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.).

Fifth Court: Twenty-Plus Years of Precedent on Bankruptcy Trustee’s “Exclusive Standing” Implicitly Overruled by SCOTX

Moser v. Dillon Investments, LLC 

Dallas Court of Appeals, No. 05-21-00204-CV (August 2, 2022) 

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

 Brent M. Rubin 

Mason claimed that, while staying at a hotel on June 30, 2017, she was taking a shower and the bathtub floor shifted, causing her to fall and hit her head. On June 13, 2019, Mason sued the hotel in state court for negligence. But in April 2018, Mason had filed for Chapter 7 bankruptcy without listing her potential claim against the hotel on her schedule of assets. By the end of 2018, Mason had received a discharge and the bankruptcy case had terminated.

The hotel initially sought summary judgment, alleging Mason lacked standing to assert the claim and that she was judicially estopped from bringing the claim. The hotel argued that because Mason had not disclosed the claim in her bankruptcy schedules, the claim remained with the bankruptcy estate and was not returned to her upon the bankruptcy’s termination. Mason then filed a motion in bankruptcy court to reopen the bankruptcy to amend her schedules to add the negligence claim, which the bankruptcy court granted. 

In January 2021, Moser, the bankruptcy trustee, filed an amended petition in the state court case on behalf of Mason’s bankruptcy estate, alleging the same negligence claim against the hotel. The hotel moved for summary judgment, arguing the amended petition was filed after the two-year statute of limitations had run. The trial court granted the motion. 

Moser’s appeal centered on the relation-back doctrine. Section 16.068 of the Texas Civil Practice and Remedies Code provides that when a party initially brings a timely claim, “a subsequent amendment or supplement to the pleading that changes the facts or grounds of liability or defense is not subject to a plea of limitation unless the amendment or supplement is wholly based on a new, distinct, or different transaction or occurrence.” But the relation-back doctrine does not apply to an amended petition when the trial court lacked subject-matter jurisdiction over the original petition. 

Mason first brought her negligence claim within the two-year statute of limitations, and Moser’s amended petition on behalf of the bankruptcy estate alleged the same facts as Mason’s original petition. So, to determine whether the relation-back doctrine applied, the court of appeals considered whether the trial court had jurisdiction when Mason first sued. 

The court of appeals explained that for the trial court to lack jurisdiction based on a lack of standing, Mason had to lack “constitutional” standing. The Court noted that courts have, at times, blurred the distinction between standing and capacity—a critical if sometimes confusing distinction, because standing is jurisdictional, while capacity is not. In 1999, the Texas Supreme Court held in Douglas v. Delp that a bankruptcy trustee had “exclusive standing” to bring claims on behalf of the estate, quoting a 1994 Fifth Circuit decision that did not expressly address the question of constitutional standing. After an extensive analysis of later Fifth Circuit cases on a bankruptcy trustee’s authority to bring claims on behalf of the estate as well as later Texas Supreme Court decisions addressing the distinction between standing and capacity, the court of appeals concluded the Texas Supreme Court had implicitly overruled Douglas and the various intermediate appellate decisions—including those of the Fifth Court—that had followed it. 

 Accordingly, the Court said, Mason had standing to bring her claim in 2019; she merely lacked capacity to assert it. Therefore, the trial court had subject-matter jurisdiction in 2019, Moser’s amended petition in 2021, in his capacity as bankruptcy trustee, related back to Mason’s timely 2019 petition, and the trial court erred in granting summary judgment based on the statute of limitations.

Finality Bites—Again

JMJ Development, LLC v. Ramolia

Dallas Court of Appeals, No. 05-21-01100-CV (July 27, 2022) 

Justices Myers, Molberg (Opinion, linked here), and Garcia 

Ken Carroll 

Another appeal down the drain because of confusion about whether a judgment was final. 

Ramolia sued JMJ and Barton for breach of contract. They counterclaimed. Ramolia sought and secured summary judgment on his breach-of-contract claim. Even though Ramolia had not moved for summary judgment on JMJ and Barton’s claims against him, the court’s summary judgment order was titled “Final Judgment.” And it included the “magic” finality language blessed by the Texas Supreme Court in Lehmann v. Har-Con: “All relief requested in this case and not expressly granted herein is denied. This judgment finally disposes of all parties and claims and is appealable.” JMJ and Barton timely moved for a new trial but did not file their notice of appeal until after the deadline had expired, including the time for an extension.

Faced with the prospect that the tardy notice of appeal would bar their appeal altogether, JMJ and Barton argued the judgment was not final and appealable because Ramolia’s summary judgment motion had not sought disposition of their claims against him. Tex. R. Civ. P. 166a(c). The Court of Appeals disagreed. 

A judgment is final, the Court said, “if it actually disposes, or ‘clearly and unequivocally’ states it disposes, of all claims and all parties.” The summary judgment order did that, whether it should have or not. “A judgment that grants more relief than a party is entitled to is subject to reversal”—assuming it is timely appealed—“but it is not, for that reason alone, interlocutory,” and therefore non-appealable. “If it is clear, then the order is final and appealable, even though the record does not provide an adequate basis for rendition of the judgment.” In this case, the Court held, the judgment “was clear and unequivocal, the record is irrelevant, and further analysis is prohibited.” Because JMJ and Barton didn’t file their notice of appeal on time, therefore, the Dallas Court dismissed the appeal, and JMJ and Barton are stuck with a judgment that might have been “subject to reversal,” at least in part, had they recognized that judgment was final and filed their notice on time.

Duty Not to Distract a Driver Applies Only to Others in the Vehicle?

Gamble v. Anesthesiology Associates, P.S.C.

Dallas Court of Appeals, No. 05-20-01024-CV (July 21, 2022)

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

Ken Carroll

While driving on I-35 with her cruise control set to 80, Blain struck and killed two people who had stopped on the side of the highway to change a tire. At the time, Blain was engaged in a 20-minute hands-free cellphone conversation with Richter, a friend who had called Blain from Kentucky to tell her he was retiring. Blain and her employer—she was on a business trip at the time—settled. But Richter and his employer secured summary judgment against the various theories of direct, vicarious, and joint liability asserted against them. The Court of Appeals ultimately reversed and remanded on a joint-enterprise theory of liability—not on the merits, but because Richter and his employer had not moved for summary judgment on that particular issue. See Tex. R. Civ. P. 166a(c). But it was the Court’s ruling on another ground that stands out.

Plaintiffs claimed Richter was negligent because he distracted Blain while he knew she was driving. But the appeals court agreed with Richter that he “had no duty to exercise reasonable care to avoid distracting Blain once he realized she was driving.” The Court acknowledged a “recognized legal duty that a person must exercise reasonable care to avoid distracting a driver while [that driver is] operating a vehicle.” But it determined that duty applies only to passengers in the vehicle, or perhaps to others in “close proximity” like those in an adjacent vehicle. “A remote cellphone caller” like Richter, the Court held, “owes no duty to the general public to control the conduct of the call recipient as a matter of law.” The appeals court therefore affirmed summary judgment on that score.

One has to wonder how far this principle extends. What if the caller asked the driver to “FaceTime” or to “Zoom” or engage in other conduct that the caller knew or reasonably should know would have the driver focus on his or her phone instead of the road? What if, instead of a call, the defendant had engaged the driver in a text or instant-message exchange, or had sent a photo or a video with the message, “You gotta see this!”—all while knowing the recipient was driving? None of these situations were present in Gamble, of course. But it’s hard to see why a “remote cellphone user” who contacts someone, knowing that other person is driving (as Richter did here), should owe any less “duty to the general public” not to distract the driver than a backseat passenger who similarly asks the driver to look at a text, photo, video or otherwise knowingly draws the driver’s attention away from the road.

Refresher: To Get Judgment on a Rule 11 Agreement, Plead Breach of Contract

Patel v. Gonzalez Hotels, LLC

Dallas Court of Appeals, No. 05-20-01020-CV (July 7, 2022)

Justices Partida-Kipness (Opinion, linked here), Reichek, and Goldstein

Ken Carroll

A little reminder is welcome and helpful every now and then—although it’s often less fun for the parties who are being reminded.

Mahesh Patel sued Mehulkumar Patel, Chirag Patel, and Jayson Patel for breach of fiduciary duty, theft, and other claims relating to Gonzalez Hotels, LLC, of which they were all co-owners. After a mediation, the parties entered into a Rule 11 agreement in which Mehulkumar, Chirag, and Jayson “consented to the entry of an agreed judgment making them liable for half of Mahesh’s past and future contributions to the company.” Mahesh promptly filed a motion to enforce that agreement. But Mehulkumar, Chirag, and Jayson withdrew their consent before the trial court could act on that motion. Mahesh then filed a motion for summary judgment, “the stated goal of [which] was to obtain an agreed judgment to enforce the terms of the agreement.” The trial court granted the motion and entered judgment for Mahesh, but the Dallas Court of Appeals reversed.

“Written settlement agreements may be enforced as contracts even if one party withdraws consent before judgment is entered on the agreement,” the Court acknowledged. But, as the Texas Supreme Court explained in Ford Motor Co. v. Castillo, 279 S.W.3d 656, 663 (Tex. 2009) and elsewhere, “[w]hen consent is withdrawn [before the trial court renders judgment], the agreed judgment that was part of the settlement may not be entered. The party seeking enforcement of the settlement agreement must pursue a separate claim for breach of contract, which is subject to the normal rules of pleading and proof.” Here, Mahesh had not asserted a claim for breach of the agreement, and neither his motion to enforce nor his MSJ could substitute for that required pleading. The Court of Appeals therefore reversed and remanded to the trial court, where Mahesh no doubt will now plead breach and take a second swing at enforcing the agreement.

“Taking Responsibility” ≠ Negligence as a Matter of Law

Yedlapalli v. Jaldu

Dallas Court of Appeals, No. 05-20-00531-CV (June 28, 2022)

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

Brent M. Rubin

While Yedlapalli was stopped at a stop sign, Jaldu rear-ended her. Yedlapalli testified that, from her rear-view mirror, she saw Jaldu on her cell phone and that Jaldu never slowed down. Jaldu, in contrast, claimed she was at a complete stop behind Yedlapalli and reached down to get a piece of paper on the floor, which caused her foot to slip off the brake and her car to roll forward and tap Yedlapalli’s car.

Yedlapalli sued Jaldu, claiming not only damage to her car but also bodily injury. On cross-examination, Yedlapalli’s attorney asked Jaldu if she was “taking one hundred percent responsibility for the crash.” Jaldu agreed that her car hit Yedlapalli’s when her foot slipped from the brake. Jaldu also admitted she told Yedlapalli at the scene that it was her “mistake,” making her responsible for the damage to Yedlapalli’s car. But Jaldu refused to take responsibility for Yedlapalli’s purported injuries, claiming everyone was “completely fine” immediately after the accident. Jaldu also explained to the jury that it was “fishy” that Yedlapalli sued only after Yedlapalli did not pay her medical bills.

Yedlapalli moved for a directed verdict based on Jaldu’s purportedly “taking one hundred percent responsibility” for the accident. The trial court denied the request for directed verdict. The jury later answered “no” on the question whether Jaldu’s negligence caused the occurrence in question. So, the trial court entered a take-nothing judgment against Yedlapalli.

Yedlapalli appealed, challenging the denial of the motion for directed verdict and the factual sufficiency of the evidence supporting the jury’s finding on negligence. On the directed verdict, the court of appeals explained that acceptance of responsibility, standing alone, does not establish negligence as a matter of law. The court observed that a jury could have concluded a person of ordinary prudence, sitting at a complete stop a safe distance behind Yedlapalli, could have reached down to pick up a piece of paper, as Jaldu testified. On factual sufficiency, the court similarly explained that a rear-end collision, standing alone, does not mean a jury’s failure to find negligence is not supported by sufficient evidence. The jury could have credited Jaldu’s account and concluded that a reasonably prudent person would have acted in the same way. Or, the jury could have concluded Yedlapalli failed to meet her burden of proving negligence by a preponderance of the evidence. Therefore, the court of appeals affirmed.