Distribution Center Deemed “Principal Office” Under Venue Statute

Deere & Co. v. Bernal

Dallas Court of Appeals, No. 05-22-00916-CV (January 17, 2023)

Justices Pedersen (Opinion, linked here), Goldstein, and Smith

Brent M. Rubin

Bernal had a fatal accident in Comanche County, Texas while he was operating a tractor manufactured by Deere. Bernal’s next of kin sued Deere and Bernal’s employer in Dallas County. They pleaded venue was proper in Dallas County under section 15.002(a)(3) of the Civil Practice and Remedies Code, which provides for venue in a county where at least one defendant has a “principal office.” Plaintiffs alleged that Deere has a principal office in Dallas County. Deere moved to transfer venue, denying that it had a principal office in Dallas County and arguing the case should be transferred to Comanche County, where the accident occurred, or Lamar County, where Bernal’s employer purportedly had its principal office. The trial court denied the motion to transfer, and Deere brought an interlocutory appeal.

When a defendant challenges venue, the plaintiff has the burden of presenting a prima facie case that venue is proper in the county in which it brought the lawsuit. Any venue facts pleaded by the plaintiff and not specifically denied by the defendant are treated as true. As to venue facts the defendant has specifically denied, the plaintiff must submit affidavits and documents authenticated by its affidavits to support its pleaded venue facts. Deere specifically denied the plaintiffs’ pleaded venue facts, so the plaintiffs had the burden of establishing a prima facie case that Deere had a principal office in Dallas County.

The venue statute defines “principal office” as the “a principal office of the corporation … in this state in which the decision makers for the organization within this state conduct the daily affairs of the organization.” A principal office must have decision makers for the company who have at least substantially equal authority and responsibility to other company officials in Texas. The plaintiffs submitted evidence that Deere operates a 230,000-square-foot regional distribution center in Dallas County that distributes parts to dealers in several states. The manager of the distribution center supervises over fifty-five employees, including several employees who themselves have supervisory responsibilities, and the manager does not report to anyone above him in Texas. The court of appeals concluded that these facts established that the Dallas County distribution center was “a principal office” in Texas and therefore affirmed the trial court’s denial of the motion to transfer.

Court Lacked Jurisdiction to Enter Declaratory Judgment Because It Was Uncontested

In re Banigan

Dallas Court of Appeals, No. 05-22-01084-CV (January 12, 2023)

Chief Justice Burns and Justices Partida-Kipness and Smith (Opinion, linked here)

Kelli Hinson

After her husband filed for divorce in 2021, Cynthia Banigan moved to vacate a 2015 declaratory judgment establishing that the parties’ agreed partition of community property was valid and enforceable. The husband had filed the declaratory judgment action on the same day the partition agreement was signed. In her response, the wife confirmed the facts set forth in the petition and expressed her consent to entry of an order declaring the partition agreement to be valid. At the hearing, the husband testified as to the validity of the agreement, and the wife testified that she agreed with everything the husband had said.

The wife’s tune changed, of course, after the husband filed for divorce six years later. She argued that she did not voluntarily sign the partition agreement and that it was unconscionable. The trial court referred the matter to arbitration based on an arbitration provision in the partition agreement.

The wife then filed a mandamus proceeding arguing the declaratory judgment was void for lack of subject matter jurisdiction. The Dallas Court of Appeals agreed, holding there was no justiciable controversy between the parties when the trial court entered the declaratory judgment. The Uniform Declaratory Judgments Act allows a person interested under a written contract to have determined any question of construction or validity arising under the contract and to obtain a declaration of “rights, status, or other legal relations.” But a declaratory judgment is only appropriate if (1) a justiciable controversy exists as to the rights and status of the parties and (2) the controversy will be resolved by the declaration sought. Lack of a justiciable controversy results in a lack of subject matter jurisdiction. Because the wife confirmed the facts set forth in the petition, consented to the entry of the declaratory judgment, and “agreed with Husband’s position entirely” at the hearing, there was no live controversy between the parties. The trial court therefore lacked jurisdiction to enter the requested order, and so the Court of Appeals vacated the declaratory judgment as void.

Witness’s “Understandings” and Belief She Was “Deceived” Are Too Conclusory to Defeat Summary Judgment

Orange Cup Drive In LLC v. Mid-Continent Casualty Co.

Dallas Court of Appeals, No. 05-21-00448-CV (January 5, 2023)

Justices Nowell, Smith, and Rosenberg (opinion available here)

Kelli Hinson

Orange Cup Drive In lost summary judgment on its contractual coverage claims against Mid-Continent Casualty Company. Undeterred, Orange Cup tried to pursue extra-contractual claims, alleging that the insurance company took advantage of Orange Cup’s lack of expertise to misrepresent that Orange Cup had more insurance coverage than it did. The insurance company moved for summary judgment on these claims as well, and the motion was granted.

On appeal, Orange Cup argued the trial court erred in disregarding the affidavits of one of its principals, Shanta Barua, regarding her understandings and beliefs regarding the insurance coverage purchased by Orange Cup. Barua had conducted all of the negotiations with the insurance company, and she stated in her affidavit that she “understood” and “was under the impression” that the policy would cover third-party claims against Orange Cup. She further stated the insurance company “deceive[d] me into believing that I obtained third party liability coverage for [Orange Cup].”

The Dallas Court of Appeals affirmed the trial court’s decision to disregard these statements because, without any explanation of how Barua was allegedly misled or how she came to her alleged understanding about the policy, her statements were “conclusions unsupported by any factual detail” and were not admissible. In the absence of any other evidence to support Orange Cup’s fraud and other extra-contractual claims, summary judgment was appropriate.

Rule 165a(3) Motion to Reinstate: "Verified" Really Does Mean What It Says

In re Briseno

Dallas Court of Appeals, Nos. 05-22-01174-CV (December 14, 2022)

Before Justices Myers, Nowell (Opinion), and Goldstein 

Neil R. Burger

Rule 165a(3) states that a motion to reinstate after dismissal for want of prosecution must be “verified by the movant or his attorney.” The Dallas Court of Appeals applied that requirement literally (and some might say harshly) in In re Briseno. There, following a dismissal for want of prosecution, plaintiff’s counsel timely filed a motion to reinstate within 30 days explaining that he failed to appear for the dismissal hearing due to a “calendaring error.” And he attached a “Verification” swearing that the facts in the motion were “true and correct.” But, the “purported verification d[id] not reflect it was made in the presence of an authorized officer such as a notary public.” Nevertheless, the trial court granted the motion and reinstated the case.

The Court of Appeals ruled that the trial court’s order granting the motion to reinstate was void for lack of jurisdiction because it was not properly verified and did not extend the court’s plenary power beyond 30 days of the judgment. A verification must be sworn to before an authorized officer. In addition, the “verification” here did not meet the requirements of an unsworn declaration under CPRC § 132.001, such as containing the declarant’s birthdate and address. Accordingly, the Court granted mandamus relief and ordered the trial court to set aside the case’s reinstatement.

Morale of the story: Follow the rules, especially when dismissal is on the line.

SCOTx Establishes Protocol for Compelled Disclosure of Cell-Phone Use

In re Kuraray America, Inc.

Supreme Court of Texas, No. 20-0268 (December 9, 2022)

Per Curiam Opinion (linked here)

Ken Carroll

A chemical reactor at Kuraray’s manufacturing plant became over-pressurized and released ethylene vapor that caught fire, resulting in multiple injuries. In a lawsuit based on that incident, plaintiffs alleged that the ethylene-vapor release may have been caused in part by “cell phone usage and abuse by board operators” who monitored the reactor. In response to a motion to compel, the trial court ordered Kuraray to produce usage data for the company-issued cell phones of five such employees, for periods ranging from six weeks to four months before the incident. On mandamus, the SCOTx held this to be an overly intrusive abuse of discretion. It articulated “key principles that should guide trial courts’ careful management of cell-phone-data discovery,” and a two-step process for dealing with requests for such data: 

First, to be entitled to production of cell-phone data, the party seeking it must allege or provide some evidence of [i] cell-phone use by the person whose data is sought [ii] at a time when it could have been a contributing cause of the incident on which the claim is based. If the party seeking the discovery satisfies this initial burden, the trial court may order production of cell-phone data, provided its temporal scope is tailored to encompass only the period in which cell-phone use could have contributed to the incident. In other words, a trial court may not, at this stage, order production of a person’s cell-phone data for a time at which his use of a cell phone could not have been a contributing cause of the incident.

The Court then went on to explain step two of the process: “Only if this initial production indicates that cell-phone use could have contributed to the incident may a trial court consider whether additional discovery regarding cell-phone use beyond that timeframe may be relevant”—for example, to show the employer’s negligent supervision or training. 

Here, the record before the trial court actually negated, or at best did not demonstrate, that cell-phone use by the five employees was a contributing factor to the accident. The SCOTx therefore directed the trial court to vacate its order compelling production of the requested cell-phone usage data.

Preserving Objections to Arbitration, and the Limited Scope of the FAA Exemption for “Workers Engaged in Foreign or Interstate Commerce”

Gordon v. Trucking Resources, Inc.

Dallas Court of Appeals, No 05-21-00746-CV (November 15, 2022)

Justices Myers (Opinion, linked here), Pedersen III, and Garcia 

Ken Carroll

Gordon and Trucking Resources compete in recruiting truck drivers for transportation companies. Two of Trucking Resources’ employees—each of whom had signed a non-compete that included an arbitration agreement—resigned and went to work for Gordon’s competing company. Trucking Resources sued the employees for breach of their agreements and sued their new employer, Gordon and his company, for tortious interference and conspiracy. It then moved to compel arbitration of that dispute. One of the former employees objected, but Gordon and his company did not. The trial court granted the motion to compel arbitration. After the arbitrator ruled for Trucking Resources, Gordon and his company asked the trial court to vacate the arbitration award, arguing (1) Section 1 of the FAA expressly exempted this dispute from arbitration and (2) Gordon and his company could not be compelled to arbitrate because they were not signatories to the arbitration agreement. But the Court of Appeals rejected both challenges.

The FAA states that it does not “apply to contracts of employment of … workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. Drawing from recent U.S. Supreme Court decisions, the appeals court explained that, for this exemption to apply, the workers in question “must at least play a direct and ‘necessary role in the free flow of goods’ across borders”—they “must be actively ‘engaged in transportation.’” While the truck drivers they recruited likely would fit that description, the recruiters themselves would not. And so the exemption did not apply here.

Beyond that, however, the Court stated that “an objection to arbitration under the 9 U.S.C. § 1 exemption from arbitration must be raised before the trial court rules on a motion to compel arbitration.” Here, Gordon and his company did not raise their objection until after the arbitration had concluded and the award had been confirmed. Because “they did not assert the exemption from arbitration before the arbitration took place, they [did] not preserve[] the argument for appellate review.”

Similarly, the Court explained, the “opportunity for the trial court to cure any error from requiring nonsignatories to arbitrate is before the court rules on the opposing party’s motion to compel arbitration, not after the arbitration proceeding.” Here, Gordon and his company didn’t raise this and other arbitrability arguments until after the arbitrator had rendered his award. Consequently, they failed to preserve error on those issues, and the Court of Appeals could not address them.

Primer on Proving Up Attorneys’ Fees

Canadian Real Estate Holdings, LP v. Karen F. Newton Revocable Trust

Dallas Court of Appeals, No. 05-20-00747-CV (September 29, 2022)

Justices Pedersen, III (opinion available here), Goldstein, and Smith

Kelli Hinson

The Dallas Court of Appeals provided additional guidance on proving up attorneys’ fees in this declaratory judgment action. After the trial court dismissed the plaintiffs’ claim as moot, it awarded plaintiffs $45,529.13 in incurred attorneys’ fees plus $21,000.00 in conditional attorneys’ fees on appeal. The defendant, Canadian REH, appealed, arguing plaintiffs had failed to prove the amount of reasonable and necessary attorneys’ fees.

Canadian REH first argued that plaintiffs were required to provide “hard” or “disinterested” evidence of a reasonable hourly rate, such as affidavits of other attorneys, the State Bar of Texas Hourly Rate Fact Sheet, or fees awarded in similar cases. But the Court disagreed, noting that the affidavit of plaintiffs’ counsel, who testified he was “familiar with the hourly rates and costs customarily charged in and around” Collin County, Texas, was sufficiently detailed to establish reasonable hourly rates. And his experience was sufficient to back up his assertions of familiarity. The Court noted that neither Rohrmoos nor prior Dallas Court of Appeals cases have required additional “disinterested” evidence.

Canadian REH next argued that plaintiffs failed to establish the reasonable hours worked because the billing records were heavily redacted and contained block billing. Again, the Court disagreed. It noted that attorney invoices are “routinely redacted” when offered as evidence, in order to protect the attorney-client and work-product privileges, and that such redactions do not “obscure[e] meaningful review of attorney time” as Canadian REH claimed. The Court also disagreed that plaintiffs’ counsel’s use of “block billing” was a problem, noting that no entry included more than one day’s work for a timekeeper, and many entries included related tasks charged for fractions of one hour.

Canadian REH did get some traction with its complaint about conditional appellate fees, however. Plaintiffs’ counsel did not provide any explanation for his estimated appellate fees of $14,000 in the Court of Appeals and $7,000 in the Supreme Court. The Court reiterated prior holdings that an award of conditional appellate fees must be based on testimony about the services the attorney reasonably believes will be necessary to defend the appeal and a reasonable hourly rate for those services. Counsel’s conclusory opinion provided neither. The Court therefore vacated that portion of the award.

No Joint and Several Liability for Punitive Damages—Even On a Default Judgment

Full of Faith Cristian Center, Inc. v. May 

Dallas Court of Appeals, No. 05-20-00859-CV (August 11, 2022) 

Justices Reichek, Nowell (opinion available here), and Carlyle 

Kelli Hinson 

It pays to follow the rules, even when you’re just proving up a default judgment. The Mays obtained a default judgment against defendants Full of Faith Christian Center and its principals in a case alleging nuisance, trespass, negligence, and unlawful diversion of water. The trial court entered judgment awarding actual and punitive damages against all defendants jointly and severally. 

The Dallas Court of Appeals rejected all of the defendants’ arguments on appeal concerning the citation and adequacy of service and would have affirmed the judgment. But it held the trial court erred in rendering judgment awarding punitive damages against all defendants jointly and severally. Texas Civil Practice & Remedies Code § 41.006 provides that, in any action in which there are two or more defendants, an award of exemplary damages must be specific as to a defendant, and each defendant is liable only for the amount of the award made against that defendant. The Court therefore reversed for a new trial on punitive damages only.

Divided En Banc Court Holds Arbitrators Must Decide Arbitrability When Arbitration Agreement Incorporates AAA Rules

Prestonwood Tradition, LP v. Jennings 

Dallas Court of Appeals, No. 05-20-00380-CV (August 5, 2022) 

En Banc (Pedersen majority opinion available here; Partida-Kipness dissent available 

here; Schenck concurrence available here)

 Robert Fountain 

 

A divided en banc Dallas Court of Appeals has held that arbitrators—not a court—must decide arbitrability issues when an arbitration agreement incorporates the AAA’s Commercial Arbitration Rules—even when the AAA administratively declines to decide the issue without direction from a court. 

      

Several residents of The Tradition-Prestonwood senior living community died in 2016. Representatives of the residents’ estates raised wrongful death and survivorship claims against the owners of the facility. The owners commenced AAA arbitrations based on agreements in their leases with the deceased residents. These arbitration agreements stated, “any claims, controversies, or disputes arising between us and in any way related to or arising out of the relationship created by this Agreement shall be resolved exclusively by binding arbitration” using the Commercial Arbitration Rules of the American Arbitration Association. The decedents’ representatives objected to arbitration and filed suit in county court, where they requested a declaratory judgment that their claims were not subject to arbitration. They moved to stay arbitration. After the AAA—itself, not through a duly empaneled arbitrator or arbitrators—made an “administrative determination” not to proceed without the parties’ mutual agreement or until the court decided the issue of arbitrability, the trial court granted the decedents’ representatives’ motion to stay arbitration and denied the owners’ request to abate the lawsuits. The owners filed interlocutory appeals and the court of appeals eventually granted en banc review. 

         

          In a 7-6 split, the en banc Dallas Court held the trial court abused its discretion when it decided arbitrability issues that had been delegated to the arbitrator. Trial courts generally determine arbitrability unless the parties “clearly and unmistakably” delegate arbitrability to the arbitrator. The Court explained that the arbitration agreements in this case had incorporated the AAA’s Commercial Rules, one of which provides that the arbitrator has the power to rule on his or her own jurisdiction, including any objections to the arbitrability of any claim or counterclaim. Coupled with the broad scope of the arbitration agreements—which encompassed “any claims, controversies, or disputes arising between us and in any way related to or arising out of the relationship created by this Agreement”—the agreements evidenced a clear and unmistakable intent that arbitrability would be determined by the arbitrator. 

     The dissent acknowledged that “under ordinary circumstances” incorporation of the AAA’s commercial rules means the arbitrator is to decide arbitrability. However, the dissent argued, the circumstances of this case were not “ordinary” because (1) the AAA had declined to decide arbitrability, deferring to the trial court, and (2) the decedents’ representatives were not signatories to the arbitration agreements. The dissent, therefore, would have gone on to review the substance of the arbitrability issue and to find that the disputes were not subject to arbitration under the Texas Arbitration Act. 

          The majority responded that neither of the distinctions identified by the dissent justified creating an exemption from the general rule. The AAA was bound to decide arbitrability based on the parties’ agreements, and the trial court should not have acquiesced to the AAA’s “administrative decision” punting arbitrability to the trial court in violation of the parties’ contracts. The fact the dispute involved non-signatories was irrelevant because the arbitration agreements specifically bound “all persons whose claim is derived through or on behalf of [decedent], including that of the [decedent’s] family, heirs, guardian, executor, administrator and assigns.” The representatives’ claims for wrongful death and survivorship were “derived through or on behalf of” the deceased residents. Because they stood in the decedents’ legal shoes, the representatives were bound by the decedents’ arbitration agreements. The en banc Court therefore reversed the stay of arbitration and remanded with instructions to order the parties to arbitration. 

        NOTE: The “general rule” at issue here—whether incorporation of the AAA rules “constitutes clear and unmistakable evidence of the parties’ intent to delegate the issue of arbitrability to the arbitrator”—is set to be addressed by the Supreme Court of Texas early in its upcoming term. The Court has granted review and is scheduled to hear argument on the issue next month in MP Gulf of Mex., LLC v. Total E&P USA, Inc., Case No. 21-0028.

Vice Principals, the Fifth Amendment, and Negative Inferences

 Lurks v. Designer Draperies and Floors, Inc. 

 Dallas Court of Appeals, No. 05-21-00908-CV (July 27, 2022)

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

 Ken Carroll 

While Lurks was attending to a disabled car in the right lane of the I-20 frontage road, Heitzman struck that car from behind, seriously injuring Lurks. Heitzman failed a field sobriety test at the scene, was arrested, and then tested well above the legal limit for blood alcohol. Lurks sued Designer Draperies and Floors (“DDF”), arguing that when Heitzman became intoxicated and decided to drive anyway, he was acting as a “vice principal” of DDF. “In other words, Lurks urge[d] that DDF step[ped] into the shoes of Heitzmann and is, therefore, directly liable for Lurks’s injuries.” 

The trial court, however, granted summary judgment to DDF, and the Court of Appeals affirmed. There was some evidence—and potential inferences from Heitzman’s invocation of his Fifth Amendment rights in his deposition—that Heitzman “consum[ed] alcoholic beverages at DDF’s workplace, that he was drinking with employees of DDF, and, perhaps, that someone encouraged him to drive.” But none of this was sufficient even to raise a fact question that Heitzman’s conduct was “referable to DDF’s business,” which the Court ruled was essential to a “vice principal” theory of liability against DDF. 

Along the way, the Court assumed, without deciding, that “a jury would be allowed to draw negative inferences regarding Heitzmann’s assertion of his Fifth Amendment privilege.” Because of the Court’s determination that Lurks had failed to adduce any evidence that Heitzman’s alleged misconduct was “referable to DDF’s business,” indulging this assumption didn’t matter. But it wades into murky waters. Heitzman was not a party to the lawsuit, even though his actions were a focus of the case. The question whether a witness’s invoking the Fifth will give rise to a negative inference against someone else is difficult, to say the least. The answer may differ depending on whether the issue arises in Texas or federal court, and whether the witness can be said to have been acting for the other party such that his or her invocation of privilege can be attributed to that party as his words would have been under Tex. R. Evid. 801(e)(2)(D). Compare, e.g., P.C. as next friend of C.C. v. E.C., 594 S.W.3d 459, 461-65 (Tex. App.—Fort Worth 2019, no pet.), with Wil-Roye Inv. Co. II v. Washington Mut. Bank, FA, 142 S.W.3d 393, 403-07 (Tex. App.—El Paso 2004, no pet.).