SCOTx: Statute Tolling SOL During Defendant’s “Temporary Absence From [the] State” Doesn’t Really Mean What It Says

Ferrer v. Almanza

Supreme Court of Texas, No. 21-0513 (April 28, 2023)

Opinion by Justice Huddle (linked here), Dissent by Justice Busby (here)

Ken Carroll

Civil Practice & Remedies Code § 16.063—entitled “Temporary Absence From State”—provides, “The absence from this state of a person against whom a cause of action may be maintained suspends the running of the applicable statute of limitations for the period of the person’s absence.” But what does “absence” mean, under the statute? With apologies to Inigo Montoya, a majority of the Supreme Court of Texas “does not think it means what you think it means.”

Almanza, a Texas resident, argued that limitations barred Ferrer’s claim against her. In response, Ferrer invoked § 16.063 to contend limitations had been tolled during Almanza’s temporary absence from the State to attend college in Massachusetts, bringing the assertion of Ferrer’s claim within the limitations period.

The Supreme Court sided with Almanza, affirming summary judgment on the basis of limitations. It held that, “‘absence from this state’ under Section 16.063 depends not on physical location but, rather, on whether a defendant is subject to personal jurisdiction and service. … If a defendant is subject to personal jurisdiction in Texas and amenable to service, he or she is not absent from Texas under Section 16.063.” Almanza had always been subject to personal jurisdiction and service of process even while away at school and therefore, the Court concluded, § 16.063 tolling did not apply. The majority relied heavily on two of its recent decisions—Kerlin v. Sauceda and Ashley v. Hawkins—which had reached the same result with respect to claims against nonresidents. It acknowledged that “physical location” within the state had been a requirement during much of the time § 16.063 and its predecessors had been in force, beginning back when a defendant’s physical presence within the state was necessary to the exercise of personal jurisdiction and service of process. With the advent of the “minimum contacts” analysis of International Shoe and the long-arm statutes enacted in its wake, physical presence within the state was no longer necessary. And so, the Court reasoned, defendants should be considered “absent” only when they are not amenable to personal jurisdiction or service of process.

Justice Busby dissented, unwilling to follow his colleagues’ apparent departure for the second time in a week from the Court’s longstanding adherence to a “textualist approach, which adheres to the ordinary meaning of the words enacted and leaves statutory updating to the legislative branch” and contractual drafting to the parties. The “ordinary meaning” of “absence,” he said, is the “‘fact of not being where you are usually expected to be,’ or, in a legal sense, the ‘condition of being away from one’s usual place of residence’”—a physical characteristic. “Most people who read this statute would never suspect that ‘absence’ holds the hidden meaning” engrafted by the Court, he argued. Justice Busby contended the Court’s prior rulings in Kerlin and Ashley did not control because those cases involved nonresidents who were subject to service and jurisdiction under the long-arm statute, which gave rise to their “constructive presence” in the state despite their lack of physical presence—a statute that did not apply to Almanza, as a resident. The majority rejected that argument, saying, “If the Legislature intended to limit Section 16.063’s application to Texas residents, it certainly could have said so expressly.” Of course, Justice Busby could be forgiven for thinking, on the other hand, “If the Legislature had intended § 16.063 to apply when a defendant is not ‘subject to personal jurisdiction in Texas [or] amenable to service,’ rather than when she is ‘absent from Texas,’ ‘it certainly could have said so expressly.’”

SCOTx: Agreeing to Arbitrate According to the AAA Rules Constitutes “Clear and Unmistakable” Agreement to Delegate Questions of Arbitrability to the Arbitrator

TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC

Supreme Court of Texas, No. 21-0028 (April 14, 2023)

Opinion by Justice Boyd (linked here), Concurrence by Justice Bland (here), Dissent by Justice Busby (here)

Ken Carroll

AAA Commercial Rule 7(a) provides that an arbitrator “shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Relying on that passage, the Supreme Court of Texas confirmed what most of us thought we already knew, holding that, “as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator,” not a court, “must decide whether the parties’ disputes must be resolved through arbitration”—i.e., questions of arbitrability. The Court buttressed its pronouncement with a comprehensive review of other courts’ decisions on the issue, which revealed that “the vast majority of federal circuit courts and other state supreme courts have reached this same conclusion.”

But the TotalEnergies arbitration agreement came with a wrinkle. It said:

If any dispute or controversy arises between the parties out of this Agreement, the alleged breach thereof, or any tort in connection therewith, … the same shall be submitted to arbitration . . . in accordance with the rules of the AAA and the provisions in this Article.

Justice Busby contended in dissent that the “if” took the agreement out of the “general rule” recognized by the majority. “As a matter of text and logic,” he argued, “the ‘if’ clause is a substantive condition precedent to arbitrators acquiring the power to decide anything at all .…, including any issues … regarding [their] jurisdiction.” At the very least, he concluded, this “if” precondition precluded a determination that the parties had “clearly and unmistakably” agreed to delegate questions of arbitrability to the arbitrators unless and until a court first found the precondition to have been met. And, as both he and the majority acknowledged, it appears the Second and Fifth Circuits agree with that analysis.

The majority, however, rejected that argument. Just as an arbitration provision is “severable” and to be evaluated separately from the overall contract in which it appears, so also, the Court said, should a delegation clause be considered severable and evaluated separately from the overall arbitration agreement. Viewed through this lens, the delegation clause here—incorporating the AAA rules—was absolute and not subject to the “if” precondition. Consequently, the Court held, even under the language of the TotalEnergies arbitration agreement, the parties “clearly and unmistakably” delegated questions of arbitrability to the arbitrator.

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.”

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.

“MAY” MEANS “MAY”: INTERLOCUTORY APPEAL FROM DENIAL OF MOTION TO COMPEL ARBITRATION IS PERMISSIVE, NOT MANDATORY

Bonsmara Natural Beef Company, LLC v. Hart of Texas Cattle Feeders, LLC

Supreme Court of Texas, No. 19-0263 (June 26, 2020)

Justice Busby (Opinion, linked here), Justice Green Dissenting (linked here)

Ken Carroll

Most Texas statutes that authorize interlocutory appeals of interim trial-court orders provide only that an aggrieved litigant “may” pursue such an appeal—employing permissive rather than mandatory language. The statutes allowing for interlocutory appeals from orders denying motions to compel arbitration follow that pattern: they specify that a party “may” pursue an interim appeal of such an order, not that the party “must” do so. Tex. Civ. Prac. & Rem. Code §§ 51.016 & 171.098(a)(1). Expanding on its holding in Hernandez v. Ebrom, 289 S.W.3d 316 (Tex. 2009), the Supreme Court of Texas confirmed in Bonsmara that, with limited exceptions, such statutes mean what they say. Employing a textualist approach, the Court held that, while an aggrieved litigant may pursue an interlocutory appeal of an order denying arbitration, it can defer its appeal of that decision until after final judgment following a trial on the merits.

Bonsmara contracted with Hart to feed and care for cattle. When a dispute arose about whether Hart was doing its job, Bonsmara sued. The Hart defendants moved to compel arbitration, as provided for in the parties’ contract. The trial court denied that motion and refused to send the matter to arbitration. Although the Hart defendants could have taken an interlocutory appeal of that order, they failed to do so within the prescribed timeframe. They sought mandamus relief after the deadline had expired for an interlocutory appeal, but—no surprise—the court of appeals rejected that petition without addressing the merits because there had been an adequate remedy by appeal. So, the case proceeded to a jury trial in the district court, which led to a judgment against the Hart defendants for several hundred thousand dollars. Undaunted, the Hart defendants appealed and included a challenge to the trial court’s denial of its motion to compel arbitration. Bonsmara argued the appellate courts lacked jurisdiction because the Hart defendants had blown their interlocutory appeal. But the court of appeals disagreed, and so did a majority of the Supreme Court.

The Supreme Court majority observed that the statute at issue “uses the permissive word ‘may,’ and nothing in the text of that section or related statutes indicates that a party’s choice not to pursue an appeal from an interlocutory order has any consequences for the longstanding jurisdictional principle that it may challenge the order on appeal from a final judgment.” Therefore, the majority said, a party has “discretion to pursue an interlocutory appeal of an arbitration order,” and “the party’s choice not to file an interlocutory appeal [does not] deprive[] an appellate court of ‘jurisdiction to review [that] order ... as part of the appeal of a final judgment in the case.’” Nor did the Hart defendants’ ill-fated mandamus, in which the court of appeals did not reach the merits of their complaint.

The dissenters argued that the majority’s rigid textual approach ignored the policies underlying the statutes, undermined the very purposes of arbitration, and led to an absurd result. But the majority responded that there were countervailing policy reasons supporting the result it reached and, more important, such concerns were for the Legislature, not the courts. Perhaps recognizing the reasoning and holding here would have broader applicability than its prior decision in Ebrom, the Court acknowledged that there could be non-statutory reasons why not pursuing an interlocutory appeal might lead to the forfeiture of post-judgment appeal in some cases. For example, the issue might be mooted by subsequent proceedings or events, as with respect to a temporary injunction. Or a party might be estopped, as with respect to an order appointing a receiver, where third parties dealt in good faith with the receiver in the interim. But such concerns were not at play here, the majority held.

Moving to the merits, the Court affirmed the appeals court’s ruling that the trial court had erred in denying the motion to compel arbitration. But both appellate courts had to deal with an issue not originally presented to the trial court: by proceeding to trial, had the Hart defendants waived their right to compel arbitration by “substantially invoking the litigation process to Bonsmara’s detriment”? No, said the Supreme Court. But its reasoning on this score was not altogether clear. The Court suggested Bonsmara may have waived the issue, saying that it had “never asserted this type of waiver in any court, including ours,” that such an argument would not affect jurisdiction in any event, and that the “doctrine therefore has no place in our analysis.” But then, during its merits discussion, the Court explained that by merely complying with the trial court’s order denying arbitration and participating in trial, the Hart defendants could not be said to have waived their right to appeal that decision—no more than would any party that complied with any other interim order pending final judgment.

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.