State Bar of Texas - Appellate Section: Nominations to the Texas Appellate Hall of Fame

 

 State Bar of Texas – Appellate Section

 Nominations to the Texas Appellate Hall of Fame 

A few years ago, CCSB co-founder and appellate legend Marvin Sloman was inducted into the Texas Appellate Hall of Fame. The recognition was richly deserved and a great honor for Marvin and the firm.

Now it’s your opportunity to nominate a worthy practitioner to join Marvin and others in the Hall. The Appellate Section will honor new Hall of Fame inductees at a presentation and ceremony during this year’s Advanced Civil Appellate Practice course and Section meeting, scheduled for September 5-6, 2024. 
Guidelines for nominating someone, as well as a link for submitting your nomination, are found here. Nominations should be submitted no later than Thursday, May 30, 2024.

Judicial Admissions: Be Careful What You Plead, and How

Advantage Aviation Technologies, Inc. v. Axcess Aviation Maintenance Services, Inc.

Dallas Court of Appeals, No. 05-23-00344-CV (December 27, 2023)

Justices Molberg (Opinion, linked here), Pedersen III, and Smith

Ken Carroll

Axcess secured judgment against Advantage Aviation for breach of two contracts. Advantage challenged that judgment on appeal by arguing that it had no contracts with Axcess and that the contracts on which the judgment was based were between Axcess and a different party. Problem was, in the trial court Advantage had counterclaimed, unsuccessfully, for breach of the very same contracts that it tried to deny on appeal. And it had done so “without equivocation and not in the alternative,” alleging it sustained damages of more than $90,000 from Axcess’s breach of those contracts. Oops.

Citing its prior opinion in Murphy v. Killer Ridez, Inc., No. 05-13-00035-CV, 2014 WL 428987, the Dallas Court of Appeals summarily rejected Advantage’s appeal and affirmed, saying: 

Assertions of fact, not pleaded in the alternative, in the live pleadings of a party are regarded as formal judicial admissions. … A judicial admission that is clear and unequivocal is conclusive upon the party making it; it relieves the opposing party of the burden of proving the admitted fact and bars the admitting party from disputing it.

SCOTx: Disagreement Between the Parties—or their Lawyers—Does Not Equal Ambiguity

U.S. Polyco, Inc. v. Texas Central Business Lines Corp.

Supreme Court of Texas, No. 22-0901 (November 3, 2023)

Per Curiam Opinion (linked here)

Ken Carroll

U.S. Polyco and Texas Central disputed the meaning of their land-improvement contract. The Supreme Court of Texas took that as an opportunity to reinforce its repeated admonitions that (1) a court’s “‘primary objective’ when construing private legal instruments … ‘is to ascertain and give effect to the parties’ intent as expressed in the instrument,’” and (2) “[i]n the usual case, the instrument alone will be deemed to express the intention of the parties.” These “principles of contract interpretation,” it emphasized, “are well established and of fundamental importance.”

Here, the parties disagreed about whether certain items were encompassed by the defined term, “TCP Infrastructure Improvements.” The pertinent contractual provision listed some specific items to be included within that definition, but it concluded with, “and other items in or adjacent to the Designated Areas as are agreed upon by [the parties] in writing.” The question, of course, was whether the qualifier—“as are agreed upon by [the parties] in writing”—applied to all items in the series or only to the last entry.

Both the trial court and the court of appeals considered dueling canons of construction to unravel the parties’ dispute: “the series-qualifier canon and the last-antecedent canon.” Because of the absence of a comma before the phrase “as are agreed upon by [the parties] in writing,” both courts concluded the “last antecedent canon” controlled—an analysis and conclusion with which the Supreme Court agreed. But, while the trial court then found the contract to be unambiguous and enforced its interpretation as a matter of law, the appeals court held that, “[t]he record demonstrates that the parties strongly disagree about the intent of [the contractual provision] and its application,” and it therefore “conclude[d] that [the contract] is ambiguous and cannot be construed as a matter of law.”

Without hearing oral argument, the Supreme Court granted the Petition for Review and reversed the court of appeals. “[L]ike all other considerations beyond the contract’s language and structure,” it said, “parties’ ‘disagreement’ about their intent is irrelevant to whether that text is ambiguous.” “If lawyerly disagreement about text meant that a legal instrument’s disputed meaning must be resolved as a matter of fact,” the Court warned, “it would be a poor advocate who could not obtain a jury trial to interpret the text.” Instead, “[c]oncluding that a legal instrument is insolubly ambiguous must always come after a court has exhausted all the traditional tools of interpretation and still cannot reach a definitive conclusion about the meaning conveyed by the text.”

Rule 91a: “Just the Facts Pleadings, Ma’am” … Even if It’s Not Briefed?

Davis v. Homeowners of American Insurance Co.

Dallas Court of Appeals, No. 05-21-00092-CV (May 31, 2023)

Justices Molberg (Opinion, linked here), Pedersen (Dissent, linked here), and Kennedy

Ken Carroll

A defendant insurer successfully moved to dismiss the plaintiff’s claims under Rule 91a, based on limitations. But the Dallas Court of Appeals reversed, 2-1. The problem? The insurer’s motion to dismiss relied heavily on a variety of documents submitted with that motion to establish the limitations point. Rule 91a, however, expressly provides that a “court may not consider evidence in ruling on the motion and must decide the motion based solely on the pleading of the cause of action.” “In the Rule 91a context, only the non-movant’s pleading may be looked to when determining whether the cause of action pleaded has a basis in law.” A Rule 91a motion to dismiss, the Court explained, “is not a substitute for … summary judgment,” and so “the court may not resort to evidence proffered by the movant, such as through affidavits, transcribed testimony, or documents.” The majority therefore reversed the Rule 91a dismissal, but cautioned that it was not addressing the merits of the limitations argument, which might yet succeed on summary judgment.

Seems straightforward, right? So, why a dissent? Well, said Justice Pedersen, the plaintiff did not preserve error in the trial court. More specifically, the plaintiff did not object to the trial court’s considering the movant-insurer’s proffered documentary evidence, choosing instead to argue the merits of the insurer’s argument and the “evidentiary value” of the documents on which it relied. “Issues not timely preserved for appeal are waived,” and the procedural misstep identified by the majority wasn’t objected to or otherwise preserved in the trial court here.

Compounding the problem, the plaintiff-appellant did not raise the Rule 91a pleadings/evidence issue on appeal. That, argued Justice Pedersen, also should have precluded the majority’s decision. Per the Texas Supreme Court in Pike v. Texas EMC Management, “Our adversary system of justice generally depends ‘on the parties to frame the issues for decision and assign[s] to courts the role of neutral arbiter of matters the parties present.’” 610 S.W.3d 763, 782 (Tex. 2020) (quoting Greenlaw v. United States, 554 U.S. 237, 243 (2008) (discussing the “party presentation principle”)). “A court of appeals may not reverse a trial court judgment on a ground not raised” on appeal. Id. “Accordingly,” said Justice Pedersen, “this Court’s precedent … prohibits our panels from reversing trial court judgments on unassigned, nonfundamental error”—as he contended the majority did here.

Curiously, the majority opinion does not respond to the dissent’s preservation and waiver arguments.

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.

No Interlocutory Appeal of Order Deferring Decision on Motion to Compel Arbitration

Builders FirstSource, Inc. v. White

Dallas Court of Appeals, No. 05-22-00724-CV (March 29, 2023)

Chief Justice Burns (Opinion, linked here) and Justices Molberg and Goldstein

Ken Carroll

Builders moved to stay White’s lawsuit against it and to compel arbitration under the Federal Arbitration Act. White responded with a motion for a jury trial on the threshold issue of arbitrability. When the trial court denied Builders’ motion and granted White’s, Builders filed an interlocutory appeal under FAA §§ 16(a)(1)(A) & (B). But the Dallas Court of Appeals dismissed for want of jurisdiction. The Court acknowledged that an order denying a motion to stay and for arbitration ordinarily is appealable under the FAA and Civil Practice & Remedies Code § 51.016. But the trial court’s order here “simultaneously granted White’s motion for a jury trial on arbitrability.” Consequently, the Court explained, “the order can only reasonably be construed as deferring a final ruling on whether to grant arbitration.” Citing decisions from several other Texas Courts of Appeals, the Dallas Court then held that an order deferring decision on the motion to compel, as opposed to “a definitive ruling on Builders’ motion to stay litigation and compel arbitration” is interlocutory and not appealable.

No Sealed Record on Appeal Without 76a Order

Orca Assets, GP, LLC v. J.P. Morgan Chase Bank, N.A.

Dallas Court of Appeals, No. 05-22-00292-CV (March 1, 2023)

Justice Molberg (Order, linked here)

Ken Carroll

In the most recent episode in this long-running saga, Orca Assets appealed from the trial court’s $2.4 million award of fees and costs against it. Because this particular aspect of the dispute had been severed years ago, Orca asked that two volumes of the sealed 12-volume clerk’s record from a 2013 substantive appeal in the main case be imported into this current fees and costs appeal. In January, Dallas Court of Appeals Justice Ken Molberg issued an order (linked here) granting that request, but noting that “the clerk’s record in [the earlier appeal] appears to have been filed under seal in accordance with an agreed protective order rather than a sealing order under Texas Rule of Civil Procedure 76a.” So, he further ordered that the imported volumes would “remain under seal only temporarily to allow the parties an opportunity to obtain a sealing order in compliance with rule 76a.” The order warned the parties that the Court would unseal those volumes unless they obtained that sealing order. They didn’t. So, Justice Molberg kept his promise and issued an order striking the sealed volumes of the record and ordering the district clerk to refile them “without seal.” Not long ago, Justice Craig Smith filed a concurrence to an en banc decision (in a different case) for the express purpose of addressing documents sealed on appeal and the application of Rule 76a. Surveying the relevant authorities, he concluded:

• Rule 76a governs the sealing of records or documents filed in the court of appeals, so the appellate record should not be sealed unless and until the trial court has entered a sealing order after following the procedures of Rule 76a.
• If the trial court has not entered a Rule 76a sealing order, the appellate court will abate the appeal or temporarily seal the filed documents only to allow the trial court to conduct a hearing to determine whether the requirements of Rule 76a have been satisfied and to make findings on whether the contents of the record should be sealed. 
• The parties may not enter a Rule 11 agreement or agreed protective order to skirt the requirements of Rule 76a.

In re Cook, 629 S.W.3d 591, 608 (Tex. App.—Dallas 2021, orig. proceeding) (en banc). Justice Molberg’s orders in Orca Assets follow the path mapped out by Justice Smith. They confirm parties cannot be casual about complying with Rule 76a on appeal.

Thou Shalt Not Delay Trial for Appeal of a Temporary Injunction

Bienati v. Cloister Holdings, LLC

Dallas Court of Appeals, No. 05-22-00324-CV (February 10, 2023)

Justices Carlyle (Opinion, linked here), Goldstein, and Kennedy

Ken Carroll

Appellate courts often say the most efficient way to deal with a trial court’s decision granting or denying a temporary injunction is just to promptly go to trial. The Dallas Court of Appeals recently put teeth into that admonition.

Bienati and others pursued an interlocutory appeal from a temporary injunction. Although it had set a trial date in the injunction order, the district court first continued the trial and then abated the case entirely pending resolution of the temporary injunction appeal. Appellant’s counsel explained that the case was abated “because the probable right to recovery issue could impact the merits of the entire case, [and so] the trial court ‘abated it until this Court [of Appeals] weighed in on the merits of the temporary injunction and whether there’s a probable right to recovery.’”

The appeals court did not take kindly to that. Invoking Rule 683’s directive that “the appeal of a temporary injunction shall constitute no cause for delay of the trial,” the Dallas Court dismissed the appeal without addressing the merits. “The proceedings in the trial court have been stayed in an effort to obtain an advisory opinion from this Court,” it explained. “Judicial economy dictates that we not reward this behavior.”

… And That’s Final!

Patel v. Nations Renovations, LLC

Supreme Court of Texas, No. 21-0643 (February 10, 2023)

Per Curiam Opinion (linked here)

Ken Carroll

Another cautionary tale regarding the finality of judgments from the Supreme Court of Texas: Don’t hesitate if finality is in doubt.

Nations sought to confirm an arbitration award against Huntley Construction. Before the trial court rendered judgment confirming that award, Nations added Patel and others as defendants, alleging they were alter egos of Huntley. Soon after, the trial court entered judgment confirming the arbitration award, using language proposed by Nations. That judgment provided “[i] that Nations have all writs and processes to aid in execution of this judgment[,] ... [ii] that all relief not granted herein is denied[,] ... [and] that this is [iii] a final judgment and [iv] appealable.” Months later, Nations asked the trial court to “clarify” that judgment, to state that it was interlocutory rather than final. The trial court did so, but promptly certified for appeal the question whether it had jurisdiction to modify the judgment.

After the court of appeals declined to act, the Supreme Court—treating the PFR as a mandamus petition—ruled the trial court did not have jurisdiction to modify the judgment months after its issuance. The judgment was final, not interlocutory, and Nations had waited too long to ask the trial court to modify the judgment. The Court reiterated that no particular “magic words” are required to make a judgment final. But, taken together, the recitations in the judgment here “form a clear indication of finality,” even though none of them standing alone would be sufficient to do so. Further, although the claims against the new defendants Nations added after arbitration had not been resolved when the trial court issued the judgment, “the reviewing court cannot review the record” to assess whether a judgment is in fact final if, as here, that judgment is final on its face. “If the order contains a ‘clear and unequivocal’ finality phrase disposing of the entire case, the order is final, and the failure to actually dispose of all claims and parties renders the order erroneous but not interlocutory.” If the parties do not timely seek to modify or appeal such an “erroneous” final judgment, they’re stuck with it.

Finally, the Supreme Court rejected Nations’s suggestion that the judgment could be final as to some parties and interlocutory as to others. “Chaos would follow from such a rule,” the Court said, declaring that a “judgment is either final or it is not.”

Clause Preserving “All Remedies” Does Not Conflict with Agreement to Arbitrate

Kirk v. Atkins

Dallas Court of Appeals, No. 05-21-00639-CV (February 1, 2023)

Justices Nowell, Smith, and Miskel (Opinion, linked here)

Ken Carroll

Atkins sued Kirk for breach of contract, fraudulent misrepresentation, and conversion in connection with her investment in his company. The parties’ “investor agreement” included a broad ADR provision that required “[a]ny disputes or controversies arising out of or relating to” that agreement to be resolved through AAA arbitration. That agreement also contained a fairly standard “Remedies” provision stating that, “The parties shall have all remedies for breach of this Agreement available to them provided by law or equity.” Kirk sought to compel arbitration of the parties’ dispute. In response, Atkins did not contest the validity or scope of the arbitration provision, but argued that the agreement’s express reservation of “all remedies” conflicted with the agreement to arbitrate and rendered that ADR provision ambiguous. The trial court agreed and denied the motion to compel arbitration. But the Dallas Court of Appeals reversed.

The appeals court held the ADR and “Remedies” provisions of the agreement could and should be reconciled. “The ADR paragraph, in which the arbitration clause is found, controls the process of resolving disputes between the parties,” the Court explained, “while the remedies paragraph describes the substantive relief that may flow from decisions on those controversies.” The two provisions therefore were not in conflict, the ADR provision was not ambiguous, and the motion to compel arbitration should have been granted.

SCOTx Establishes Protocol for Compelled Disclosure of Cell-Phone Use

In re Kuraray America, Inc.

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

Per Curiam Opinion (linked here)

Ken Carroll

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

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

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

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

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

Gordon v. Trucking Resources, Inc.

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

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

Ken Carroll

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

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

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

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

Vice Principals, the Fifth Amendment, and Negative Inferences

 Lurks v. Designer Draperies and Floors, Inc. 

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

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

 Ken Carroll 

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

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

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

Finality Bites—Again

JMJ Development, LLC v. Ramolia

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

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

Ken Carroll 

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

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

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

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

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

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

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

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

Ken Carroll

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

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

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

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

Patel v. Gonzalez Hotels, LLC

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

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

Ken Carroll

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

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

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

SCOTx: No “Informal” Fiduciary Duty from Corporate Director to Shareholder, Regardless of Pre-Existing Relationship of Trust and Confidence

In the Matter of the Estate of Richard C. Poe

Supreme Court of Texas, No. 20-0178 (June 17, 2022)
Opinion (linked here) by Justice Huddle 

Ken Carroll

In Ritchie v. Rupe, the Texas Supreme Court held that, “[a]bsent a contractual or other legal obligation, [an] officer or director [of even a closely held corporation] has no duty to conduct the corporation’s business in a manner that suits an individual shareholder’s interests.” Instead, officers and directors owe fiduciary duties only to the corporation, itself, including “the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation.” But what if a director has a relationship of trust and confidence with a shareholder that arose prior to and independent of their relationship as director and shareholder? The Supreme Court has held previously that such a relationship can give rise to an “informal fiduciary duty.” Can a director simultaneously owe both (i) conventional fiduciary duties to the corporation and (ii) an “informal” fiduciary duty to an individual shareholder, based on their pre-existing relationship? Is the latter an “other legal obligation” that is the exception to the rule as announced in Ritchie? In Poe, the Supreme Court answered, no, “a director cannot simultaneously owe these two potentially conflicting duties.”

Richard C. (“Dick”) Poe operated several car dealerships in El Paso. He consolidated control of them in PMI, a Texas corporation, which was the general partner of several limited partnerships that, in turn, owned and operated the dealerships. Poe’s son, Richard, was the sole shareholder of PMI. But Richard gave his father, Dick, an irrevocable proxy to vote those shares, and Dick was the sole director of PMI. In 2015, Dick caused PMI to issue additional shares of stock, which he bought from PMI for $3.2 million. These new shares made Dick the majority shareholder. Son Richard was not notified of these additional shares until after Dick died, shortly after the shares were issued. Richard sued Dick’s longtime accountant, his office manager, and his attorney for, among other things, conspiring with Dick to breach his fiduciary duties both to PMI and to Richard in issuing the new shares to himself. Richard contended his father’s “informal” fiduciary duty to him, arising from their longstanding relationship of trust and confidence, triggered the “other legal obligation” language of Ritchie, meaning that Dick owed fiduciary duties to Richard, individually, as well as to PMI. 

A unanimous Supreme Court of Texas disagreed, holding that 

[A]s a matter of law, a corporation’s director cannot owe an informal duty to operate or manage the corporation in the best interest of or for the benefit of an individual shareholder. A director’s fiduciary duty in the management of a corporation is solely for the benefit of the corporation. 

Because the trial court erred by allowing the jury to decide about the existence and breach of an alleged “informal” fiduciary duty from Dick to Richard, the Supreme Court reversed and (i) rendered judgment against Richard on his claims for breach of an “informal” fiduciary duty, and, (ii) because of other errors in the charge, remanded for a new trial on the remaining issues

Beware the TRAP: The Deadline to Appeal after Filing a Post-Judgment Motion

Nur Ali v. Spectra Bank

Dallas Court of Appeals, No. 05-21-01113-CV (April 6, 2022)

Chief Justice Burns, Justice Molberg (Opinion, linked here), and Justice Goldstein

A to Z Wholesale Wine & Spirits, LLC, v. Spectra Bank

Dallas Court of Appeals, No. 05-21-01149-CV (April 6, 2022)

Chief Justice Burns, Justice Molberg, and Justice Goldstein (Opinion, linked here)

Ken Carroll

In substantially identical opinions in two related cases, the Dallas Court of Appeals made appellants painfully aware of an anomaly in the Texas rules. Under TRAP 26.1, a notice of appeal ordinarily must be filed “30 days after the [trial court] judgment is signed.” But if an appellant timely files a qualifying motion, such as a motion for new trial, TRAP 26.1(a) extends the deadline for the notice of appeal to “90 days after the judgment is signed”—but not to 30 days after the motion is overruled or denied, as one might expect and as is prescribed by the corresponding federal rule governing notices of appeal, FRAP 4(a)(4). This anomaly can prove especially treacherous where, as in these two cases, the post-judgment motion in the trial court is overruled by operation of law.

In both Ali and A to Z the appellant timely filed a motion for new trial. In each case, the motion was overruled by operation of law 75 days after the judgment was signed, pursuant to TRCP 329b(c). Instead of filing a notice of appeal within the next 15 days—that is, within 90 days after the judgment was signed—the appellants waited until 30 days after the motions were overruled, making the notices 15 days late under TRAP 26.1(a). That still gave each appellant a last-gasp, post-deadline opportunity to seek an extension under TRAP 26.3, provided they could show their delay in filing “was not deliberate or intentional, but was the result of inadvertence, mistake, or mischance.” Trying to meet that standard, each appellant argued the delay was justified to allow for “disposition of the entire case below,” i.e., for the trial court’s plenary jurisdiction to expire under TRCP 329b(e). The Court of Appeals didn’t buy it, saying it had “repeatedly held that delay caused by waiting for the trial court to rule on a post-judgment motion or for the trial court’s plenary power to expire is unreasonable as it reflects an awareness of the deadline for filing a notice of appeal but a conscious decision to ignore it.” In other words, a “deliberate [and] intentional” decision, exactly the opposite of “inadvertance, mistake, or mischance.” In each case, therefore, the Court denied the appellant’s motion to extend time to file a notice of appeal and dismissed for want of jurisdiction.

Post-Petition Developments Derail Mandamus

In re Am Re Syndicate, Inc.

Dallas Court of Appeals, No. 05-21-00358-CV (February 23, 2022)

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

Ken Carroll

Ordinarily, an appeal or mandamus is decided on the basis of the record before the trial court at the time it issued the order challenged in the appellate court. But not always.

Plaintiff TEXCAZ sued Am Re and its CEO, Barder, alleging breach of contract, fraud (for entering into a contract they didn’t intend to perform), tortious interference, and conspiracy. Am Re and Barder moved to dismiss, because the contract at issue specified that the forum for determining “any controversy arising out of this Agreement, or any breach thereof, shall be in Oklahoma County, Oklahoma.” Am Re and Barder were not parties to that contract—Am Re’s principal, GIC, was—but Am Re and Barder contended TEXCAZ was estopped to deny it was bound by the Oklahoma forum-selection clause by virtue of its claims of breach of the contract containing that provision and fraud regarding the lack of intent to perform that contract. The trial court denied the motion to dismiss. Am Re and Barder sought mandamus to enforce the forum-selection clause.

Several months after Am Re and Barder filed their mandamus petition, TEXCAZ amended its petition in the trial court to drop its claims for breach of contract and fraud. In addition, GIC revoked Am Re’s agency authority. Based on these post-petition developments, the Dallas Court of Appeals concluded “that the controversy does not arise out of the contract and that relators lack capacity and standing to assert the forum- or venue-selection clause.” It therefore denied mandamus.