Texas Trial Law Advocate

JNOV Filed Before Judgment is Signed Extends Appellant Timetable to Ninety Days

Dillon Meek — Fri, 20 Jan 2012 16:23:52 -0600

In Ryland Enterprises, Inc. v. Weatherspoon, No. 11–0189, 2011 WL 6276127 (Tex. 2011), Vickie Weatherspoon (“Plaintiff”) sued Ryland Enterprise, Inc. (“Defendant”).

On May 4, 2010, the jury returned a verdict for Plaintiff.

On May 25, 2010, after the jury verdict, but before the judgment was signed, Defendant filed a JNOV motion on legal insufficiency grounds.

On June 14, 2010, the trial court signed a judgment for Plaintiff, initiating the appellate time table. The judgment also denied Defendant’s JNOV motion.

On August 18, 2010, sixty-five days after the judgment was signed, Defendant filed a notice of appeal in the trial court.

Plaintiff moved to dismiss the appeal as untimely because the notice was filed beyond the thirty-day deadline that applies if none of the motions listed in Texas Rule of Appellate Procedure 26.1(a) are filed. The court of appeals granted the motion. The court of appeals held that although a JNOV motion may extend the appellate timetable to ninety days in some circumstances, it only does so if filed after the judgment is signed, and not before. The Texas Supreme Court disagreed.

One issue before the Texas Supreme Court was whether the filing a motion to modify the judgment before the judgment is signed extends the deadline for filing a notice of appeal to ninety days.

The Supreme Court held that filing a motion to modify the judgment before the judgment is signed extends the deadline for filing a notice of appeal to ninety days.

Quick Review: The Automatic Stay

Josh White — Thu, 19 Jan 2012 13:31:14 -0600

This post discusses the basics of the “automatic stay” that is in place when a customer files for bankruptcy. This post also includes a discussion of the potential pitfalls that creditors face for violations of the automatic stay.

Automatic Stay - An Absolute Prohibition to Collect

The filing of a bankruptcy petition operates as an automatic stay, applicable to all entities, prohibiting: (1) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; (2) any act to create, perfect, or enforce any lien against property of the estate; (3) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the bankruptcy case; (4) any act to collect, assess, or recover a claim [or debt] against the debtor that arose before the commencement of the bankruptcy case; and (5) the setoff of any debt owing to the debtor that arose before the commencement of the bankruptcy case against any claim against the debtor. A creditor violates the automatic stay by undertaking any of these acts. Period. End of story.

Automatic Stay - Willful Violations

Moreover, if a creditor knows the automatic stay is in existence and takes a deliberate act in violation of the stay, the creditor has committed a “willful” violation, which justifies a mandatory award of actual damages. Importantly, the “willfulness” requirement supporting recovery of damages for violation of the automatic stay refers to the deliberateness of the creditor’s conduct and the creditor’s knowledge of the debtor filing a bankruptcy petition; it does not refer to the specific intent of the creditor to violate a court order or the Bankruptcy Code. The debtor shall also recover court costs and attorney’s fees for a willful violation of the stay. Further, any additional finding of maliciousness or bad faith warrants imposition of punitive damages.

Willful violations of the automatic stay may be established only by a “preponderance of the evidence” burden of proof, meaning that a debtor only has to show that “it’s ‘more likely than not’ that the violation occurred” to prevail. The deliberate, unwarranted, and egregious nature of a creditor’s violations of the automatic stay is taken into consideration in awarding damages. However, whether a creditor who violates the automatic stay believes in good faith that it has a right to the property is not relevant to whether the violation was “willful” or whether damages should be awarded.

Examples of willful violations of the automatic stay include:

offsetting money owed to the debtor against a debt that arose before the bankruptcy petition was filed;
phone calls to the debtor after the bankruptcy petition has been filed; and
provoking a criminal prosecution of the debtor.

Conclusion

Bottom line? Once a creditor knows a debtor has filed for bankruptcy, a creditor can find itself in hot water for taking any action to collect on the indebtedness or to secure a lien against the debtor.

Securities and Exchange Commission Accuses Life Partners Holdings of Misleading Investors

Craig Cherry — Sat, 07 Jan 2012 12:00:00 -0600

The Securities and Exchange Commission has filed suit accusing Life Partners Holdings of "systematically and materially" misleading investors about the life expectancy of people whose life insurance policies it traded. According to the SEC's suit filed in federal court in Waco, the alleged scheme inflated the value of the company's stock. Specifically, the SEC has alleged that "the deception mislead shareholders into thinking the company's revenue model was sutainable when in fact it was illusory."

The SEC is seeking to recover unspecified civil penalites, as well as, the return of stock trade profits and bonuses.

The company and the executives deny the SEC's allegations.

Texas Supreme Court Rules on Noncompete Agreement's Enforceability

Brandon Oates — Wed, 28 Dec 2011 15:02:23 -0600

The Texas Supreme Court has once again affirmed its decision to make non-compete agreements more easily enforceable by employers against their employees. The Court was asked to consider whether a covenant not to compete signed by a valued employee in consideration for stock options, designed to give the employee a greater stake in the company’s performance, is unenforceable as a matter of law because the stock options did not give rise to an interest in restraining competition.

In the summer of 2011, the Texas Supreme Court issued its opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. June 24, 2011), holding that, under the terms of the Covenants Not to Compete Act, a covenant not to compete signed by an employee in consideration of stock options was enforceable because the company’s provision of stock options was reasonably related to the employer’s interest in protecting its goodwill. This was deemed a business interest worthy of protection, thus the noncompete agreement was not unenforceable on that basis. A motion for rehearing was thereafter filed, and the Court recently withdrew its prior opinion and substituted a new opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. Dec. 16, 2011).

Once again, the Court found there was a nexus between the covenant not to complete and the interest being protected, thereby meeting the requirement set out in Covenants Not to Compete Act (Texas Business and Commerce Code §15.50(a)), thereby making the noncompete agreement not unenforceable as a matter of law. Thus, employers have maintained their ability to enforce noncompete agreements against employees under such circumstances.

Challenge to Texas Franchise Tax Rejected by Supreme Court

Dillon Meek — Fri, 23 Dec 2011 11:39:24 -0600

A constitutional challenge to the Texas Franchise Tax was recently rejected by the Texas Supreme Court.

In In Re: Allcat Claims Service, L.P. et al., No. 11-0589, 2011 WL 6091134 (Tex. 2011), a partnership argued that the Texas Franchise Tax constituted an income tax and, as such, violated the Texas Constitution. The Texas Constitution provides that the state may not collect an income tax on natural persons.

Allcat Claims Service LP, a Boerne insurance adjustment firm that filed the suit, contended that the Franchise Tax imposed against the partnership reduced the income of Allcat's partners, making it an income tax.

The Supreme Court held the franchise tax is not unconstitutional. The Court distinguished the imposition of the Franchise Tax and an income tax on natural persons by reasoning that partnerships are treated as legal entities separate from their individual partners. The franchise tax is imposed on a partnership before the partnership distributes profits to any individual partners. Accordingly, the Supreme Court held that the law does not impose an income tax and, as such, does not violate the Texas Constitution.

When a Losing Defendant Attempts to Place Assets Beyond the Reach of a Prevailing Plaintiff

Josh White — Sun, 11 Dec 2011 18:22:24 -0600

Under Texas law is there a remedy available to a prevailing plaintiff (“judgment creditor”) who, when seeking to collect on her judgment, finds that the losing defendant (“judgment debtor”) has attempted to transfer assets beyond her reach?

Shore Answer: Yes. Look to the Uniform Fraudulent Transfer Act (the “Act”).

Overview of the Act

The general rule is that a judgment debtor’s transfer of assets with the intent to hinder, delay, or defraud his or her creditors by placing his property beyond the creditor’s reach is fraudulent. In determining the judgment debtor’s intent, it is relevant that—before the transfer was made—the debtor had been sued or threatened with suit. Importantly, the Act not only creates liability against the person for whose benefit the transfer was made, but also against the first transferee of the asset, or any subsequent transferee.

Remedies under the Act

If a judgment debtor’s transfer is fraudulent under the Act, the judgment creditor has several remedies—including, but not limited to: (1) avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim; (2) attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with Texas law relating to ancillary proceedings; or (3) subject to applicable principles of equity and in accordance with applicable rules of civil procedure: (A) an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property; (B) appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or (C) any other relief the circumstances may require.

What about transfers to other creditors?

In the absence of a law declaring preferences invalid, every judgment debtor has the legal right to pay one or more of his debts with his money or property. A “preference” is a conveyance of property by an insolvent debtor to an unsecured creditor in payment of a debt. Texas courts have long recognized an exception to the fraudulent conveyance statute in the case of preferences. Such conveyances are held valid, notwithstanding the statute, but only if the value of the property did not exceed the amount of the debt and the grantee creditor received the conveyance in good faith, meaning without a secret agreement to benefit the judgment debtor in some way other than by discharge of the debt owed to the grantee creditor.

Under these circumstances, the conveyance is held valid even though the judgment debtor actually intended to prefer one creditor over another creditor and the grantee creditor had notice of this intent. However, the transaction must not embrace any secret trust for the benefit of the judgment debtor; instead, the grantee creditor receiving the money or property must take for the sole purpose of securing the debt and not for the object of aiding the judgment debtor to cover up the property or the proceeds thereof for the benefit of the judgment debtor and to the prejudice of other creditors.

What if the judgment debtor declares bankruptcy, attempting to avoid the judgment creditor’s remedies under the Act?

The elements of a violation under the Act are similar—if not, the same as—the exceptions to a discharge under the bankruptcy code. Specifically, a bankruptcy court will not grant the judgment debtor a discharge if the judgment debtor, with intent to hinder, delay, or defraud a creditor . . . , has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed . . . property of the judgment debtor, within one year before the date of the filing of the petition; or property of the estate, after the date of the filing of the petition.

City Employee is Limited to Workers' Compensation Benefits, Despite Issuance of Uninsured/Underinsured Automobile Insurance Policy

Brandon Oates — Wed, 30 Nov 2011 15:48:33 -0600

In Smith v. City of Lubbock, 07-10-0466-CV, 2011 WL 4478494 (Tex. App.--Amarillo Sept. 26, 2011, pet. granted), the Amarillo Court of Appeals held that workers’ compensation laws barred additional recovery against an employer who is a subscriber to workers’ compensation. In this case, the additional recovery is based upon the existence of an uninsured/underinsured auto policy (the “UM Policy”) acquired by the City from St. Paul Fire and Marine Ins. Co. (“St. Paul”).

This case arose when Smith, an employee of the City of Lubbock (the “City”) was struck by an intoxicated driver while Smith was in the course and scope of his duties for the City. Smith took the position that Texas workers’ compensation laws did not bar an employee from suing his employer on the UM Policy. The City obtained the UM Policy for its employees. As a result of his injuries, Smith received workers’ compensation benefits; however, he also sought benefits pursuant to the UM Policy. Those benefits were denied, and Smith filed suit against the City and St. Paul. The trial court granted summary judgment on behalf of both the City and St. Paul; however, St. Paul has since conceded that it was not entitled to the granting of a summary judgment.

Smith attempts to distinguish his claims against his employer based on common law torts from those based on a contract, which Smith asserts are not barred by the workers’ compensation laws contained in Texas Labor Code. The Court of Appeals cited to the Texas Labor Code regarding the exclusive remedy of workers’ compensation benefits by injured employees.

Recovery of workers' compensation benefits is the exclusive remedy of an employee covered by workers' compensation insurance coverage or a legal beneficiary against the employer or an agent or employee of the employer for the death of or a work-related injury sustained by the employee.

Tex. Labor Code § 408.001(a). The facts of Smith’s injuries and subsequent claim tracked the express language of this statute in that he was an “employee covered by workers’ compensation insurance” that sustained a “work-related injury”. As such, the Court, in ruling against Smith stated:

Simply put, if an employee suffers work-related injuries and seeks their redress from an employer that subscribes to a workers' compensation program, there is only one way to obtain them. It is through that compensation program. It does not matter if the employer provides those benefits from its own pocket or via a contract with a third party insurer; once it provides them, statute bars the employee from forcing the employer to redress the injuries through other means.

See id. at *3. Any other reading of the statute would potentially allow an employee an additional recovery against his employer, which is prohibited by the Texas Labor Code.

While the Court acknowledges that the outcome could be different if there were additional facts before the Court such as: (1) the employer was mandated to provide uninsured/underinsured coverage, (2) the wording of the Texas Labor Code exclusivity statute differentiated between injuries caused by the acts or omissions of a third party from the relationship of the injuries and the employee’s work, or (3) if the entire sum due under the UM Policy was to be paid by an insurance company; however, none of those is the situation here. It is also interesting to note that the City is responsible for the first $500,000 worth of damages, and St. Paul is only liable for the damages exceeding that amount.

This case reinforces that the exclusive remedy for injured workers of employers who subscribe to the workers’ compensation act are the benefits provided by same.

The Texas Supreme Court has granted a petition for review on this matter, so we may get some additional clarification on this issue in the coming months.

Defendant Is Not A "Prevailing Party" When Plaintiff Nonsuits To Avoid An Unfavorable Judgment

Dillon Meek — Wed, 23 Nov 2011 16:06:02 -0600

In 2009, the Texas Supreme Court held that a plaintiff who obtained favorable jury findings but no damages was not entitled to attorney's fees under contractual language entitling a prevailing party to such fees. Intercont'l Group P'ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 652 (Tex. 2009).

Recently, in Epps v. Fowler, No. 10-0283, 2011 WL 3796618, at *2 (Tex. 2011), the Texas Supreme Court addressed whether a defendant is a prevailing party entitled to attorney's fees when the plaintiff nonsuits a claim without prejudice.

The Texas Supreme Court held that when the plaintiff nonsuits without prejudice, the defendant is not a prevailing party unless the trial court determines, on the defendant's motion, that the plaintiff took the nonsuit in order to avoid an unfavorable judgment.

The Texas Supreme Court also held that when the plaintiff nonsuits with prejudice, the defendant is a prevailing party because a nonsuit with prejudice immediately alters the legal relationship between the parties by its res judicata effect. This is in direct contrast to a nonsuit without prejudice, where the plaintiff remains free to re-file the same claims seeking the same relief.

In Fowler, the trial court did not have the opportunity to determine whether the plaintiff filed its Motion for Nonsuit in order to avoid an unfavorable judgment. As such, the Texas Supreme Court remanded the defendant's claim for attorney's fees under the contract to the trial court. On remand, the defendant will have the opportunity to move the trial court to find that the plaintiff filed its Motion for Nonsuit in order to avoid an unfavorable judgment. If the trial court makes such a finding, the defendant will be a prevailing party and entitled to recover attorney’s fees pursuant to the contract.

No Private Cause of Action Under the Prompt Payment Statute

Josh White — Wed, 16 Nov 2011 21:42:02 -0600

Grunley, a prime contractor on a public work project, entered into a design-build contract with the federal government. In the performance of its work, Grunley subcontracted with IES.

Grunley experienced unanticipated changes and delays in the performance of its contract, and these changes and delays led to a dispute between Grunley and IES. The dispute was not resolved, and IES filed a claim against Grunley’s payment bond sureties under the Miller Act (40. U.S.C. §§ 3131 et seq.).

Grunley intervened in IES’ lawsuit and filed a breach of contract action against IES. IES counterclaimed for breach of contract, alleging that Grunley violated the Prompt Payment Act (31 U.S.C.§§ 3901–3907).

At issue before the Court was Grunley’s motion to dismiss IES’ claim under the Prompt Payment Act.

Specifically, Grunley argued:

(1) that there is no private right of action under the PPA;

(2) that the parties’ payment-related dispute rendered the PPA inapplicable; and

(3) because the federal government had not yet paid Grunley, the monies sought by IES were not yet due, thereby rendering IES’ claim premature.

Citing other jurisdictions that have found no private cause of action to exist under the Prompt Payment Act, the Court dismissed IES’ Prompt Payment Act claims. See In re Thomas, 255 B.R. 648, 654 (Bankr.D.N.J.2009); United States ex rel. King Mountain Gravel, LLC v. RB Constructors, LLC, 556 F.Supp.2d 1250, 1252–53 (D.Colo.2008); U.S. ex rel. Virginia Beach Mech. Servs., Inc. v. SAMCO Constr. Co., 39 F.Supp.2d 661 (E.D.Va.1999); Transamerica Premier Ins. Co. v. Ober, 894 F.Supp. 471 (D.Me.1995).

In finding for Grunley by dismissing IES’ Private Payment Act claim, the Court observed that Congress did envision “the PPA’s protections to be enforced in the same manner as other contractual disputes.” However, “neither the text of the PPA nor the legislative history reveal an intent to create a private right of action.”

Reconciling these statements, the implication appears to be that the Prompt Payment Act may be included as part of a breach of contract action, but not an independent claim/private cause of action.

 U.S. ex rel. IES Commercial, Inc. v. Cont'l Ins. Co., Inc., CIV. A. 11-0985 ESH, 2011 WL 4526018, --- F.Supp.2d --- (D.D.C. Sept. 30, 2011). 

Actos Linked to Bladder Cancer

Craig Cherry — Fri, 11 Nov 2011 06:33:17 -0600

Actos is a drug that has been used to treat Type-2 diabetes. Studies now indicate that Actos can cause serious injuries, including heart attack, heart failure, and an increased risk of bladder cancer.

As a result of a study linking Actos to bladder cancer, France withdrew Actos from the market in June 2011. Likewise, Germany, has advised doctors against prescribing the drug due to the increased risk of bladder cancer resulting from its use.

The Food and Drug Administration (FDA) has updated the warning label of Actos, announcing a link between the drug and increased risk of bladder cancer.

Many lawsuits have now been filed across the country regarding Actos. The Judicial Panel on Multidistrict Litigation (JPMDL) will hold a hearing in early December to determine if all Actos lawsuits should be consolidated in one federal court for discovery and pre-trial proceedings. A decision is expected in early 2012.

Southern District of Texas Rejects Insureds' Demand for Appraisal Under Flood Policy

Brandon Oates — Thu, 27 Oct 2011 15:24:34 -0600

The Southern District of Texas recently provided additional clarification regarding what flood claims under an Standard Flood Insurance Policy (“SFIP”) were subject to the appraisal clause when there are pricing issues as well as potential coverage issues involved. Ultimately, the Court ruled that because the dispute involved whether a particular item was actually covered under the SFIP, the appraisal clause was not applicable to the flood claim at issue.

Sidney and Bettie Jean Sam (“Plaintiffs”) were insured under a SFIP issued by National Lloyds Insurance Company (“National Lloyds”) pursuant to the National Flood Insurance Program (“NFIP”). Plaintiffs’ apartment building was damaged by flood waters following Hurricane Ike. National Lloyds sent an adjuster to the property in question, and later paid the Plaintiffs $100,622.67 for the loss.

The Plaintiffs disagreed with the amount of the claim paid by National Lloyds, and demanded an appraisal under the SFIP. The appraisal clause in an SFIP provides as follows:

Paragraph P. Appraisal:

If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they can not agree upon an umpire within 15 days, you or we may request that the choice be made by a Judge of a Court of record in the state where the covered property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss of if it applies, the replacement cost and loss.

National Lloyds subsequently denied the Plaintiffs’ request to submit this claim to the appraisal process because the disagreement was with regard to coverage issues, not just pricing issues. On July 15, 2010, Plaintiffs filed suit in the Southern District of Texas. In the lawsuit, Plaintiffs’ alleged a breach of the insurance contract as well as a wrongful denial of Plaintiffs’ appraisal request, and sought an additional $148,377.33 beyond what National Lloyds had already paid for the loss.

After filing suit, Plaintiffs filed a Motion to Compel Appraisal. Plaintiffs argued that the dispute was limited to the pricing and the “degree of repairs” necessary, and thus was subject to the appraisal clause. National Lloyds took the position that the dispute went beyond pricing issues, and instead involved coverage issues—which was beyond the scope of the appraisal clause in the SFIP. The disputed items included a $39,000 charge in Plaintiffs’ repair estimate for a commercial superintendent to monitor the repairs and whether the flood waters damaged appliances within the apartments.

The Court, relying on cases from other jurisdictions, stated that:

This appraisal clause can be invoked only to resolve disagreements between the parties regarding the “actual cash value or, if applicable, replacement cost of the damaged property.

See Sam v. Nat'l Lloyds Ins. Co., 2011 WL 4860009, *3 (S.D. Tex. Oct. 13, 2011) (citing to De la Cruz v. Bankers Ins. Co., 237 F. Supp. 2d 1370, 1373 (S.D. Fla. 2002); Apple v. Allstate Ins. Co., 2010 WL 2509887, *2 (M.D. Fla. June 18, 2010); Flaharty v. Allstate Ins. Co., 2010 WL 148226, *3 (N.D. Fla. Jan. 11, 2010)).

The Court agreed with National Lloyds and denied the Plaintiffs’ motion to compel appraisal, holding that the dispute regarding whether the commercial superintendent was a covered charge under the SFIP was a claim regarding coverage, and did not relate exclusively to the actual cash value or replacement cost value of a covered part of the claim—thus it did not invoke the appraisal clause.

This matter is currently set for trial in November 2011. The memorandum opinion is available at: Sam v. Nat'l Lloyds Ins. Co., H-10-2521, 2011 WL 4860009 (S.D. Tex. Oct. 13, 2011).

City's Decision to Demolish a Public Nuisance is Reviewable De Novo by a District Court

Dillon Meek — Fri, 21 Oct 2011 15:37:49 -0600

In The City of Dallas v. Stewart, No. 09–0257, 2011 WL 2586882, (Tex. 2011), the Texas Supreme Court ruled that homeowners may seek de novo review in district court if city officials make nuisance determinations and condemn property.

Before this decision, many municipalities had adopted the following procedure for abating properties:

First, an appointed administrative board would determine if a property was a nuisance that should be abated. Second, the property owner was given the opportunity to appeal the Board’s decision in district court, but judicial review was not de novo. Rather, judicial review in district court was limited to deciding whether substantial evidence supported the Board’s decision. Substantial evidence review requires only more than a mere scintilla to support an administrative board’s decision. Third, the municipality would obtain a judicial demolition warrant to abate the property. Fourth, the structure would be demolished.

In Stewart, a homeowner purchased and subsequently abandoned her home (“the Home”). Thereafter, the Home fell into disrepair and was “a regular stop for Dallas Code Enforcement officials.”

Due to the disrepair of the Home, the City of Dallas (“the City”) followed its standard procedure to have the Home demolished. First, the Dallas Urban Rehabilitation Standards Board (“the Board”) determined the Home was a nuisance and should be abated. Second, the homeowner was given an opportunity to appeal the Board’s decision, but judicial review was limited to deciding whether substantial evidence supported the Board’s decision. Third, the City obtained a judicial demolition warrant to abate the Home. Fourth, the City demolished the Home.

The homeowner filed a lawsuit in district court arguing that the City had taken the property without just compensation. A jury rejected the Board’s determination that the Home was a public nuisance and awarded the homeowner $75,707.67. The City appealed, arguing that the homeowner’s claim was precluded by the Board’s determination.

The issue before the Texas Supreme Court was whether the City’s procedure for demolishing homes was unconstitutional.

The majority held that substantial evidence review of a nuisance determination resulting in a home’s demolition does not sufficiently protect a person’s right under the Texas Constitution.

In making its decision, the Supreme Court explained that a city may not take a person’s property without first paying just compensation. Texas courts have long held that the government commits no taking, however, when it abates a public nuisance. As such, the Supreme Court stated:

We cannot accept that the centrality of personal property rights, explicitly protected by two provisions of our constitution, has no bearing on the procedural requirements placed on an administrative agency when it adjudicates a question of direct constitutional import. Our opinion emphasizes the importance of an individual property owner's rights when aligned against an agency appointed by a City to represent the City's interests. The character of the substantive rights protected, especially substantive constitutional rights, must be considered by a court determining what procedure is due.

The Supreme Court ultimately concluded that when a municipal board determines that a property is a nuisance and a structure should be demolished, the property owner is entitled to a de novo review – rather than a substantial evidence review – by the District Court.

Justice Guzman’s dissent highlights her concerns regarding the consequences of the majority’s opinion:

The Court's decision opens the door to a host of takings challenges to agency determinations of every sort, and in every such challenge a right to trial de novo will be claimed. Judges at every level of our court system are invited by today's decision to substitute their own factual determinations for that of an agency or even a lower court. The consequences of the Court's decision will not be limited to the courtroom. As discussed above, cities are faced with complex challenges posed by a crisis level of abandoned and dangerous buildings, and one of the most important weapons provided by the Legislature to combat this problem is summary nuisance abatement.

All cities throughout the state should be aware that a citizen has a right to de novo review of a municipal board’s determination to demolish a structure. If cities demolish structures before a district court determines that the structure is a public nuisance, the homeowner will have the opportunity to sue the city. If the homeowner establishes that the structure was not a public nuisance, the city must pay the homeowner for the property.

Recovery of Attorney's Fees Available for Holders Suing on Dishonored Checks

Josh White — Sun, 09 Oct 2011 11:51:00 -0600

In ½ Price Checks Cashed v. United Automobile Insurance Company, 344 S.W.3d 378 (Tex. 2011), the Texas Supreme Court decided that the holder of a dishonored check suing under Article 3 of the UCC¹ is allowed to recover attorney’s fees under Chapter 38 of the Texas Civil Practice and Remedies Code.²

1 Section 3.414(b) of the Texas Business & Commerce Code (UCC) specifically provides that if an unaccepted draft is dishonored, the drawer is obligated to pay the draft according to its terms at the time it was issued or, if not issued, at the time it came into possession of a holder—the obligation being owed to any person entitled to enforce the draft.

2 Section 38.001(8) of the Texas Civil Practice and Remedies Code allows a claimant to recover attorney’s fees in a suit on a contract.

In ½ Price Checks Cashed, the check’s holder successfully sued the drawer in justice court for the drawer’s breach of its obligation to pay a dishonored check and was awarded attorney’s fees. The drawer appealed de novo to the County Court at Law and the County Court at law granted summary judgment for the holder. The drawer then appealed the issue of attorney’s fees to the Dallas Court of Appeals. That appeals court reversed the County Court at Law, concluding that Chapter 38 of the Texas Civil Practice and Remedies Code does not apply to an action on a dishonored check because an action on a dishonored check is “purely statutory” and not a claim on a contract. The Texas Supreme Court disagreed.³

3 An interesting aspect of this case is the question of jurisdiction. The general rule is that the Texas Supreme Court lacks jurisdiction over a suit appealed from a county court or from a district court under which a county court would have original or appellate jurisdiction of the case. An important exception to this rule, however, is when one court of appeals holds differently from a prior decision of another court of appeals or of the Texas Supreme Court itself.

After providing a detailed history of Chapter 38’s underlying purpose, the Court addresses the question of whether a check is a contract. First the Court cites to the UCC’s definition of a negotiable instrument: “A negotiable instrument is an unconditional promise or order to pay a fixed amount of money.” Tex. Bus. & Com. Code § 3.104(a). Second, the Court compares this definition with the Restatement of Contracts and observes how the UCC definition “fits squarely within the meaning of a contract as ‘a promise or a set of promises for the breach of which the law gives a remedy.’”⁴ In short, the Court concludes that a check is a contract because a check includes a drawer’s unconditional promise to pay the holder of the instrument, which promise is manifested by the drawer’s signature on the check.

4 Citing Restatement (Second) of Contracts § 1 (1981).

Relying on the above rationale, the Court then returns to the question whether a suit on a check under Article 3 of the UCC is itself a suit on a contract—thus allowing for the recovery of attorney’s fees under Chapter 38 of the Texas Civil Practice & Remedies Code. In its analysis, the Court makes two additional points: First, the Court cites the “economic loss rule,” characterizing the holder's action as sounding in contract because the only injury is the “economic loss to the subject of the contract itself.” Indeed, just because the holder of a dishonored check is suing under a statutory provision does not mean that the damages are not contractual in nature. And, second, the Court notes that by allowing the recovery of the attorney's fees in this context (which would otherwise available in any common law breach of contract action) it is not disrupting the UCC's comprehensive statutory scheme, but merely supplementing it—which was expressly contemplated by the legislature. E.g., Tex. Bus. & Com. Code § 1.103(b) (providing that the code is to be supplemented by principles of law unless otherwise displaced a specific provision in the code).

Reference to Medical Records for Opinions of Non-Retained Experts May Be Insufficient to Properly Designate Under Rule 194

Craig Cherry — Sat, 08 Oct 2011 06:45:54 -0600

On September 28, 2011, the Waco Court of Appeals decided Baker v. Energy Transfer Co, 2011 WL 4489803. In the Baker case, the plaintiffs designated their non-retained medical experts by stating the subject matter on which those experts would testify and then, for their mental impressions and opinions and the basis of their opinions, plaintiffs referred to and incorporated by reference into the designation, previously tendered medical records. However, the plaintiffs did not produce new medical records with their designation or re-produce medical records previously tendered.

The defendants filed a motion to strike the medical experts designation under Rule 193.6 for failing to timely and properly disclose the experts under Rule 194. The Waco Court of Appeals held that the trial court did not abuse its discretion in striking the medical experts' designation.

First, the court was concerned with plaintiffs' designation because there were over twenty (20) medical experts identified by plaintiffs in their designation and the plaintiffs did not state the mental impressions or opinions for any of the medical providers. Instead, the plaintiffs incorporated by reference previously tendered medical records for the medical experts mental impressions and opinions. Additionally, the court pointed out that, in the designation, the plaintiffs did not direct the defendants to specific documents from the medical records previously tendered that set forth the mental impressions and opinions of the medical experts. The impression left by the court's opinion is that designating parties should not require opposing parties to hunt for the mental impressions and opinons the designating party believes a non-retained medical expert will provide in a case.

Although incorporating medical experts' mental impressions and opinons by reference has been a long established practice by many attorneys in Texas, they should take note of the Baker opinion going forward. Along those lines, designating parties are wise to produce/re-produce the medical records that contain the mental impressions and opinions of the experts they intend to rely upon and then either (1) state the mental impressions or opinions of the non-retained medical experts; or (2) reference specific medical record(s) that set forth the mental impressions or opinions the designating party intends to rely upon so that it does not appear the opposing side will have to hunt for the mental impressions and opinions.

Waco Court of Appeals Upholds Actual and Punitive Damages Related To Non-Compete Agreement

Brandon Oates — Thu, 29 Sep 2011 11:27:15 -0600

The Waco Court of Appeals recently upheld a damages award and permanent injunction regarding the breach of a non-compete agreement in favor of Chris Christensen Systems, Inc. (CCS), a dog product manufacturer and distributor against its former employee, Eric Salas.

The Court of Appeals upheld the default judgment and all damages and held that the non-compete agreement with a five year duration and a broadly defined industry exclusion, as opposed to a geographic exclusion, was enforceable.

Salas had been hired as a VP of Sales and Education Director for CCS and signed a non-compete and confidentiality agreement (the "Agreement") upon commencing his employment. He was then provided with extensive confidential and trade secret information by his employer. After leaving his employment in September 2009, Salas almost immediately began competing against CCS, in violation of the Agreement.

In January 2010, CCS filed suit against Salas seeking a temporary injunction and seeking actual and exemplary damages. The trial court granted the temporary injunction in favor of CCS. Interestingly, Salas filed an answer and appeared at the temporary injunction hearing via telephone with an individual who purported to be an attorney licensed in Florida, but it was later found to not be a licensed attorney in any state. The temporary injunction was granted, and the matter was set for trial.

Salas was subsequently held in contempt on three separate occasions for violations of the temporary injunction and failing to abide by the court's orders. Due to Salas' unwillingness to abide by the trial court's orders, his answer was eventually struck, and this matter proceeded to trial. The court found in favor of CCS, and awarded actual damages of $172,465.42, exemplary damages of $175,000, and granted the permanent injunction.

Salas filed a restricted appeal raising approximately thirteen points of error-- including complaints about service of process on Salas, lack of notice of the trial setting, insufficient evidence of actual and exemplary damages, improper issuance of writ of capias (arrest warrant) against Salas, and an overly broad and unreasonable non-compete agreement.

The Court of Appeals held Salas had been properly served with the suit, and had even appeared at a hearing before the trial court, despite his allegations otherwise. Regarding the scope of the non-compete agreement that did not contain a geographic limitation, the Court stated as follows:

However, limiting the applicability of the covenant to particular client bases is an acceptable substitute for a geographic limitation in a non-compete agreement. See Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d 640, 654-655 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). Here, the Agreement is limited to a particular client base—entities which are or intend to be “engaged in providing and manufacturing pet supplies and related products manufactured and distributed by Company [Christensen]”—which we find to be an acceptable substitute for a geographic limitation. See id.

Ultimately, the Waco Court of Appeals found in favor of CCS on all issues, with one slight modification, shortening the expiration of the non-compete agreement's five year term from September 3, 2014 to August 1, 2014. The Court of Appeals also affirmed the full amount of damages awarded.

Craig Cherry and Brandon Oates of the Waco law firm of Haley & Olson were trial counsel for CCS, and Kirk Pittard and Christy Denison of Kelly, Durham & Pittard handled the appeal for CCS.

The case is Salas v. Chris Christensen Systems, Inc., No 10-11-107-CV.

Police Officer With A Level II Certification In Accident Reconstruction Not Qualified As Expert

Dillon Meek — Sun, 25 Sep 2011 10:40:58 -0600

The Texarkana Court of Appeals recently issued its' opinion in Lopez-Juarez v. Kelley. The Court of Appeals held that a police officer with a Level II certification in accident reconstruction was not qualified to testify as an expert witness in a negligence action that involved a multi-vehicle accident.

Specifically, the Court of Appeals held:

1. As a general rule, police officers, based on their position as police officers alone, are not qualified to render opinions regarding accidents. However, police officers are qualified to testify regarding accident reconstruction if they are trained in the science and possess the high degree of knowledge sufficient to qualify as an expert.

2. There is an inconsistency in the caselaw in Texas because different accidents require different levels of expertise; whether a police officer is qualified depends on the facts of each case. While a police officer may possess sufficient knowledge, skill, or expertise for one case, another case might require a greater degree of expertise. There are no definite guidelines. In this case, the expert attended a police academy conducted by the Tyler Police Department and completed a Level II certification in accident reconstruction through the DPS in Austin. However, the expert admitted his expertise was limited to measuring and diagramming an accident site. He further admitted he had no training in physics and did not like math. The Court of Appeals held that he qualified to testify concerning his measurements and diagrams, but that it was an abuse of discretion for the trial court to conclude he was qualified to testify as an expert in accident reconstruction.

3. There is not a per se rule that the testimony of a police officer with a Level II certification is always admissible expert testimony; this is because whether a police officer possesses sufficient expertise must be evaluated under the facts of each case and the specific issue on which the expert testimony is proffered. This holding creates a circuit split, as it is inconsistent with the Waco Court of Appeals ruling in Lingafelter v. Shupe, a case which the Texarkana Court of Appeals admits is factually indistinguishable.

Construction Law Update: Liability of Texas Design Professionals Who Remain Engaged in Construction Observation and Contract Administration Work

Josh White — Sun, 18 Sep 2011 10:48:53 -0600

The Maxfields (“Owners”) contracted with Black & Vernooy Architects (“Architects”) and Nash Builders, Inc. (“Builders”) for the design and construction of a vacation home.

Under the Owners’ contract with the Architects, the Architects were required to design the residence, to perform various post-design contract administration services, and to keep the Owners informed about the progress of the work—esp., to guard against defects and deficiencies in the work; and to determine if the residence was generally constructed in accordance with the contract documents. However, the contract also included a provision indicating that the Architects were not responsible for the Builder’s means and methods and that the Architects would not be liable for the Builder’s failure to construct the building according to plans and specifications.

During the construction of the vacation home, the Builder’s framing subcontractor used nails to attach an elevated balcony to the side of the house rather than the bolts required by the contract documents. While the Architects visited the site periodically, they failed to notice that the balcony was not constructed in accordance with plans and specifications. And, consequently, the Architects never informed the Owners of this defect. After the completion of the construction, the Owners had some friends over for a visit. When the house-guests stepped out onto the balcony, the balcony collapsed. One of the house-guests was rendered a paraplegic from the collapse.

The plaintiffs sued the Owners, the Builder and the Architects. After settling with the Owner and the Builder, the plaintiffs proceeded to trial solely against the Architects. The jury ultimately concluded that the Architects’ negligence caused the plaintiffs’ injuries, and that the Builder, its framing subcontractor, and the Architects were 70%, 20%, and 10% responsible, respectively. On this basis, the trial court entered judgment for plaintiff for over $400,000 against the Architects.

On appeal, the Architects (with an amicus brief from the Texas Society of Architects and Texas Council of Engineering) argued that the Architects owed no duty to the plaintiff, and that the Architects’ contract with the owners did not impose a tort duty to detect the framing subcontractor’s defective construction.

On December 8, 2010, the Austin Court of Appeals issued an opinion disagreeing with the Architects’ position and affirming the lower court’s ruling. In its opinion, the appeals court noted that that because the defects in question were “open and obvious” and because the Architects had reviewed photographs demonstrating the defects, there was more than a scintilla of evidence of the Architects’ negligence.

However, after an en banc rehearing, the Austin Court of Appeals withdrew its December 8, 2010 opinion and, on August 5, 2011, issued a new opinion holding that the Architects did not have a contractual or common-law duty to the house-guest plaintiff.

The withdrawn opinion can be found at: http://bit.ly/ojAugy.

The updated opinion can be found at http://bit.ly/mVjr3t.

The legal citation for this opinion is: Black + Vernooy Architects v. Smith, 03-09-00518-CV, 2011 WL 3435679 (Tex. App.—Austin Aug. 5, 2011, no. pet. h.)

Workers Compensation Claimants Rights Limited By The Texas Supreme Court In Ruttiger

Craig Cherry — Sat, 10 Sep 2011 07:22:05 -0600

The Texas Supreme Court recently issued its' opinion in Texas Mutual Ins. Co. v. Ruttiger. This was a long awaited opinion by those who handle workers' compensation claims. The opinion marks a shift in the law and will be important for those who practice in this area to keep in mind.

In summary, the court held as follows:

1. A workers' compensation claimant cannot bring a cause of action under Ch. 541.060 or 542.003 of the Insurance Code for unfair settlement practices against a workers' compensation insurance carrier because their exclusive remedy for such claims is through the Workers' Compensation Act itself.

2. A workers compensation claimant can, however, bring a claim through Ch. 541.061 of the Insurance Code, if a workers' compensation insurance carrier misrepresents a policy through an untrue statement of material fact. In Mr. Ruttiger's case, however, the court held there was legally insufficient evidence to support such a claim.

3. A plurality of the court held that there should no longer be a common law cause of action for breach of the duty of good faith and fair dealing against a workers' compensation insurance carrier. The plurality of the court would overrule Aranda, which has been the law in Texas for over twenty years.

Texas Supreme Court Re-Affirms Havner and Clarifies Causation Threshold Requirements to Prove Causation

Brandon Oates — Fri, 02 Sep 2011 09:37:00 -0600

On Friday, August 26, 2011, in Merck & Co., Inc. v. Garza, the Texas Supreme Court ruled that Merck & Co. does not have to pay a $32 million jury award to the family of a man who used Vioxx and subsequently died of a heart attack. In doing so, the Texas Supreme Court reaffirmed its decision in Merrell Dow Pharmaceuticals, Inc. v. Havner which set forth standards that must be met in determining whether epidemiological evidence is sufficiently reliable to prove causation.

Leonel Garza had a long history of heart disease, and took Vioxx, as prescribed by his doctor, for pain relief for the 25 days leading up to his death. After his death, his family sued Merck & Co., alleging Vioxx was defective and was marketed with inadequate warnings. At trail, Merck challenged the scientific reliability of evidence that Vioxx caused Garza’s death. The trial court overruled Merck’s objections, and the jury returned a verdict awarding $7 million in actual damages and $25 million in punitive damages. The jury verdict was reduced to $7.75 million because of a state cap on punitive damages.

Merck appealed, and the appellate court held that the Garza’s could not recover on their defective design, but could recover on their inadequate warning case. The appellate court rejected Merck’s argument that the Garza’s failed to meet Havner’s requirements for proving causation because they had not produced two statistically significant epidemiological studies showing that Vioxx at the dose and for the duration taken by Garza more than doubles the risk of heart attack. In doing so, the appellate court held that “Havner did not establish such a bright-line test for causation but mandated that the sufficiency of the evidence be determined from its totality.” The appellate court found there was sufficient evidence to support causation; however, it reversed the judgment for juror misconduct and remanded the case for a new trial. Merck filed a petition for review complaining that judgment should be rendered against the Garza’s.

The Texas Supreme Court agreed with Merck and clarified its ruling in Havner, holding that causation can not be established without two independent epidemiological studies showing a statistically significant doubling of the relative risk of the injury for patients taking the drug under substantially similar conditions (dose and duration, for example) to the plaintiff’s. The Havner requirements apply to all epidemiological evidence, including the clinical trials relied upon by the Garza’s at trial. If a plaintiff can meet the preliminary requirement of two independent epidemiological studies showing a statistically significant doubling of the relative risk of the injury, then the court will conduct an additional analysis that looks to each of the studies standards of reliability to determine the whether the study’s conclusions are valid based on a totality of the evidence. Ultimately, the Texas Supreme Court held the Garza’s did not present reliable evidence of general causation, and were not entitled to recover against Merck.

In conclusion, the case law is now clear that two independent epidemiological studies showing a statistically significant doubling of the relative risk of the injury are required; however, these studies must also be reliable based on the totality of the evidence in order to be sufficient evidence of causation.

Dr Pepper Sues Dublin Bottler

Dillon Meek — Thu, 25 Aug 2011 16:21:49 -0600

Dr Pepper Snapple Group, Inc. (NYSE: DPS) has filed a lawsuit against Dr Pepper Bottling Co. of Dublin, Texas in the U.S. District Court in the Eastern District of Texas, alleging that the Dublin bottling company has violated its license agreement by selling Dublin Dr Pepper ouside of a six-county territory. Dr Pepper Snapple has also alleged the unauthorized use of the term “Dublin Dr Pepper” on packaging and on merchandise. The relief sought by Dr Pepper Snapple includes restricting sales of "Dublin Dr Pepper" on the Dublin Dr Pepper website and toll-free number. Dr Pepper Snapple additionally seeks attorneys' fees.

Earlier this month Dublin Dr Pepper filed its answer and counterclaim.

The answer states: “Corporate Dr Pepper has... reveled and openly welcomed the free exposure and increased name recognition provided by Dublin Dr Pepper”

“Corporate Dr Pepper has approved bottle and can designs with ‘DUBLIN DR PEPPER’... as recently as late 2010.”

The answer further states that “Dublin Dr Pepper’s annual sales, before costs and expenses are removed, are less than 1/10th of 1 percent of the total sales of Corporate Dr Pepper and are less than the annual compensation of its current president and CEO.”

Most interestingly, Dublin Dr Pepper's answer includes archived examples of the Dr Pepper Snapple website including links to the Dublin Dr Pepper website and toll-free number. Those links no longer are posted.