemeanor offenses, the proviso [or condition] in Article 55.01(a)(2)(A) is also offense-based.” Said another way, “the statute recognizes that [a single] arrest for multiple offenses is the functional equivalent of individual arrests for each individual offense,” each of which should be evaluated on its own for expunction purposes under Article 55.01(a)(2).

NO IMPLIED LIFTING OF ABATEMENT

Cruz v. Hernandez

Dallas Court of Appeals, No. 05-19-00956-CV (April 23, 2021)

Justices Schenck (Opinion, linked here), Smith, and Garcia

Ken Carroll

In 2012, Cruz was appointed guardian ad litem for three minors in a personal injury case. In 2015, the trial court issued an order abating the case pending resolution of a separate lawsuit against an underinsured-motorist insurance carrier. After the case had lain dormant for about three years, the trial court set a status conference. When Cruz didn’t appear for the conference, the trial court removed him and appointed a new guardian. Months later, in May 2019, Cruz applied for compensation for his services as guardian and, two days later, the trial court signed a final judgment in the case. On Cruz’s motion, the trial court then signed an amended judgment that, among other things, awarded fees both to Cruz and to the new guardian ad litem. Cruz appealed, arguing the trial court erred in the fees it awarded to him, in appointing the new guardian, and in entering judgment—all while the case was still abated. Perhaps surprisingly, the Court of Appeals agreed.

“An abatement is a present suspension of all proceedings in a suit.” “During abatement,” the appeals court explained, “the court and the parties are prohibited from proceeding in any manner[, and] unless otherwise specified in the abatement order, any action taken by the court or the parties during the abatement is a legal nullity.” Prior decisions from the Dallas Court required that, “to end an abatement, … an order of reinstatement must be entered.” Contrary to what one might expect, the Court’s precedent “rejected implied cessation of abatement by the court’s or the parties’ conduct, such as entering a judgment or otherwise proceeding with the case.”

Because no “order of reinstatement” had been entered in this case, all the actions of the parties and the trial court after the 2015 abatement order were “a legal nullity”—even though Cruz had sought or participated in several of those actions and even though the actions logically reflected an understanding by the parties and trial court that the abatement was no longer in effect. Although it acknowledged the waste and delay entailed in its ruling, the Court of Appeals, bound by its own prior decisions, had no choice but to reverse and remand the case to the trial court.

COURT REINS IN RUNAWAY INJUNCTION

Retail Services WIS Corp. d/b/a Product Connections v. Crossmark, Inc.

Dallas Court of Appeals, No. 05-20-00937-CV (May 4, 2021)

Justices Schenck, Reichek, and Carlyle (Opinion linked here)

Lyndon Bittle

The Dallas Court of Appeals vacated for lack of specificity several provisions of a temporary injunction against a company’s former employees and its competitor (their new employer). The court affirmed other provisions of the order, and remanded to the trial court.

Crossmark and Product Connections compete for business providing “in-store consumer experience” services to large retailers. In a familiar scenario, Crossmark sued Product Connections and three former Crossmark employees for misappropriating trade secrets and improperly soliciting Crossmark employees and clients. Following an evidentiary hearing, the trial court entered a temporary injunction with nineteen separate provisions (in twelve paragraphs) prohibiting certain conduct and a “Device Turnover Order” (DTO) requiring defendants to produce all laptops and other digital storage devices to Crossmark’s counsel for forensic inspection. Defendants filed an accelerated interlocutory appeal.

The appeals court first rejected appellants’ arguments that Crossmark had not established a probable right to relief or irreparable injury. The court found Crossmark adduced sufficient evidence “to raise a bona fide issue as to its right to ultimate relief” and noted the misuse of confidential information “has been described as ‘the epitome of irreparable injury.’”

Turning to the specific relief granted by the order, the court applied the requirements of Texas Rule of Civil Procedure 683 that a temporary injunction “state the reasons for its issuance, be specific in terms, and describe in reasonable detail … the act or acts sought to be restrained.” The court concluded the order adequately explained the reasons underlying the prohibitive provisions, but did not justify the mandatory DTO.

The court then reviewed each of the prohibitions and found that eleven of the nineteen provisions failed to satisfy Rule 683’s specificity requirements, primarily because some material terms were not defined. For example, while the order adequately defined Crossmark’s “Confidential Information and Trade Secrets” for some provisions, other provisions enjoined conduct using terms that were not clearly defined, such as “confidential,” “proprietary,” and “business information.” Nor did the order adequately identify “Covered Clients and Customers.”

The DTO likewise failed the specificity test by failing to define “Crossmark information” or “other digital storage devices,” which gave another ground for reversing that part of the order. The court rejected, however, appellants’ argument that ordering turnover of digital devices without following the procedures governing pretrial discovery of “electronic or magnetic data” is always improper because it circumvents the protections provided by Rules 192-196 and In re Weekley Homes, 295 S.W.3d 311 (Tex. 2005). According to the court, neither the discovery rules nor Weekley precludes an injunction mandating turnover of electronic devices—provided the order complies with Rule 683.

SCOTx HOLDS STOWERS REQUIRES EXCESS LIABILITY BUT BREACH OF CONTRACT DOES NOT

In re Farmers Texas County Mutual Insurance Co.

Supreme Court of Texas, No. 19-0701 (April 23, 2021)

Opinion by Justice Busby linked here.

Partial Dissent by Chief Justice Hecht linked here.

Lyndon Bittle

The Texas Supreme Court held an insurer cannot be liable under Stowers when a case settles within policy limits, but requiring the insured to contribute to the settlement might be a breach of contract.

The lawsuit arose from an auto accident involving Cassandra Longoria (Farmers’ insured) and Gary Gibson. Farmers appointed its in-house counsel to defend Longoria. Gibson offered to settle the lawsuit for $350,000, well within Longoria’s $500,000 liability policy limit. Longoria urged Farmers to accept the offer, expressing concerns that the risk of an excess verdict was heightened by defense counsel’s failure to timely designate expert witnesses. Farmers refused to pay more than $250,000. Longoria contributed $100,000 to close the settlement, and retained her right to seek recovery from Farmers. Longoria then sued Farmers, asserting breach of contract as well as negligent failure to settle under Stowers.

Farmers responded to the suit with a motion to dismiss under Texas Rule 91a, on the grounds that Longoria’s claims had “no basis in law.” A motion under that rule must be decided based solely on the facts alleged in the plaintiff’s petition. The trial court denied the motion on all counts. The San Antonio Court of Appeals denied Farmers’ request for mandamus on the Stowers claim, but granted mandamus on the contract claim, holding Longoria’s petition did not state a viable claim that the insurer breached its contractual duty to “settle or defend.”

Farmers sought mandamus from the Supreme Court, arguing that both lower courts had abused their discretion in ruling on the Stowers claim and that it had no adequate remedy on appeal. Farmers’ mandamus petition posited a bright-line rule: “[T]here can be no Stowers claim in the absence of an excess judgment against the insured.” It relied on several previous decisions, including those holding that (i) risk of exposure to an excess judgment is a key consideration in assessing the reasonableness of a settlement demand, American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994), and (ii) that the “injury producing event [in a Stowers case] is the underlying judgment in excess of policy limits,” Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 829 (Tex. 1990).

Longoria filed a counter-petition for mandamus, arguing that the appeals court erred by dismissing the breach of contract claim for having no basis in law, “when the petition alleged that Farmers breached the insuring contract by mishandling her defense and withholding payments for a covered loss.” Longoria relied on cases holding that an insured may assert “rights granted under Stowers together with rights under the contract of insurance.” State Farm Mut. Auto Ins. Co. v. Traver, 980 S.W.2d 625, 629 (Tex. 1998). To refute Farmers’ “bright-line rule” on the Stowers claim, Longoria cited the holding in American Centennial Insurance Co. v. Canal Insurance Co., 843 S.W.2d 480, 482 (Tex.1992), that an excess carrier may sue a primary insurer to recover settlement payments, through equitable subrogation of the insured’s Stowers rights.

The Court granted both mandamus petitions in part and overruled the appellate court on both claims. First, it adopted a variation of Farmers’ bright-line Stowers rule: the insured cannot sue “for negligent failure to settle because her liability did not exceed policy limits.” Reconciling the lines of authority cited by the parties, the Court held liability exceeding policy limits can be based on either a judgment or settlement.

As for breach of contract, the Court held “Longoria has not alleged a viable claim for breach of Farmers’ contractual obligation to defend, but she has alleged a breach of its indemnity obligation.” Farmers could not be held vicariously liable for counsel’s alleged failure to timely designate experts, and Longoria did not allege any other recognized ground for finding a breach of the duty to defend. On the other hand, the allegations that Farmers withheld $100,000 in settlement funds and insisted Longoria contribute that amount to a reasonable settlement stated a potential claim for breach of the insurer’s duty to indemnify. The Court rejected Farmers’ (and the Dissent’s) argument that no duty to indemnify arose because Longoria was not “legally obligated to pay” the amount she paid to close the settlement.

Finally, the Court devoted several pages to potential grounds on which Farmers might or might not be required to reimburse Longoria, noting it could not reach the merits of those grounds in reviewing a Rule 91a order. Those issues and others require an evidentiary record and determinations in the trial court.

Chief Justice Hecht, joined by Justices Boyd and Blacklock, agreed that Longoria could not state a claim under Stowers, but would also have barred recovery under the policy.

THE JOSH BRENT CASE: “APPARENT” INTOXICATION IS AN OBJECTIVE TEST FOR DRAM-SHOP-ACT LIABILITY

Beamers Private Club d/b/a Privae Lounge v. Jackson

Dallas Court of Appeals, No. 05-19-00698-CV (April 21, 2021)

Justices Osborne, Pedersen III (Opinion, here), and Goldstein

Ken Carroll

In the wee hours of the morning on December 8, 2012, after a night of drinking, Dallas Cowboys defensive lineman Josh Brent crashed his car while speeding. Brent’s best friend and teammate, Jerry Brown, was a passenger in the car and died in the accident. Brown’s mother, Stacey Jackson, sued Brent and Beamers d/b/a Privae, the club where Brent had been drinking immediately before the crash, securing multi-million-dollar judgments against each. Brent did not appeal. Beamers did, challenging, among other things, the legal and factual sufficiency of the evidence to support the judgment against the club under the Texas Dram Shop Act.

Under the Act, providing an alcoholic beverage to someone can lead to statutory liability if, “at the time the provision occurred it was apparent to the provider that the individual being sold, served, or provided with an alcoholic beverage was obviously intoxicated to the extent that he presented a clear danger to himself and others.” Focusing on the requirement that it be “apparent to the provider” that the person being served “was obviously intoxicated,” Beamers pointed to testimony from servers and other club employees, as well as from some of Brent’s teammates who were present, that Brent did not appear to them to be “obviously intoxicated.” The jury, of course, disagreed.

The Dallas Court of Appeals affirmed the verdict and judgment, holding that “the test for liability under the Act is an objective one.” The Court explained that “the requirement that intoxication be ‘apparent to the provider’ does not mean that the provider must actually observe such signs of intoxication; if it did, any provider of alcohol could escape liability by turning a blind eye to signs of intoxication that would otherwise be plain, manifest, and open to view.” Here, Brent failed a series of “roadside intoxication tests” at the accident scene, and a video showed Brent—who “was quiet and reserved by nature”—dancing at the club while drinking from two open bottles of alcohol. Especially viewed in the light most favorable to the verdict, the evidence was legally and factually sufficient to satisfy the Act’s objective test.

One procedural note, highlighting the recent turnover on the Dallas Court: Both the late Justice David Bridges and former Justice David Evans had participated in this case through submission. Justices Osborne and Goldstein, having studied the briefs and record, replaced them in the final determination of the appeal.

SCOTx AGAIN TELLS INSURERS: WAITING FOR AN APPRAISAL CAN TRIGGER DELAYED-PAYMENT PENALTIES

State Farm Lloyds v. Hinojos

Supreme Court of Texas, No. 19-0280 (March 19, 2021)

Opinion by Justice Bland linked here.

Dissents by Justices Guzman and Blacklock linked here and here.

Lyndon F. Bittle

The Texas Supreme Court has once again rejected the argument that by eventually paying an appraisal award, an insurer can avoid liability under the Prompt Payment of Claims Act, chapter 542 of the Texas Insurance Code.

As discussed last April in this blog, linked here, the Court has in recent years addressed several scenarios involving an insurer’s payment of an appraisal award long after the deadline imposed by the Prompt Payment Act. In each case, the Court held the insurer was potentially liable for the penalties imposed by the Act, including interest at 18% under section 542.060(a). Hinojos presents a slight variation on the theme. Rather than rejecting the claim, State Farm accepted the claim and paid the amount it determined was due ($2000) within the time period required by the Act. Fifteen months after the policyholder filed suit, Start Farm invoked the policy’s appraisal process. Shortly after the appraisal award was issued—about two and a half years after Hinojos submitted his claim—State Farm paid an additional $23,000. State Farm sought summary judgment on the grounds that “timely payment of the appraisal award precludes prompt payment damages under Chapter 542.” The trial granted summary judgment, and the court of appeals affirmed.

The Texas Supreme Court reversed and remanded. Finding that its previous decisions, including Barbara Technologies Corp. v. State Farm Lloyds (2019) and Alvarez v. State Farm Lloyds (2020), applied to these facts, the Court reiterated, “State Farm’s payment of the appraisal award outside the statutory deadline does not relieve it of Chapter 542 liability.” The Court held the result was compelled by the text of the Act and supported by public policy: “Otherwise, an insurer could pay a nominal amount toward a valid claim to avoid the prompt payment deadline that the Legislature has imposed.”

The dissenting Justices argued the language of the Act and the cases on which the majority relied did not support the majority’s conclusion. While they acknowledged concern about giving insurers “an incentive to low-ball insureds and hope they will accept the initial offer,” the dissenters noted “statutory claims are available against insurers” acting in bad faith, and insisted the Court’s “job is to apply the statutory text, not to worry about whether the text wisely aligns the incentives.”

SCOTX COVID-19 ORDER DOES NOT GRANT COURTS POWERS THEY HAVE LOST

Quariab v. El-Khalili

Dallas Court of Appeals, No. 05-20-00979-CV (March 15, 2021)

Chief Justice Burns (Opinion) and Justices Molberg and Goldstein

Neil R. Burger

Questioning its own jurisdiction on appeal, the Dallas Court of Appeals analyzed the power that the Supreme Court of Texas granted to courts to “modify or suspend” deadlines in the many emergency orders the Supreme Court issued in response to the COVID-19 pandemic. The Dallas Court held that the emergency orders do not give a trial court the ability to revive its plenary power once it had expired after a final judgment.

Pursuant to a settlement agreement, the trial court dismissed the underlying case. Five months later, the court reinstated the case based on a claimed breach of the settlement, and entered the injunction orders forming the basis of the appeal.

After asking for jurisdictional briefing, the appeals court determined that the COVID-19 orders presuppose a “pre-existing power or authority over the case or the proceedings,” something the trial court lacked after the expiration of its plenary power. There was, simply, nothing for the court to “modify or suspend.” Therefore, the orders reinstating the case and granting the injunction were void. The Court vacated them and dismissed the appeal for want of jurisdiction.

FIRST IMPRESSION: DALLAS COURT OF APPEALS HOLDS TCHRA PROHIBITS DISCRIMINATION BASED ON SEXUAL ORIENTATION

Tarrant County College District v. Sims

Dallas Court of Appeals, No. 05-20-00351-CV (March 10, 2021)

Justices Schenck (Concurring and Dissenting, here), Smith (Opinion, here), and Garcia

Ken Carroll

In the context of reviewing the denial of a plea to jurisdiction, the Dallas Court of Appeals has held the Texas Commission on Human Rights Act (TCHRA) prohibits discrimination based on a person’s sexual orientation or transgender status. It is the first court to do so. 

The Court acknowledged that “no Texas state court has addressed the issue of whether discrimination based on sexual orientation is prohibited under the TCHRA,” and the parties and trial court had in fact assumed the statute did not do so. But the appeals court noted that a stated “general purpose” of the TCHRA is to “provide for the execution of the policies of Title VII of the [federal] Civil Rights Act of 1964 and its subsequent amendments,” and so it “look[ed] to federal law for guidance.” Until very recently, federal authorities (including the Fifth Circuit) had held Title VII prohibited “sex discrimination—not sexual orientation or transgender discrimination.” But while the Sims case was on appeal, the United States Supreme Court decided Bostock v. Clayton County, Georgia, 140 S. Ct. 1731 (2020), holding that Title VII’s prohibition of discrimination “because of … sex” does extend to and prohibit discrimination based on sexual orientation or transgender status. “In order to reconcile and conform the TCHRA with federal anti-discrimination and retaliation laws under Title VII,” the Dallas Court concluded it “must follow Bostock and read the TCHRA’s prohibition on discrimination ‘because of … sex’ as [also] prohibiting discrimination based on an individual’s status as a homosexual or transgender person.”

Justice Schenck filed a separate opinion, concurring in the result (finding jurisdiction in the trial court) but dissenting for a variety of reasons from the majority’s pronouncement extending the scope of the TCHRA. The trial court had not had the opportunity to review the issue in light of Bostock. No party or amicus before the appeals court had addressed the issue “in an adversarial posture”—i.e., after Bostock, they all agreed with the extended scope articulated by the majority. The pronouncement was unnecessary to the determination of jurisdiction, because jurisdiction clearly existed on grounds other than the TCHRA—which Sims had not expressly pleaded, given the state of the law when she filed her lawsuit. And, on the “merits,” the law of Texas in 1983 when the TCHRA was enacted—including statutes that prohibited same-sex marriage and criminalized homosexual conduct—was such that the legislature at that time could not reasonably be understood to have included discrimination on the basis of sexual orientation within the prohibitions of the TCHRA or to have envisioned or intended that a change in federal law 40 years later would have that effect on this Texas statute.

THE CONTRACT MEANS WHAT THE CONTRACT SAYS

Anubis Pictures, LLC v. Selig

Dallas Court of Appeals, No. 05-19-00817-CV (March 3, 2021)

Justices Pedersen, III and Reichek (Opinion, available here)*

Kelli Hinson

This case arises out of Anubis Pictures’ attempted financing of a film based on a screenplay written by the late Stanley Kubrick. When the deal fell through, Anubis sued its would-be business partner for, among other things, violation of an NDA and letter of intent. The trial court granted summary judgment against Anubis on all claims, and Anubis appealed.

Anubis argued the trial court should not have granted summary judgment on its NDA claims because fact issues existed regarding whether the defendant had misused confidential information provided to her. The Court of Appeals disagreed. The NDA required that, for written material to be considered confidential, it must be marked confidential on its face. None of the emails or other materials at issue had been explicitly marked confidential when sent to the defendant, and a later email stating “Please do not forward the script” did not retroactively protect the script as confidential.

Anubis also argued that, even if the documents were not marked confidential, the parties treated them as confidential, as evidenced by the defendant’s request for permission to share the script and information about the project with some of her contacts. The Court did not reach the merits of that argument because it noted that, as to the documents the defendant asked for permission to disclose, she had permission to disclose them.

Anubis also complained the trial court erred in granting summary judgment on its claim for breach of a letter of intent, but the Court rejected that argument as well. It was undisputed that the defendant never signed the letter of intent, but Anubis argued the parties had an oral agreement to proceed in accordance with the terms, regardless of whether it was signed. The Court looked back at the NDA, which was the only agreement signed by both parties. It provided that neither party was “bound to proceed with any transaction between them unless and until both parties signed a formal, written agreement setting forth the terms of such transaction.” This “No Obligation to Complete Transaction” provision prevented the formation of an oral contract on the letter of intent as a matter of law. 

*Justice Bill Whitehill participated in the oral argument and submission of this case, but not the issuance of the opinion, which occurred after the expiration of his term on December 31, 2020.

NO FORMAL PLEADING REQUIRED FOR ATTORNEYS’ FEES IN ARBITRATION

Ninety Nine Physician Services, PLLC v. Brian Murray

Dallas Court of Appeals, No. 05-19-01216-CV (February 22, 2021)

Justices Schenck (Opinion), Osborne, and Partida-Kipness (Concurring)

Neil R. Burger

In Ninety Nine Physician Services, the Dallas Court of Appeals reversed the judgment of the trial court and enforced an arbitrator’s award of attorneys’ fees even though there was no pleading in the arbitration seeking such an award.

The parties’ arbitration agreement provided that all disputes would be governed by the AAA’s Commercial Rules, but it was silent about any award of attorneys’ fees. The AAA rules permit an arbitrator to award fees in three circumstances: (1) if all parties request fees, (2) if fees are authorized by law, or (3) if fees are authorized by the agreement.

Appellant did not assert a claim that supported an award of attorneys’ fees as a matter of law. Nor did it formally plead for fees. But both Appellant and Appellees filed post-hearing submissions, including expert affidavits, seeking an award of fees. The panel majority agreed that this post-hearing briefing was sufficient for the arbitrator to conclude that all parties had requested their fees, despite the absence of any formal pleading on the issue. The AAA rules therefore authorized the arbitrator to award them.

In a concurring opinion, Justice Partida-Kipness would have concluded that awarding attorney’s fees in the absence of a pleading for such an award violated Texas’s fair notice requirements. Nevertheless, she concluded that the arbitrator’s award was a mistake of law, which would not constitute grounds to vacate the award.