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.

YOU SHOULD PROBABLY RESPOND TO A RULE 194 REQUEST FOR DISCLOSURE

F 1 Construction, Inc. v. Phillip W. Bantz and Marcos Gutierrez

Dallas Court of Appeals, No. 05-19-00717-CV (January 20, 2021)

Justices Schenck, Smith, and Garcia (Opinion)

Neil R. Burger

In F 1 Construction, the Dallas Court of Appeals affirmed the trial court’s take nothing judgment against the plaintiff for its failure to respond to a Rule 194 request for disclosure, specifically the failure to disclose the amount and method of calculating damages.

Both defendants included a Rule 194 request for disclosure in their original answers. But F 1 Construction never responded. The day before trial, one defendant filed a motion to exclude evidence of damages, and the other defendant orally joined the motion at trial. The court granted the motion, excluded evidence of damages, and entered a take nothing judgment.

On appeal, F 1 Construction characterized the ruling as a death penalty sanction under Rule 215. But the Court of Appeals viewed it otherwise. The Court held this case was governed by Rule 193.6, which governs the failure to respond to discovery, rather than Rule 215 and case law construing it. Under Rule 193.6, exclusion of evidence not disclosed in response to a proper discovery or disclosure request is mandatory and automatic absent a showing of (1) good cause or (2) lack of unfair surprise or (3) unfair prejudice. F 1 Construction’s “inadvertence” excuse was not good enough. Therefore, the trial court did not err in excluding F 1’s damages evidence.

Notably, F 1 Construction did not move for a continuance in the trial court, and defendants did not file a brief in the Court of Appeals. Litigants: respond to a request for disclosure or have your evidence barred at trial.

Also of note: Effective January 1, 2021, the Texas Rules of Civil Procedure were amended to match Federal Rule 26(a) to require parties to make initial disclosures without waiting for a request.

IS AMAZON LIABLE FOR DEFECTIVE PRODUCTS IT MARKETS FOR OTHER VENDORS?

McMillan v. Amazon.com, Inc.

Supreme Court of Texas, No. 20-0979 (certified question accepted January 8, 2021)

Fifth Circuit Opinion by Judge Willett (linked here)

Lyndon Bittle

The Texas Supreme Court has accepted a certified question that could lead to one of the more important opinions of 2021: 

 “Under Texas products liability law, is Amazon a ‘seller’ of third-party products sold on Amazon’s website when Amazon does not hold title to the product but controls the process of the transaction and delivery through Amazon’s Fulfillment by Amazon program?”

The McMillan plaintiffs allege injuries to a 19-month-old child who swallowed a battery from a TV remote purchased on Amazon’s website. The listed seller was “USA Shopping 7693,” which Amazon traced to a vendor account owned by Hu Xi Jie—an individual or company that neither Amazon nor plaintiffs have been able to contact or serve. Amazon’s potential liability for the child’s injuries turns on whether it is a “seller” of the product under the Texas Products Liability Act, chapter 82 of the Civil Practice and Remedies Code. A federal district court held Amazon was a seller, i.e., “engaged in the business of placing the product in the stream of commerce.” The court granted the parties’ joint motion to certify the order for interlocutory appeal under 28 U.S.C. § 1292(b), as it presented a “controlling question of law” on which there was “substantial ground for difference of opinion.”

 Fifth Circuit Judge (and former Texas Supreme Court Justice) Don Willett authored the opinion certifying the question, which he describes as “a res nova, determinative question of Texas law with far-reaching consequences and no instructive state-court guidance.” Similar issues are under consideration or have been addressed by several courts, with mixed results. (A similar question has been certified by the Third Circuit to the Pennsylvania Supreme Court.)

To answer the question, the Texas Supreme Court will need to apply its “bricks-and-mortar precedents”—which distinguish between “those who place products in the stream of commerce” and those who merely “facilitate the stream”—to Amazon’s complex technology by which “millions of third-party merchants” get their products sold and delivered to customers.

To be clear, the certified question is directed to a specific (but large) subset of Amazon transactions—products listed in the product-description and order-confirmation pages as “sold by” a vendor other than Amazon and delivered from Amazon warehouses through the “Fulfillment by Amazon” (FBA) program. These transactions differ from other purchases, including products listed as “sold by” and delivered by Amazon, products listed as “sold by” third parties and shipped directly to customers by the vendor, and products sold through other websites or stores and delivered through the FBA program.

The Texas Supreme Court might determine the legal significance of these differences in the context of allocating liability for personal injuries attributed to allegedly defective products. Meanwhile, it behooves us all to pay attention to the “sold by” designation and the “Conditions of Use” we might have unknowingly agreed to as Amazon customers.

Stay tuned.

COMPTROLLER CAN’T LOOK BEHIND COURT’S ORDER OF DISMISSAL IN AWARDING COMPENSATION UNDER THE TIM COLE ACT

In re Alfred Dewayne Brown

Supreme Court of Texas, No. 19-0877 (December 18, 2020)

Justice Guzman (Opinion, linked here)

Ken Carroll 

When Brown’s capital murder conviction was overturned after he had served more than twelve years in prison—most of it on death row—he sought relief under the “Tim Cole Act.” That Act allows a person wrongfully convicted of a crime in Texas to seek compensation from the State if he is “actually innocent” of that crime. The Supreme Court granted mandamus to overturn the State Comptroller’s refusal to pay compensation to Brown under the Act, saying the Comptroller had gone beyond his statutorily prescribed “purely ministerial” role in denying relief to Brown.

To be entitled to compensation under the Tim Cole Act, one must (i) have served at least part of his sentence in prison, (ii) be pardoned or obtain relief from that sentence via habeas corpus, (iii) secure an order of dismissal from the state district court in which he was convicted and sentenced, and (iv) obtain that dismissal based on a motion from the State’s attorney that concludes “no credible evidence exists that inculpates” the applicant and that the State’s attorney “believes that [the applicant] is actually innocent of the crime for which [he] was sentenced.” The wrongfully convicted person must then apply to the State Comptroller for relief under the Act, submitting “verified copies” of the various papers necessary to show his fulfillment of the statutory requirements. The Act directs the Comptroller to “consider only the verified copies of the documents” to determine whether those documents “clearly indicate on their face” that the statutory requirements have been met. The Act emphasizes that the “comptroller’s duty to determine the eligibility of a claimant … is purely ministerial.”

Brown, convicted in 2005 of the murder of a Houston police officer, had his conviction set aside in 2014 because the State had withheld exculpatory evidence in violation of Brady v. Maryland. In 2015, the State elected not to re-try Brown, moving to dismiss because of insufficient evidence, and the trial court granted that motion to dismiss. The Harris County District Attorney, however, appointed a special prosecutor to determine whether Brown should be re-indicted or should be declared actually innocent. After a lengthy investigation, the special prosecutor issued a detailed report concluding Brown “could not physically have been at the crime scene” and therefore was actually innocent. Based on that determination, the District Attorney filed an amended motion in March 2019, asking the trial court to enter an amended order dismissing the case against Brown because of his actual innocence. The Houston Police Officers Union opposed that motion, as amicus curiae, arguing the trial court lacked jurisdiction to enter such an order four years after the earlier dismissal. The district court conducted two hearings on the matter and ultimately issued an amended order of dismissal on the basis of Brown’s actual innocence, in accordance with the District Attorney’s request.

When Brown sought compensation under the Tim Cole Act based on this amended order of dismissal, however, the Comptroller denied that request. All parties acknowledged that all the requisite paperwork had been submitted in proper form as required under the Act. But the Comptroller concluded the amended judgment itself demonstrated that the trial court lacked jurisdiction to issue the amended dismissal order based on actual innocence, four years after the original dismissal order, and therefore that the amended order was void. At the very least, the Comptroller argued, the amended order gave rise to an ambiguity about jurisdiction, such that the documents could not be said to “clearly indicate on their face” that the statutory requirements had been met.

The Supreme Court, though, found the Comptroller had swerved out of his “purely ministerial” lane in undertaking that jurisdictional analysis. The Court concluded that the trial court necessarily determined it had jurisdiction to issue the amended order of dismissal, because “criminal courts are charged with determining their own jurisdiction to issue an actual-innocence order.” And “[w]hen the judge of a proper court signs such an order, the statute requires the Comptroller to accept the court’s legal and factual determinations.” Fundamentally, “[u]nder the statute as enacted, the Comptroller can determine only whether the required dismissal order has been issued, not whether it was correctly issued as a legal or factual matter.” The Court therefore directed the Comptroller to “compensate Brown for the time he was wrongfully imprisoned as required by the Tim Cole Act.”

THE NARROWED SCOPE OF “MATTERS OF PUBLIC CONCERN” UNDER THE TCPA, AS AMENDED

Vaughn-Riley v. Patterson

Dallas Court of Appeals, No. 05-20-00236-CV (December 2, 2020)

Justices Myers, Nowell, and Evans (Opinion, linked here)

Ken Carroll

In 2019, the Texas Legislature amended the TCPA “with the intent to narrow its scope” for actions filed on or after September 1 of that year. In Vaughn-Riley, the Dallas Court of Appeals provided an early glimpse of how it regards the amended version of the TCPA to limit the “matters of public concern” that trigger coverage under the Act. And while the plaintiff surely welcomed the result here, the appeals court’s reasoning probably stung a bit for someone, like her, in show biz.

Lawainna Patterson’s play, Sleeping with the Enemy, was set for back-to-back performances in Tyler. After the matinee, a dispute arose between the actors and crew and the producers, leading to cancellation of the evening show. Terri Vaughn-Riley, one of the actors (identified as “Vaughn” in the opinion), posted a video on Instagram voicing her frustrations with the situation. Patterson and others associated with production of the play sued Vaughn and the other actors, alleging breach of contract and “defamation, slander, and libel.” Vaughn moved to dismiss under the TCPA, arguing that “Patterson’s legal action was ‘based on or is in response to’ Vaughn’s exercise of the right of free speech or right of association” regarding the play and Patterson, its author. Specifically, Vaughn argued that “her communications and actions relate to matters of public concern because they (1) pertained to Patterson, who she claims is a limited purpose public figure, (2) involved the quality and timeliness of the public performance of a theatrical work, and (3) concerned a service in the marketplace.” The trial court denied the motion, and the Court of Appeals affirmed.

The appeals court began by noting that the Legislature had redefined “matters of public concern” before this lawsuit was filed, with the intention of narrowing the applicability of the TCPA. Drawing on legislative history, the Court reasoned that whether something qualifies as a “matter of public concern” is to be measured by the United States Supreme Court’s formulation in Snyder v. Phelps: “communications are matter[s] of public concern when they can ‘be fairly considered as relating to any matter of political, social or other concern to the community’ or when it ‘is a subject of legitimate news interest; that is, a subject of general interest and of value and concern to the public.’” 562 U.S. 443, 453 (2011). The Dallas Court concluded “there is nothing to suggest that the cancellation of the second performance of a play in Tyler, Texas, was the subject of general interest and of value and concern to the public.” Ouch. Further, the Court said, “Patterson’s status as cowriter and producer of the play,” coupled with a brief public interview about the dispute, do not “make Patterson a limited purpose public-figure.” Ouch, again. The Court then rejected Vaughn’s final argument—that the dispute related to a service in the maketplace, i.e., the play—because “the legislature’s 2019 amendments to the Act specifically removed issues related to ‘a good, product, or service in the market place’ from the definition of ‘matter of public concern.’”

UTILITY NOT LIABLE FOR CONTRACTOR’S NEGLIGENCE

AEP Texas Central Co. v. Arredondo

Supreme Court of Texas (November 20, 2020)

Opinion by Justice Lehrmann (linked here)

Lyndon Bittle

Whether an owner or primary contractor can be held liable for personal injuries caused by the negligence of an independent contractor is often an important issue in cases arising out of residential, commercial, or utility construction. In AEP, the Texas Supreme Court refused to lower the bar required to impose vicarious liability in such cases.

Marta Arredondo was injured when she stepped into a hole in her yard allegedly created by the removal of a “stub pole” by T&D Solutions, a contractor hired by AEP, an electrical utility. (A stub pole is the remaining “stub” of a utility pole after the electrical wires and the top of the pole are removed.) She sued AEP and T&D; the trial court granted summary judgment for both defendants. The San Antonio Court of Appeals reversed, and the companies filed petitions for review.

The Supreme Court reiterated the general rule that “one who employs an independent contractor has no duty to ensure that the contractor performs its work in a safe manner.” That presumption can be overcome if the primary party (here, AEP) retained the right to control “the method and means” of the contractor’s work. Reversing the court of appeals and following its own holdings in similar cases, the Court rejected the proposition that sufficient control is created by contractual provisions that require (1) the contractor to “have an authorized representative at the [work site] to whom [AEP] may give instructions” or (2) the work to “be done as expeditiously as possible and the premises restored immediately.” Nor was the removal of a stub pole an “inherently dangerous” activity that would have imposed a non-delegable duty on AEP.

The Court affirmed the intermediate appeals court’s holding that T&D was not entitled to summary judgment because there was conflicting evidence of whether it had properly filled the hole after removing the pole. Arredondo’s negligence claim against T&D was remanded to the trial court.