HIGHLAND PARK IMMUNE FROM SUIT FOR DEATH OF OFFICER PERFORMING EXTRA-DUTY SECURITY SERVICE AT PRIVATE RESIDENCE

Town of Highland Park v. McCullers

Dallas Court of Appeals, No. 05-19-01431-CV (June 29, 2021)

Chief Justice Burns (Dissent linked here), and Justices Pedersen, III (Opinion linked here) and Goldstein (Concurrence linked here)

Lyndon Bittle

               The Town of Highland Park cannot be sued by the survivors of an off-duty police officer killed in a flash flood while providing security at a private residence through an arrangement coordinated by the Town, according to a divided Dallas Court of Appeals panel. 

        SMU police officer Calvin Marcus McCullers accepted an assignment offered by the Highland Park Department of Public Safety to provide after-hours security, at a property owner’s expense, for a private residence then under construction. A little more than two hours after he arrived at the property in his personal car, a torrential downpour flooded the area where he was parked and swept him and his car over an embankment into Turtle Creek. His body was discovered several weeks later on the banks of the Trinity River more than three miles downstream. 

        Officer McCullers’s survivors sued Highland Park and others for negligence and other torts. Asserting governmental immunity from such claims, Highland Park filed a plea to the jurisdiction, which the trial court denied after the parties conducted limited discovery. On interlocutory appeal, the core issue was whether coordinating a program to provide security services to private residences by off-duty police officers is an exercise of “police protection” and thus a governmental function for which the Town is generally immune from suit, or a “proprietary” function to which immunity does not apply. 

        The distinction between governmental and proprietary functions, which applies only to municipalities, is codified in the Texas Tort Claims Act, chapter 101 of the Civil Practice and Remedies Code. The TTCA defines proprietary functions as those “that a municipality may, in its discretion, perform in the interests of the inhabitants of the municipality”—but not including the list of 36 functions expressly identified as governmental functions. The first item on this list is “police and fire protection and control.” Justices Pedersen and Goldstein, in separate opinions, held “the Town’s coordination of Officer McCullers to provide law enforcement services” at the residence was an exercise of “the governmental function of police protection.” Justice Goldstein’s concurrence, elaborating on the statutory analysis, cited precedent that plaintiffs “may not split various aspects of a city’s operation into discrete functions and recharacterize certain of those functions as proprietary.” She concluded her opinion by noting “the ongoing struggle associated with judicial analysis and application of the governmental-proprietary dichotomy” and other aspects of governmental immunity. She urged the Legislature to provide “more certainty” on these issues for Texas citizens and governmental bodies. 

        Chief Justice Burns, dissenting, said his “colleagues rely on labels instead of function.” He denied that coordinating “private security services for private property owners,” so that an off-duty officer was “essentially functioning as a night-watchman for one citizen,” fits within the statutory meaning of “police protection.” Instead, applying the factors articulated by the Texas Supreme Court for breach-of-contract claims in Wasson Interests, Inc. v. City of Jacksonville (1998), he concluded that “in providing private security services” Highland Park “was acting in a proprietary role.” 

        One final note: finding the program is a governmental function does not necessarily end the immunity analysis. Under the TTCA, governmental immunity is waived in circumstances involving “personal injury or death caused by a condition or use of tangible personal or real property”—if the plaintiff complies with statutory notice requirements or the governmental entity has “actual notice” of the injuries and its potential liability. Justice Pedersen, extensively describing the record and controlling precedent, concluded plaintiffs failed to provide timely notice and rejected plaintiffs’ argument that Highland Park had actual subjective knowledge of its alleged fault in causing or contributing to the officer’s death. Justice Goldstein concurred in a footnote, while identifying the “actual subjective awareness” test as ripe for review by the Legislature. Chief Justice Burns did not mention this issue.  

SCOT Holds Amazon Not Liable for Defective Products It Markets for Other Vendors

Amazon.com, Inc. v. McMillan

Supreme Court of Texas, No. 20-0979 (June 25, 2021)

Opinion by Justice Busby (linked here)

Dissent by Justice Boyd (linked here)

Lyndon Bittle

        Answering a question certified by the Fifth Circuit, the Texas Supreme Court held Amazon is not a “seller” under Texas product liability law when it does not hold title to the product but controls the process of the transaction and delivery through the “Fulfillment by Amazon” program.

        As discussed in a previous Sua Sponte post, 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 distributing or otherwise placing” the product in the stream of commerce. The court certified its order for interlocutory appeal under 28 U.S.C. § 1292(b), and the Fifth Circuit submitted the issue to the Texas Supreme Court in January 2021.

        Fifth Circuit Judge (and former Texas Supreme Court Justice) Don Willett authored the opinion certifying the question, noting the Supreme Court’s “track record of resolving cases promptly.” Justice Busby’s opinion acknowledges the Fifth Circuit’s comment and responds in a footnote, “Challenge accepted.”

        The case focuses on a specific (albeit large) subset of Amazon transactions—products listed on 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 Supreme Court’s construction of the Product Liability Act’s definition of “seller” is grounded in the presumption that “the Legislature uses statutory language with complete knowledge of the existing law and with reference to it.” (Quotation omitted.) Because the statutory definition is virtually identical to that of section 402A of the Second Restatement of Torts and Texas cases applying it, the Court concludes the statute “does not expand liability for those not considered sellers under common law.” Accordingly, the Court holds “Amazon is not a ‘seller’ under Texas law when it does not hold or relinquish title to an allegedly defective product.” It cannot, therefore, be liable as a non-manufacturing seller under the Product Liability Act.

        Justice Boyd, joined by Justice Devine, dissented, and would have answered the certified question “by holding that Amazon.com is a seller under [the statute] when it ‘controls the process of the transaction and delivery’ of a product through its FBA program, regardless of whether it ever holds title to the product.” This construction is compelled, said the dissent, by the plain meaning of the statute’s language when it was enacted in 1993. The dissent acknowledged the presumption that the Legislature was aware of case law when enacting a similar definition, but insisted “we may not presume that it was aware of what we would hold twenty-eight years later.”

Appraisal Based on Non-Comparable Sales Fails Reliability Test

Bank of Texas v. Collin Central Appraisal District

Dallas Court of Appeals, No. 05-19-00568-CV (June 22, 2021)

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

Lyndon Bittle

        Bank of Texas appealed a judgment denying its challenge to CCAD’s tax appraisal of two properties. The bank argued the trial court abused its discretion by striking the bank’s appraisal experts for not properly applying the “income method,” one of three appraisal methods recognized by the Tax Code. The Dallas Court of Appeals affirmed, holding the trial court could reasonably have concluded “that the comparables relied on by the [bank’s] appraisers, rents for office buildings and retail properties, were not comparable to the property being valued, branch banks.” This “analytical gap” failed the reliability test articulated by the Texas Supreme Court in Gammill v. Jack Williams Chevrolet (1998) and its progeny.

        The appeals court rejected the bank’s argument (a common refrain of proponents of expert opinions) that CCAD’s complaints went “to the weight of the evidence, not its admissibility.” The court explained that whether an “appraisal is based on non-comparable sales is an issue for the trial court in determining admissibility,” and thus within its discretion. The appeals court also rejected the notion that “real estate appraisers are unique and somehow different from other experts; that their testimony is for the jury and not subject to reliability requirements.” To the contrary, the court said, “Courts must act as gatekeepers of expert testimony; appraisers do not get a free pass.”

The Weather Is Not a “Person” for Allocating Responsibility

Panameno v. Williams

Dallas Court of Appeals, No. 05-19-01496-CV (June 1, 2021)

Chief Justice Burns and Justices Reichek and Carlyle (Opinion linked here)

Lyndon Bittle

           It was a dark and stormy night. Two cars collided. The defendant in a lawsuit about the accident testified that he “hit a large puddle of water, hydroplaned, and spun into a car in which Mr. Panameno was a passenger.” The defendant denied he was negligent, insisting he acted reasonably given the poor road conditions and bad weather. The district court defined “Act of God” and asked the jury to assign percentages of responsibility to the defendant and “Weather/Road Conditions.” The jury found plaintiff’s damages were $8,350 and allocated 25% to the defendant and 75% to the weather and road conditions. Accordingly, the trial court reduced plaintiff’s damages by 75%. Plaintiff appealed.

            The Dallas Court of Appeals reversed the judgment and remanded for a new trial, based on the text of the proportionate-responsibility statute, which requires the jury to determine the culpable persons and assign percentages of responsibility for “(1) each claimant; (2) each defendant; (3) each settling person; and (4) each responsible third party who has been designated.” TEX. CIV. PRAC. & REM. CODE § 33.003(a). The Court held “Weather/Road Conditions” was not “a person or party whose negligence was found to be a proximate cause” of plaintiff’s damages, so should not have been included in the proportionate-responsibility question. Any consideration of weather and road conditions is subsumed in assessing the parties’ negligence.

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.

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.”

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.

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.

JURY SELECTION IN FATAL-ACCIDENT CASE SPARKS BATSON BATTLE IN APPELLATE COURT

United Rentals North America, Inc. v. Evans

Dallas Court of Appeals, No. 05-18-00665-CV (August 18, 2020)

Justices Pederson III, Reichek (Opinion linked here), and Carlyle Dissents from Denial of En Banc Reconsideration by Justices Evans (Dissent linked here) and Schenck (Dissent linked here)

Lyndon Bittle

A Dallas Court of Appeals panel unanimously affirmed a judgment for plaintiffs in a wrongful death case, overruling the defendant’s objections to the trial court’s Batson rulings in jury selection. The case apparently sparked internal controversy in the 12-member Court. On the same day the panel opinion issued, two Justices who were not on the panel filed dissents to the denial of en banc reconsideration. The competing opinions provide roadmaps for applying the Batson guidelines to civil lawsuits.

A big rig hauling an oversized “boom lift” for United Rentals struck a bridge in a highway construction zone, which caused a bridge beam to collapse on a pickup truck, killing the driver. The decedent’s mother and son brought a wrongful-death and survival suit against several defendants. Before judgment, all defendants except United Rentals settled or were dismissed. During voir dire, the court granted two of Plaintiffs’ Batson challenges to United Rentals’ use of preemptory strikes, and denied United Rentals’ competing Batson challenges. The jury found for Plaintiffs and the court entered judgment awarding $2.79 million in damages. United Rentals appealed.

Before addressing the Batson issues, the appeals court overruled United Rentals’ substantive issues, including its arguments that the negligence verdict was error because United Rentals, “as a shipper, had no duty to see that the carrier … shipped its cargo safely,” and there was insufficient evidence to support the damages awarded for the decedent’s “conscious pain and mental anguish” in the few seconds between the collision and his death. Those holdings consume over 35 pages of the panel’s opinion, and Justice Schenck’s dissent to the denial of en banc review urges the Texas Supreme Court “to establish the proper review standard to govern pain and suffering awards.” These issues could be the subject of a separate blog post.

Turning to the Batson dispute, the Court summarized United Rentals’ argument: The “trial court erred in granting appellees’ challenges to two of United Rentals’ peremptory strikes of black women while denying United Rentals’ challenges to appellees’ use of strikes on men, four of whom were white.”

The Batson rules were originally promulgated to prevent criminal prosecutors from using peremptory strikes to exclude jurors solely because they were of the same race as the defendant. See Batson v. Kentucky, 476 U.S. 79, 89 (1986). Batson has since been extended to civil trials and to other “suspect” grounds for striking potential jurors. See Edmonson v. Leesville Concrete Co., 500 U.S. 614, 618-28 (1991); Goode v. Shoukfeh, 943 S.W.2d 441, 444-45 (Tex. 1997).

Applying Batson involves a three-step process similar to the test for employment discrimination. First, the party objecting to a preemptory strike must establish a prima facie case it “was used to exclude a venire member on the basis of race or gender.” Second, the proponent of the strike must articulate “a race- or gender-neutral reason for the strike.” Finally, the party challenging the strike has an opportunity to rebut the explanation and show it is a pretext for unlawful discrimination. The standard for evaluating a strike under Batson is “whether race [or gender] was a motivating factor in counsel’s exercise of the strike.” The trial court’s rulings, often based on credibility assessments, are subject to review for abuse of discretion.

Here, Plaintiffs objected to United Rentals’ use of all five of its peremptory strikes on black women, and United Rentals objected to Plaintiffs’ striking four white men and one Hispanic man. The judge granted two of Plaintiffs’ Batson challenges, and denied all of United Rentals’ challenges. After reviewing the voir dire colloquies and arguments of counsel, the Court of Appeals held the judge did not abuse her discretion in finding that race was a motivating factor for United Rentals striking one of the two jurors. Central to the Court’s holding was that the record did not support counsel’s stated reason for striking the prospective juror. The second juror placed on the jury over United Rentals’ objection did not join in the jury’s adverse verdict, so the appeals court held any error in allowing her to serve was harmless.

As for the trial court’s denial of United Rentals’ challenge to Plaintiffs’ strikes, the appeals court rejected the argument that Plaintiffs’ counsel admitted unlawful discrimination by telling the judge, “We know from our focus groups that the African-American female is the most favorable juror for this case for whatever reason.” The court concluded counsel made this statement in the context of “explaining why they believed United Rentals’ strike of [a] particular black panelist was pretextual,” and did not evidence Plaintiffs’ “intent to seat a jury without whites or males.” And although the Court acknowledged the gender and racial “disparities suggest something more than happenstance,” they did not alone “establish that appellees’ explanations of the strikes were pretextual.” The Court then conducted a “comparative analysis” of the record relevant to each of Plaintiffs’ strikes and concluded the judge did not abuse her discretion in denying the challenges. The Court explained, “Disparate treatment is not shown where a party strikes a juror because of multiple characteristics and does not strike jurors of other races or genders who share one or more of those characteristics.”

The online docket does not reveal a request for en banc review or a vote on such a request. Nevertheless, two dissents from a denial of en banc consideration, released at the same time as the panel opinion, indicate a vote did occur. See Tex. R. App. P. 41.2(c). Justice Evans, joined by Justices Whitehill and Schenck, submitted a lengthy opinion supporting reversal and remand for a new trial on the grounds that “a race- and gender-based goal—the substantial motivation—in selecting the jury was plainly and openly stated, and 100% of the peremptory challenges were perfectly consistent with that goal.” The dissent characterized the statement of Plaintiffs’ counsel that “the African-American female is the most favorable juror for this case” as rare “direct evidence of discriminatory intent,” which, combined with evidence of the plan’s execution, “may well stand for itself and obviate any need of further analysis.” Nevertheless, the dissent reviewed in detail the record relevant to each of the jurors excluded by Plaintiffs. In addition to Plaintiffs’ stated “discriminatory goal,” the dissent found “misstatements of the record” and “pretextual reasons about which [Plaintiffs] did not ask questions.” According to the dissent, “the only possible conclusion” is that Plaintiffs “intended to strike non-black men from the jury in violation of Batson” and its progeny.

TAX-COLLECTION LAW FIRM IS NOT IMMUNE FROM VENDOR’S SUIT

Linebarger Goggan Blair & Simpson, LLP v. TinStar Title Inc.

Dallas Court of Appeals, No. 05-19-00614-CV (July16, 2020)

Justices Whitehill, Schenck, and Evans (Opinion linked here)

Lyndon Bittle

A law firm that collects delinquent tax accounts for Dallas County and other taxing entities is not protected by governmental immunity from lawsuits by its subcontractor, according to the Dallas Court of Appeals. Importantly, the case did not involve claims brought by taxpayers.

The Linebarger law firm contracted to perform tax-collection services for Dallas County and other taxing entities, and subcontracted title-abstract services to TinStar. When TinStar sued Linebarger for breach of contract and various business torts, Linebarger asserted governmental immunity in a plea to the jurisdiction. The trial court denied the plea, and Linebarger filed both an interlocutory appeal and a mandamus petition.

The Dallas Court of Appeals first held it lacked jurisdiction to consider Linebarger’s interlocutory appeal under Civil Practice and Remedies Code § 51.014(8), which authorizes interlocutory appeals from orders granting or denying a plea to the jurisdiction by a “governmental unit.” At least in the context of a private dispute between Linebarger and one of its subcontractors, the Court found Linebarger is not a “governmental unit” as that term is defined in the Tort Claims Act, CPRC § 101.003(a). The Court distinguished University of the Incarnate Word v. Redus, 518 S.W.3d 905 (Tex. 2017), in which the Supreme Court extended governmental immunity to a private university defending the actions of its police department created under express legislative authority because the “department was part of the state’s larger law enforcement system.”

The Court held it could address Linebarger’s mandamus petition under its original-proceeding jurisdiction, but denied mandamus relief. The Tort Claims Act retains governmental immunity for claims arising in connection with the assessment or collection of taxes by a governmental unit. CPRC § 101.055(1). Following Brown and Gay Eng’g v. Olivares, 461 S.W.3d 117 (Tex. 2015), however, the Court found that Linebarger’s contract with the County made Linebarger an independent contractor and that the County did not “control in any way how Linebarger used title abstractors to perform its contract with the County.” It distinguished several previous cases invoking governmental immunity, because those cases involved “taxpayers asserting claims for actions taken by the taxing authority through Linebarger as its agent”—not for the law firm’s “independent actions.”

GOVERNMENT HOSPITAL NOT IMMUNE FROM SUIT FOR MISPLACED SURGICAL SPONGE

University of Texas Southwestern Medical Center v. Rhoades

Dallas Court of Appeals, No. 05-19-00445-CV (June 30, 2020)

Justices Molberg, Partida-Kipness (Opinion linked here), and Bridges (Concurring and Dissenting Opinion linked here)

Lyndon Bittle

A divided Dallas Court of Appeals panel held the University of Texas Southwestern Medical Center (UTSW) does not have governmental immunity in a lawsuit arising from a medical team’s failure to remove a sponge during surgery.

As a breast reconstruction operation neared conclusion, the medical staff reported one of the surgical sponges used to absorb blood during the operation was missing. After a visual search of the surgical field did not reveal the location of the sponge, the doctor ordered x-rays with a portable x-ray machine. The missing sponge did not appear on x-rays of the chest and abdomen. The patient’s position did not allow x-rays of the pelvic area, but the doctor was confident the sponge would not have been there, and concluded the sponges must have been miscounted. The surgery was concluded and the patient was sent to intensive care for recovery. The search for the missing sponge added several hours to what normally would have been a six-hour surgery.

While the patient was recovering, an x-ray of her pelvic region revealed the missing sponge, which was then removed in a second surgery. The patient developed post-operative complications that required four additional surgeries. The patient sued UTSW for medical negligence. UTSW filed a plea to the jurisdiction on the grounds that as a governmental hospital, it is immune from the patient’s suit. The trial court denied the plea, finding immunity was waived under the Texas Tort Claims Act. UTSW appealed.

On appeal, the dispositive issue was whether UTSW’s governmental immunity was waived because the alleged injuries were caused by the negligent “use of tangible personal … property” under the TTCA, TEX. CIV. PRAC. & REM. CODE §101.021(2). Two separate items were at issue—the surgical sponge and the x-ray machine. UTSW argued that the claims “arise from the surgeons’ allegedly negligent medical judgment, for which immunity is not waived.” The Court affirmed the trial court’s holding as to both items, after a painstaking review of cases applying the “use of personal property” waiver of immunity, including University of Texas M.D. Anderson Cancer Center v. McKenzie, 578 S.W.3d 506 (Tex. 2019). Justice Partida-Kipness’s majority opinion, rejecting UTSW’s argument, emphasized that the doctor’s “erroneous decision to call off the search and close the remaining incisions followed the allegedly negligent use of the sponge.” Likewise, according to the majority, immunity was waived by the allegation and jurisdictional evidence that “UTSW used the machine negligently by failing to x-ray the entire surgical field.”

Justice Bridges joined the majority’s conclusion that UTSW waived immunity “for negligent use of the sponge during the operation.” He dissented, however, from the holding concerning use of the x-ray machine, arguing that the majority improperly expanded the Texas Supreme Court’s holding in McKenzie “to create jurisdiction where none exists.” Offering a detailed rebuttal to the majority’s review of the case law, Justice Bridges concluded the “negligence claims alleging misuse of the x-ray machine are artfully pleaded complaints about UTSW surgeons’ and radiology staff’s medical judgments, rather than use or misuse of tangible personal property.”

TEXAS LOTTERY OPERATOR NOT IMMUNE FROM FRAUD CLAIMS

Nettles v. GTECH Corp. (consolidated with GTECH Corp. v. Steele)

Supreme Court of Texas (June 12, 2020)

Opinion by Justice Busby (linked here)

Concurrence and dissent by Chief Justice Hecht (linked here)

Concurrence and dissent by Justice Boyd (linked here)

Lyndon Bittle

In two cases from different appeals courts that were consolidated for argument, a splintered Supreme Court of Texas sent fraud claims against GTECH Corp., which operates the Texas Lottery under a contract with the Lottery Commission, back to trial courts in Dallas and Austin, holding GTECH was not protected from suit by “derivative sovereign immunity.”

The cases involved fraud claims by lottery participants based on misleading instructions on the tickets describing the criteria for winning the “Fun 5” scratch-off game. See Nettles v. GTECH Corp., 581 S.W.2d 234 (Tex. App.—Dallas 2017) (affirming trial court’s granting GTECH’s plea to the jurisdiction); GTECH Corp. v. Steele, 549 S.W.3d 768 (Tex. App.—Austin 2018) (affirming denial of jurisdictional plea on fraud claims, but reversing on conspiracy claims). The misleading language was apparently the result of changes requested, and ultimately approved, by the Commission. The two courts, applying the Supreme Court’s reasoning in Brown & Gay Engineering, Inc. v. Olivares, 461 S.W.3d 117, 127 (Tex. 2015), agreed that GTECH would have derivative immunity “to the extent … Plaintiffs are substantively attacking actions and underlying decisions or directives of [the Commission] and not GTECH’s discretionary actions.” The Dallas Court in Nettles held the fraud claims against GTECH failed that test, but the Austin Court in Steele disagreed.

The Texas Supreme Court was sharply divided in addressing the doctrine of derivative sovereign immunity. The “opinion of the Court,” authored by Justice Busby and joined by only three other justices, noted the Court had not—in Brown & Gay or any other case—adopted the doctrine of derivative immunity, but held GTECH wouldn’t be immune to fraud claims even if the court were to adopt the “control standard” discussed in Brown & Gay. The opinion held, however, that GTECH was immune from claims of conspiracy and aiding and abetting fraud by the Lottery Commission, because such claims “are wholly derivative of an alleged underlying fraud by the Commission alone,” which is not a viable underlying tort on which conspiracy could be predicated.

Three justices, in an opinion authored by Chief Justice Hecht, dissented from the rejection of GTECH’s immunity from fraud claims in these cases, but joined in extending immunity to the conspiracy claims. Justice Boyd, on the other hand, believed the court should reject the doctrine of derivative immunity altogether, and “reach the simple, logical conclusion that sovereign immunity only protects the sovereign.” He thus joined Justice Busby’s opinion in denying GTECH immunity on the fraud claims, but dissented from finding GTECH immune from the conspiracy claims. Justice Guzman did not participate in the decision.

Importantly, all the participating justices agree GTECH can assert a government-contractor defense to avoid liability for actions taken at the Lottery Commission’s direction, alleging “any fraud was solely the result of the Commission’s representations.” It is not, however, immune from suit on those claims.

COLLUSION POKES HOLE IN EIGHT-CORNERS RULE

Loya Insurance Co. v. Avalos
Supreme Court of Texas (May 1, 2020)
Opinion by Justice Busby (linked here)

Lyndon Bittle

The Texas Supreme Court has for the first time explicitly adopted an exception to the venerable “eight-corners rule” for determining an insurer’s duty to defend.

The rule, which the Court recently reinforced in Richards v. State Farm Lloyds, mandates that a liability insurer’s duty to defend a lawsuit against its insured is determined solely by reference to the facts alleged in the underlying complaint and the terms of the insurance policy, without reliance on extrinsic evidence. (See my post on Richards here.) In Loya, the Court held the rule is nullified by deliberate collusion between an insured and a third-party plaintiff. That is, “an insurer owes no duty to defend when there is conclusive evidence that groundless, false, or fraudulent claims against the insured have been manipulated by the insured’s own hands in order to secure a defense and coverage where they would not otherwise exist.”

The facts in Loya were stark. Kara Flores Guevara was the sole insured under an auto liability policy issued by Loya Insurance. Her husband, Rodolfo Flores, who was explicitly excluded from coverage, was driving Guevara’s car when it collided with a car owned by Osbaldo Hurtado Avalos and Antonio Hurtado (the “Hurtados”). But Guevara, Flores, and the Hurtados agreed to tell the responding officer and the insurer that Guevara was driving her car at the time of the accident. The Hurtados then sued Guevara, and Loya hired an attorney to defend her. When Guevara told the attorney her husband had been driving the car, the insurer immediately withdrew its defense and denied coverage. The Hurtados obtained judgment against Guevara, who assigned them any rights she had against the insurer.

The Hurtados sued Loya for breach of the insurance policy and the usual tort and statutory claims. Loya counterclaimed and deposed Guevara, who admitted the truth about her husband’s role in the accident. The trial court concluded the Hurtados were asking the court “to ignore every rule of justice and help [them] perpetuate a fraud,” and granted summary judgment for Loya.

The Hurtados appealed, and the San Antonio Court of Appeals reversed, holding that the eight-corners rule barred reliance on extrinsic evidence of collusion. One justice concurred in the judgment, urging the Supreme Court to create a narrow exception to the rule that would encompass “undisputed fraud and collusion.”

The Supreme Court reviewed the history of the eight-corners rule and its reluctance to create exceptions, but noted it had previously indicated “that collusive fraud by the insured might provide the basis for an exception.” The Court concluded the facts of this case presented “such a circumstance,” emphasizing that the evidence conclusively established Guevara was not driving her car at the time of the accident, and the “parties to the underlying case conspired to lie about who was driving to trigger insurance coverage.”

The Court also rejected the argument that the insurer was required to obtain a judicial declaration it had no duty to defend before withdrawing its defense. While the Court encourages declaratory judgment actions to resolve such issues, it does not mandate them. This does not, however, give insurers carte blanche to abandon their insureds “where there is a real controversy regarding the duty to defend.” The Court emphasized the substantial risks of common law or statutory bad-faith liability facing an insurer who refuses to defend without seeking judicial confirmation of its position. It reversed the Court of Appeals and reinstated the trial court’s judgment.

UNDERESTIMATING WORK DOESN’T MAKE CONTRACT AMBIGUOUS

Bright Excavation, Inc. v. Pogue Construction Co., L.P.
Dallas Court of Appeals, No. 05-18-00820-CV (April 21, 2020)
Justices Myers, Osborne, and Nowell (Opinion linked here)

Lyndon Bittle

The Dallas Court of Appeals affirmed summary judgment for a general contractor, holding its subcontractor was bound by the contract price, even if the subcontractor underestimated the amount of work required to complete the project.
Lancaster ISD hired Pogue Construction to build two elementary schools. Pogue subcontracted the excavation work on one of the sites to Bright Excavation for $945,000. The subcontract required Bright to “excavate to the top of the tan limestone as verified by the geotechnical representative.” The bid package had instructed bidders to “assume six feet of remove and replace would be necessary.” After reviewing the initial geotechnical report of subsurface conditions, Bright estimated only between two and four feet of excavation would be required, and priced its bid accordingly. Unfortunately, this estimate proved to be inadequate, and Bright claimed it incurred over $325,000 in expenses beyond what it had projected. Pogue rejected Bright’s request for a change order increasing the contract amount, and Bright sought unsuccessfully to recover over $760,000 from Pogue’s payment bond surety, Hartford Insurance.

Bright sued Pogue and Hartford for breach of contract, payment on the bond, and assorted torts. Pogue counterclaimed to recover its attorney’s fees under the terms of the subcontract. The trial court entered summary judgment for Pogue and awarded its fees.

On appeal, Bright argued summary judgment was improper because the subcontract was ambiguous regarding the depth to which Bright was required to excavate within the $945,000 subcontract price. The Court of Appeals summarized Texas law governing the determination of contractual ambiguity, and reviewed the terms of the subcontract and related documents on which Bright relied. The Court concluded the subcontract was not ambiguous: “Bright, not Pogue or the school district, assumed the risk of the conclusions and interpretations Bright made based on the subsurface information contained in the geotechnical report.” Absent a breach of contract, Bright’s claim on the payment bond and tort claims against Pogue also failed.

TEXAS SUPREME COURT REMINDS INSURERS: PAYING AN APPRAISAL AWARD MIGHT NOT SATISFY PROMPT PAYMENT ACT

Alvarez v. State Farm Lloyds
Supreme Court of Texas, No. 18-0127 (April 17, 2020)
Per Curiam opinion linked here.

Lazos v. State Farm Lloyds
Supreme Court of Texas, No. 18-0205 (April 17, 2020)
Per Curiam opinion linked here.

Biasatti v. GuideOne National Insurance Company
Supreme Court of Texas, No. 18-0911 (April 17, 2020)
Per Curiam opinion linked here.

Lyndon F. Bittle

In three per curiam opinions, the Texas Supreme Court firmly 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.

Alvarez and Lazos both involved claims of wind and hail damage to residential property. State Farm insisted the damage did not exceed the homeowners’ deductible, so the homeowners filed suit seeking contractual and extra-contractual damages. In each case, State Farm then invoked the policy’s standard appraisal clause, the trial court ordered an appraisal that resulted in an award greater than the insurer’s initial estimate, and State Farm paid the award. The homeowners pressed for additional damages attributed to Stare Farm’s failure to pay promptly, but the trial courts and appellate courts held such damages were barred by payment of the appraisal and entered take-nothing judgments. While review of these cases was pending, the Texas Supreme Court issued two opinions clarifying USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018), which set forth rules governing the relationship between contractual and extra-contractual claims. In Barbara Technologies Corp. v. State Farm Lloyds, the Court held “payment in accordance with an appraisal is neither an acknowledgment of liability nor a determination of liability for purposes of … damages under section 542.060.” 589 S.W.3d 806, 820 (Tex. 2019). Likewise, in Ortiz v. State Farm Lloyds, the Court held “an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the Prompt Payment Act.” 589 S.W.3d 127, 135 (Tex. 2019). The homeowners then amended their petitions in Alvarez and Lazos to abandon all claims except for damages under the Act. The Court reversed and remanded both cases to their respective trial courts for further proceedings.

The facts in Bisatti were similar, except that the damaged property was commercial (and State Farm was not involved). The wrinkle was that the appraisal clause in GuideOne’s policy was “unilateral”—it could be invoked only by the insurer, which had refused to do so when the policyholder requested it before the lawsuit. This distinction did not affect the viability of the policyholder’s claim under the Prompt Payment Act. The Supreme Court held, however, that its previous cases had not resolved “whether payment of an appraisal award under a unilateral clause would have the same effect” as to claims of breach of contract or bad faith. It, therefore, remanded that issue for consideration by the trial court, along with the prompt payment claim.

EIGHT-CORNERS RULE LIVES ON

Richards v. State Farm Lloyds
Supreme Court of Texas (March 20, 2020)
Opinion by Justice Blacklock (linked here)

Lyndon Bittle

The “eight-corners rule” for determining the duty to defend is well entrenched in Texas law: A liability insurer’s duty to defend a lawsuit against its insured is determined solely by reference to the facts alleged in the underlying complaint and the terms of the insurance policy, without reliance on extrinsic evidence. See, e.g., GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). Efforts to weaken the rule’s grip, however, have continued unabated. Answering a question certified by the Fifth Circuit, the Texas Supreme Court in Richards held the eight-corners rule applies even where the operative insurance policy does not expressly promise a defense “even if the allegations of the suit are groundless, false or fraudulent.”

One of the strongest proponents of abandoning the eight-corners rule for most cases has been federal district judge John McBryde, now Senior Judge in the Fort Worth Division of the Northern District of Texas. He has relied on extrinsic evidence to negate coverage since at least 1991. In 2006 he held that the eight-corners rule arose from, and is dependent on, “groundless, false or fraudulent” language of older (pre-1996) CGL policies, and therefore does not apply to newer policies omitting that language. B. Hall Contracting, Inc. v. Evanston Ins. Co., 447 F.Supp.2d 634, 645 (N.D. Tex. 2006), rev’d on other grounds, 273 F.App’x 310 (5th Cir. 2008). The Fifth Circuit reversed the judgment in that case without mentioning the lower court’s holding on the eight-corners rule. Judge McBryde has reprised his B. Hall analysis in subsequent cases and expanded his discussion of the rule’s demise, most recently in Richards. That case arose out of the death of a ten-year-old boy in an ATV accident and a negligent-supervision lawsuit by his mother against his paternal grandparents. State Farm, which provided homeowner’s insurance to the grandparents, filed suit seeking a declaratory judgment that it had no duty to defend or indemnify them because the accident did not occur on their property and the claim triggered an “insured v. insured” exclusion. Judge McBryde granted summary judgment for State Farm, admitting and relying on extrinsic evidence over the insureds’ objections.

On appeal, the Fifth Circuit acknowledged that neither it nor the Texas Supreme Court had recognized the district court’s view of the eight-corners rule, and certified this question to the Texas court: “Is the policy-language exception to the eight-corners rule articulated in B. Hall … a permissible exception under Texas law?” The Texas Supreme Court’s answer was a resounding “No.” The Court confirmed that “parties can contract around the eight-corners rule,” but held State Farm did not do so merely by omitting the promise to “defend claims ‘even if groundless, false or fraudulent.’’’ The Court insisted the rule “is not a judicial amendment to the parties’ agreement,” but is grounded in the promise “to defend the policyholders if ‘a claim is made or a suit is brought against an insured because of bodily injury … to which this coverage applies.’” Moreover, the Court said “Texas courts have long interpreted contractual duties to defend” by applying the eight-corners rule, and noted, “If any party is familiar with the overwhelming precedent to that effect, it is a large insurance company.”

Finally, the Court acknowledged that the Fifth Circuit and some Texas courts have applied a more narrow exception to the eight-corners rule, which allows reliance on extrinsic evidence that “concerns discrete and independent coverage issues and does not touch on the merits of the underlying suit.” This exception traces its roots to dicta in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir. 2004). The viability and scope of the so-called Northfield exception has been the subject of numerous cases and commentaries over the years, but, as it has done in several previous cases, the Court again declined to resolve that controversy. “The Fifth Circuit did not ask for our opinion on that practice, so we express none.”

Stay tuned.

REVERSAL OF $535 MILLION JUDGMENT AFFIRMED—NO PARTNERSHIP WHEN CONTRACTUAL CONDITIONS NOT SATISFIED OR WAIVED

Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P.
Supreme Court of Texas (January 31, 2020)
Opinion by Chief Justice Hecht (linked here)

Lyndon Bittle

The Supreme Court of Texas today affirmed the 2017 decision of the Dallas Court of Appeals to throw out a $535 million judgment for alleged breach of a partner’s fiduciary duty, holding no statutory partnership was created when contractual conditions precedent were not satisfied.

In 2015, ETP convinced a jury it had formed a partnership with Enterprise to develop a pipeline to transport oil from Cushing, Oklahoma to Houston, and that Enterprise had breached its duty of loyalty by contracting with another company on a similar pipeline project. The trial court entered judgment awarding ETP around $535 million in damages, interest, and disgorgement. The Dallas Court of Appeals in July 2017 held no partnership was formed because conditions stated in the parties’ written agreement had not been satisfied or waived. So it reversed and rendered a take-nothing judgment. See my previous blog post with a full discussion of the intermediate court’s opinion here.

The core issue in the case was the relationship between Chapter 152 of the Texas Business Organizations Code and the parties’ own prior written agreements. TBOC § 152.051(b) provides that “an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether … the persons intend to create a partnership.” Section 152.052(a) then provides a list of factors “indicating that persons have created a partnership.” But the parties’ agreements stated that no partnership obligations would arise without definitive written agreements negotiated, executed, and approved by both companies’ boards of directors. The Texas Supreme Court noted, “Section 152.003 expressly authorizes supplementation of the partnership-formation rules of Chapter 152 with other ‘principles of law and equity,’ and perhaps no principle of law is as deeply ingrained in Texas jurisprudence as freedom of contract.” It also reiterated its “view expressed decades ago in Ingram [v. Deere, 288 S.W.3d 886, 898 (Tex. 2009)] that the Legislature did not ‘intend[] to spring surprise or accidental partnerships’ on parties.” Accordingly, the Court held “that parties can contract for conditions precedent to preclude the unintentional formation of a partnership under Chapter 152 and that, as a matter of law, they did so here.” And, although conditions can be waived or modified, ETP failed to either “obtain a jury finding on waiver or to prove it conclusively.”

COMPANY MANAGER PERSONALLY LIABLE FOR CONTRACT BREACH

PMC Chase, LLP v. Turnbow
Dallas Court of Appeals, No. 18-01383 (January 28, 2020)
Justices Myers, Schenck, and Carlyle (opinion linked here)

Lyndon Bittle

This is a cautionary tale for anyone who signs contracts or purchase orders for their company: Unless you want to be personally responsible for performing the contract, be sure the document clearly indicates you’re signing as the company’s representative.

BSS contracted to perform structural steel construction at PMC’s business. The one-page contract was directed to “Attention: Steve Turnbow,” and Turnbow, PMC’s manager, signed it. After substantial completion, BSS sent its invoice to Turnbow at PMC’s address. When it did not receive payment, BSS sued both Turnbow and PMC for breach of contract and (alternatively) quantum meruit. At trial, BSS abandoned its contract claim against PMC, insisting “the contract was with just Mr. Turnbow individually.” BSS retained its quantum-meruit claim against PMC.

PMC and Turnbow argued Turnbow acted only as an agent for PMC and was not, therefore, individually liable for any breach. After a bench trial, the court entered judgment against Turnbow for breach of contract and against PMC for quantum meruit, awarded the same damages and attorney’s fees for both causes of action, and held the defendants jointly and severally liable. The Dallas Court of Appeals affirmed the judgment.

Citing the “well-settled [principle] that the law does not presume agency,” the Court of Appeals held that because the contract “bears Mr. Turnbow’s signature and does not mention PMC Chase or indicate representative capacity in any way … it unambiguously shows it is the obligation of Mr. Turnbow personally.” This conclusion could not be altered, the Court held, by parol evidence of the parties’ intent, including both signatories’ testimony “that they understood Turnbow to have signed the contract for PMC Chase.”

The Court also affirmed the quantum-meruit judgment against PMC, holding that “appellants’ position that ‘there can be no recovery under quantum meruit where the same transaction is covered by a valid contract’ is contrary to established construction contract law,” citing Gentry v. Squires Construction, Inc., 188 S.W.3d 396, 402-03 (Tex. App.—Dallas 2006, no pet.). Finally, the Court noted that the judgment imposing joint and several liability for the same damages under the two causes of action precluded a double recovery.

GOVERNMENTAL IMMUNITY SUBJECT TO NO-EVIDENCE MSJ, NOT WAIVED BY OPEN MEETINGS ACT

Town of Shady Shores v. Swanson
Supreme Court of Texas, No. 18-0413 (December 12, 2019)
Opinion by Justice Lehrmann (linked here)

Lyndon Bittle

Sarah Swanson sued the Town of Shady Shores for wrongfully terminating her employment as town secretary in retaliation for her having reported violations of the Texas Open Meetings Act (TOMA) and Public Information Act. The Town filed a plea to the jurisdiction asserting governmental immunity, and Swanson amended her petition to add claims for declaratory judgment and constitutional free-speech violations. The Town then amended its plea and filed traditional and no-evidence motions for summary judgment. The trial court dismissed some of Swanson’s claims on jurisdictional grounds, but denied summary judgment on other claims, including her claim for declaratory judgment.

The Town filed an interlocutory appeal on the jurisdictional issues. The Fort Worth Court of Appeals affirmed in part and reversed in part. Specifically, the court held: (1) the trial court correctly denied the Town’s no-evidence motion for summary judgment because that was not a proper procedural vehicle to challenge jurisdiction; (2) the Uniform Declaratory Judgment Act (UJDA) does not “provide a general waiver of immunity,” but TOMA waives immunity with respect to Swanson’s request for declarations on certain statutory violations; (3) the Town’s jurisdictional evidence did not “negate” jurisdiction, so its traditional summary judgment motion was properly denied; (4) TOMA did not waive immunity on Swanson’s claim for back pay; and (5) Swanson failed to alleged viable constitutional claims so the Town was immune from those claims.

Swanson did not seek supreme court review of the dismissal of her claims for back pay or constitutional violations. The Town filed a petition for review of other rulings, which the Supreme Court granted. After confirming its jurisdiction, the Court reversed the appellate court’s ruling on two issues and remanded for resolution of remaining issues.

First, resolving a split among the lower courts, the Court held jurisdiction could properly be determined on a no-evidence summary judgment motion, provided the nonmovant was accorded “adequate time for discovery” and other safeguards provided by the rule.

Second, the Court held that the mandatory provisions of TOMA are enforceable only by mandamus or injunction under Government Code § 551.142, not by declaring an offending action “void” under § 551.141. The Court explained that “while the Legislature has expressly authorized a suit for declaratory judgment against the government in other statutes, it has not done so in the Open Meetings Act.” And the UDJA waives immunity only for requests to determine a “question of construction or validity arising under [a statute] and obtain a declaration of rights, status, or other legal relations thereunder.” CPRC § 37.004(a).

The Court acknowledged it had previously “affirmed or rendered declaratory judgments premised on violations” of TOMA, but noted the jurisdictional issue had not been presented or addressed in those cases. It declined to “ascribe to tacit acceptance the same significance we would give to an express consideration and analysis of the issue.”

Finally, the Court considered Swanson’s “standalone” claim under TOMA. Although she had not sought review of the appellate court’s sua sponte ruling she had not asserted such a claim, the Supreme Court held she had not waived her objection to that ruling because it was not part of the judgment. Reviewing the record, the Court held Swanson had asserted claims for mandamus and injunctive relief under TOMA that the lower court had not addressed. The case was therefore remanded for further consideration by the court of appeals.