Texas Trial Law Advocate

New Study Indicates Tort Reform in Texas Has Not Increased Physician Supply

Craig Cherry — Sat, 12 May 2012 11:40:14 -0600

According to a new study published in April 2012, tort reform measures passed in Texas in 2003 have not increased physician supply in Texas.

The study was authored by David Hyman, University of Illinois College of Law; Charles Silver of the University of Texas at Austin - School of Law, and Bernard Black of Norwestern University - School of Law.

A summary of their findings can be found at www.centerjd.org/system/files/TexasPhysicianSupplyF.pdf

Ted Frank, of the Manhattan Institute, and known proponent of tort reform, has stated after reading this study, "I, for one, am going to stop claiming that Texas tort reform increased physican supply without better data demonstrating that."

Objections to Affidavit for Lack of Jurat Must be Objected to at Trial Court

Brandon Oates — Fri, 27 Apr 2012 11:59:09 -0600

In The Mansions in the Forest, L.P. v. Montgomery County, 10-0969, 2012 WL 1370867 (Tex. Apr. 20, 2012), the Texas Supreme Court considered whether the lack of a jurat - a clause stating that a writing was sworn to before an authorized officer - in an affidavit opposing a motion for summary judgment is a defect that must have been objected to before the trial court ruled on the motion in order to preserve error.

The Beaumont Court of Appeals had previously held that omission of a jurat was a substantive defect under both the Texas Government Code and Texas Rule of Civil Procedure 166a, and that such a defect could be raised for the first time on appeal. However, the Texas Supreme Court disagreed, holding that that neither the Government Code nor Texas Rule of Civil Procedure 166a requires such an affidavit to contain a jurat. However, to meet the definition of an “affidavit” under the Texas Government Code Section 312.011, the record must indicate the affidavit was sworn to. In this case, there was no such evidence in the record; therefore, the written statement did not meet the requirements of an affidavit.

Furthermore, because no objection to the affidavit was made in the trial court about the purported affidavit's failure to satisfy the requirements of the Texas Government Code, the defect was waived and was not preserved for appeal.

Private Lawyer Advising Cities Has Immunity from Suit

Josh White — Sun, 22 Apr 2012 21:31:00 -0600

On April 17, 2012, the U.S. Supreme Court held that a private attorney retained by the government to carry out its work is entitled to seek qualified immunity from suit under Section 1983. (Section 1983 provides a cause of action against state actors who violate an individual's rights under federal law. See 42 U.S.C. § 1983). The full opinion, Filarsky v. Delia, 10-1018, 2012 WL 1288731 (U.S. Apr. 17, 2012), can be found here.

Background Facts

Delia, a firefighter employed by the City of Rialto, California, took extended sick leave after responding to a toxic spill in the summer of 2006. Suspicious that Delia was abusing the City’s sick leave policy, the City hired a private investigator. The private investigator witnessed Delia buying fiberglass insulation and other building supplies, which were purportedly for the construction/renovation of Delia’s home.

After its private investigator reported back, the City hired Filarsky, a private attorney, to initiate a formal investigation and to interview Delia. At the interview, with his attorney present, Delia acknowledged that he bought the supplies while on sick leave, but denied having done any work on his home. In an effort to verify Delia’s story, Filarsky ordered Delia to produce the materials for the fire department official’s inspection. Delia reluctantly complied.

Delia then sued Filarsky, alleging that Filarsky’s order violated the Fourth Amendment. In response, Filarsky claimed that, as the City’s lawyer, he was entitled to the same qualified immunity as any public employee involved in the investigation.

Question Presented & Court Holding

The question before the Court was whether an individual hired by the government to do its work is prohibited from seeking immunity from suit, solely because he works for the government on something other than a permanent or full-time basis.

Chief Justice John G. Roberts Jr. wrote the unanimous opinion; Justice Ginsburg and Justice Sotomayor both wrote concurring opinions. After reviewing common law precedent, the Court reasoned that qualified immunity protections should apply regardless of whether the individual sued as a state actor works for the government full-time or on some other basis. The Court thus held that Filarsky was entitled to immunity.

The Dallas Court of Appeals Holds that a Denial of Leave to Designate a Responsible Third Party is Subject to Mandamus Relief

Dillon Meek — Sat, 21 Apr 2012 18:17:31 -0600

The Dallas Court of Appeals recently held that a denial of leave to designate a responsible third party is subject to mandamus relief. In In re Smith, No. 05-11-01657-CV., 2012 WL 1066331 (Tex. App.—Dallas 2012, no pet. h.), the Dallas Court of Appeals held that an “improper denial of leave to designate a responsible third party may not be adequately addressed by appeal,” and, as such, appellants were entitled to mandamus relief. The Dallas Court of Appeals noted that there is a split amongst the other Texas Courts of Appeals regarding this issue. Specifically, the Dallas Court of Appeals noted that some courts have granted mandamus relief. E.g., In re Brokers Logistics, Ltd., 320 S.W.3d 402, 408 (Tex. App.—El Paso 2010, orig. proceeding); In re Arthur Andersen LLP, 121 S.W.3d 471, 485–86 (Tex. App.--Houston [14th Dist.] 2003, orig. proceeding). It also noted that other courts have denied mandamus relief, holding that appeal is ordinarily an adequate remedy for such errors. E.g., In re Unitec Elevator Servs. Co., 178 S.W.3d 53, 63–64 (Tex. App.—Houston [1st Dist.] 2005, orig. proceeding); In re Martin, 147 S.W.3d 453, 459–60 (Tex. App.—Beaumont 2004, orig. proceeding, pet. denied). The Texas Supreme Court has not yet issued an opinion addressing this issue.

Fall 2012 Issue of The Advocate Will Tackle Social Media and The Law

Craig Cherry — Sat, 07 Apr 2012 08:02:16 -0600

The Advocate is a quarterly publication of the Litigation Section of the State Bar of Texas. Every publication addresses hot topics and trends in litigation in the State of Texas. The Fall 2012 issue will be no different when it addresses Social Media and The Law.

The editoral board did a great job lining up experienced authors on a topic that is very relevant today in Texas, and the nation, for that matter. Just to give you a sample of a few of the topics that will be discussed, the Fall 2012 issue will address discovery, evidence and ethics issues (for both lawyers and judges) as they relate to the use of social media, as well as, how social media can effect jury trials (both the use of social media by lawyers to learn about the background of potential jurors and the use of social media by jurors during trials). It really should be a great issue.

Texas Supreme Court Affirms Property Rights of Shoreline Owners

Brandon Oates — Wed, 04 Apr 2012 12:11:14 -0600

On March 30, 2012, the Texas Supreme Court, in Severance v. Patterson, affirmed the private property rights of shoreline property owners. In doing so, the Court ruled the public’s right of access to state beaches is not guaranteed in the event of a hurricane or storm reshaping the coastline.

This ruling is thought to limit the state’s ability to enforce the Open Beaches Act, a 53 year old law that has in the past been used to compel landowners to raze or move structures that intrude on the public right of way due to storm erosion. The opinion focuses on the "dry beach," which runs from the high tide mark to the vegetation line and may be privately owned, as opposed to the “wet beach” which runs from the high tide mark to the water, which is public land.

In so ruling, Justice Wainwright stated:

The public may have a superior interest in use of privately owned dry beach when an easement has been established on the beachfront. But it does not follow that the public interest in the use of privately owned dry beach is greater than a private property owner’s right to exclude others from her land when no easement exists on that land.

This 5-3 ruling is the result of a controversy that began after Hurricane Rita moved the vegetation line behind Carol Severance’s properties on Galveston Island, and she was ordered to raze or move her structures.

Texas Supreme Court Holds Jury Waiver Enforceable

Dillon Meek — Sat, 24 Mar 2012 20:48:54 -0600

On March 9, 2012, the Texas Supreme Court issued its decision in In Re Frank Motor Company, which held that a long time employee who signed a jury waiver agreement was not entitled to have it set aside because he was coerced into signing it by his employer.

In this case, a long-time employee (“Employee”) signed a Jury Trial Waiver only after his supervisor threatened to fire him if he did not sign it. Employee claimed that he only signed the Jury Trial Waiver to avoid losing his job of twenty-eight years. Almost a year after signing the Jury Trial Waiver, Employee was terminated. Employee then brought an action against his employer (“Employer”) for age discrimination. The trial court denied Employer’s Motion to Strike Employee’s Demand for Jury Trial and Employer subsequently filed a Petition for Writ of Mandamus to Compel Enforcement of the Jury Trial Waiver.

The Texas Supreme Court held that Employer’s threat to exercise its right to terminate Employee could not amount to coercion that would invalidate the Jury Trial Waiver. As such, the Texas Supreme Court directed the trial court to grant Employer’s Motion to Strike Employee’s Jury Demand.

Changes to Chapter 53, Mechanic's & Materialman's Liens

Josh White — Wed, 21 Mar 2012 21:15:00 -0600

The 2011 Legislative Session resulted in a number of changes to Chapter 53 of the Texas Property Code (addressing Mechanic's, Contractor's, or Materialman's Liens). Included below are the revisions to Chapter 53, along with brief commentary regarding these revisions.

Clarification regarding landscapers’ lien rights.

§ 53.021. Persons Entitled to Lien

(d) A person who provides labor, plant material, or other supplies for the installation of landscaping for a house, building, or improvement, including the construction of a retention pond, retaining wall, berm, irrigation system, fountain, or other similar installation, under or by virtue of a written contract with the owner or the owner's agent, contractor, subcontractor, trustee, or receiver has a lien on the property.

Clarification regarding the accrual of a claim for retainage.

§ 53.053. Accrual of Indebtedness

(e) A claim for retainage accrues on the earliest of the last day of the month in which all work called for by the contract between the owner and the original contractor has been completed, finally settled, terminated, or abandoned.

Prior to the changes to Section 53.057, the deadline for a subcontractor to give a notice of contractual retainage was the 15th day of the second month following its delivery of materials (or performance of work) under a contractual retainage agreement. However, given the way the statute was written, a subcontractor who gave proper notice could still lose its lien rights because it waited to file its lien affidavit within the extended time period permitted under Section 53.052 (i.e., the 15th day of the fourth month after the claimant's indebtedness accrues). What’s more, if the subcontractor did not include “fund-trapping” language its notice of contractual retainage, the subcontractor’s claim would be limited of the owner’s statutory retainage—which could be released 30 days after final completion. Under the former statutory scheme, a subcontractor could end up with a “timely” but worthless claim. The changes, below, attempt to address this scenario.

§ 53.057. Derivative Claimant: Notice for Contractual Retainage Claim

(a) A claimant may give notice under this section instead of or in addition to notice under Section 53.056 or 53.252 if the claimant is to labor, furnish labor or materials, or specially fabricate materials, or has labored, furnished labor or materials, or specially fabricated materials, under an agreement with an original contractor or a subcontractor providing for retainage.

(b) The claimant must give the owner or reputed owner notice of contractual retainage not later than the earlier of:

(1) the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned; or

(2) the 30th day after the date the original contract is terminated or abandoned.

(b-1) If an agreement for contractual retainage is with a subcontractor, the claimant must also give the notice of contractual retainage to the original contractor within the period prescribed by Subsection (b).

(1) the name and address of the claimant; and

(2) if the agreement is with a subcontractor, the name and address of the subcontractor.

(d) The notice must be sent to the last known business or residence address of the owner or reputed owner or the original contractor, as applicable.

(e) If a claimant gives notice under this section and Section 53.055 or, if the claim relates to a residential construction project, under this section and Section 53.252, the claimant is not required to give any other notice as to the retainage.

(f) A claimant has a lien on, and the owner is personally liable to the claimant for, the retained funds under Subchapter E if the claimant:

(1) gives notice in accordance with this section and:

(A) complies with Subchapter E; or

(B) files an affidavit claiming a lien not later than the earliest of:

(i) the date required for filing an affidavit under Section 53.052;

(ii) the 40th day after the date stated in an affidavit of completion as the date of completion of the work under the original contract, if the owner sent the claimant notice of an affidavit of completion in the time and manner required;

(iii) the 40th day after the date of termination or abandonment of the original contract, if the owner sent the claimant a notice of such termination or abandonment in the time and manner required; or

(iv) the 30th day after the date the owner sent to the claimant to the claimant’s address provided in the notice for contractual retainage, as required under Subsection (c), a written notice of demand for the claimant to file the affidavit claiming a lien; and

(2) gives the notice of the filed affidavit as required by Section 53.055.

(g) The written demand under Subsection (f)(1)(B)(iv):

(1) must contain the owner’s name and address and a description, legally sufficient for identification, of the real property on which the improvement is located;

(2) must state that the claimant must file the lien affidavit not later than the 30th day after the date the demand is sent; and

(3) is effective only for the amount of contractual retainage earned by the claimant as of the day the demand was sent.

Subchapter L to Chapter 53 is new; and Section 53.085 incorporates Subchapter L. Specifically, Section 53.085 still allows a person making payment to require, as a condition of payment, an affidavit of bills paid and waiver of mechanic’s lien (or payment bond) claims by the person who furnished labor and/or materials to the subject project. However, Subchapter L provides the mandatory form for such waivers.

§ 53.085. Affidavit Required

(1) a waiver or release of lien rights or payment bond claims by the affiant that is conditioned on the receipt of actual payment or collection of funds when payment is made by check or draft, as provided by Subchapter L;

Section 53.103 incorporates the new Section 53.057(f).

§ 53.103. Lien on Retained Funds

(2) except as allowed by Section 53.057(f), files an affidavit claiming a lien not later than the 30th day after the earliest of the date:

(A) the work is completed;

(B) the original contract is terminated; or

Section 53.105 provides clarification regarding the owner’s liability for failure to retain.

§ 53.105. Owner’s Liability for Failure to Retain

(a) If the owner fails or refuses to comply with this subchapter, the claimants complying with Subchapter C or this subchapter have a lien, at least to the extent of the amount that should have been retained from the original contract under which they are claiming, against the house, building, structure, fixture, or improvement and all of its properties and against the lot or lots of land necessarily connected.

Section 53.106 incorporates the changes made to Section 53.057.

§ 53.106. Affidavit of Completion

(a) An owner may file with the county clerk of the county in which the property is located an affidavit of completion. The affidavit must contain:

* * *

(6) a conspicuous statement that a claimant may not have a lien on retained funds unless the claimant files an affidavit claiming a lien not later than the 40th day after the date the work under the original contract is completed.

* * *

(d) Except as provided by this subsection, an affidavit filed under this section on or before the 10th day after the date of completion of the improvements is prima facie evidence of the date the work under the original contract is completed for purposes of this subchapter and Section 53.057. If the affidavit is filed after the 10th day after the date of completion, the date of completion for purposes of this subchapter and Section 53.057 is the date the affidavit is filed. This subsection does not apply to a person to whom the affidavit was not sent as required by this section.

Section 53.107 incorporates the changes made to Section 53.057.

§ 53.107. Notice Relating to Termination of Work or Abandonment of Performance by Original Contractor or Owner

(b) The notice must contain:

* * *

(7) a conspicuous statement that a claimant may not have a lien on the retained funds unless the claimant files an affidavit claiming a lien not later than the 40th day after the date of the termination or abandonment.

* * *

(d) If an owner is required to send a notice to a subcontractor under this section and fails to send the notice, the subcontractor is not required to comply with Section 53.057 to claim retainage and may claim a lien by filing a lien affidavit as prescribed by Section 53.052.

Section 53.156 now gives a trial court discretion to award fees and costs with respect to a mechanic’s lien or payment bond claim arising out of a “residential construction project.” Note: The term “residential construction project” refers to the construction or repair of a “residence”; and the term “residence” refers to a [house] that is used or intended to be used as a dwelling by an owner. Thus, a spec-house that is being constructed by a developer or owner-builder (i.e., someone who has no intention of occupying the dwelling as their residence) is not a “residential construction project” under the statute.

§ 53.156. Costs and Attorney’s Fees

In any proceeding to foreclose a lien or to enforce a claim against a bond issued under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is invalid or unenforceable in whole or in part, the court shall award costs and reasonable attorney’s fees as are equitable and just. With respect to a lien or claim arising out of a residential construction contract, the court is not required to order the property owner to pay costs and attorney’s fees under this section.

Section 53.159 expands the scope of information that an owner or contractor must provide. These changes also maintain consistency with the new Section 53.057, i.e., dealing with notice for contractual retainage.

§ 53.159. Obligation to Furnish Information

(a) An owner, on written request, shall furnish the following information within a reasonable time, but not later than the 10th day after the date the request is received, to any person furnishing labor or materials for the project:

(1) a description of the real property being improved legally sufficient to identify it;

(2) whether there is a surety bond and if so, the name and last known address of the surety and a copy of the bond;

(3) whether there are any prior recorded liens or security interests on the real property being improved and if so, the name and address of the person having the lien or security interest; and

(4) the date on which the original contract for the project was executed.

(b) An original contractor, on written request by a person who furnished work under the original contract, shall furnish to the person the following information within a reasonable time, but not later than the 10th day after the date the request is received:

(1) the name and last known address of the person to whom the original contractor furnished labor or materials for the construction project;

(2) whether the original contractor has furnished or has been furnished a payment bond for any of the work on the construction project and if so, the name and last known address of the surety and a copy of the bond; and

(3) the date on which the original contract for the project was executed.

* * *

(g) A subcontractor who does not receive information requested under Subsection (a)(4) within the period prescribed by Subsection (a) is not required to comply with Section 53.057 and may perfect a lien for retainage by filing a lien affidavit under Section 53.052. This subsection expires September 1, 2013.

Section 53.160 includes the permissible grounds for a motion to summarily remove an invalid or unenforceable lien. The section permits the filing of a motion on grounds that the deadlines for perfecting a lien claim for retainage have passed.

§ 53.160. Summary Motion to Remove Invalid or Unenforceable Lien

(b) The grounds for objecting to the validity or enforceability of the claim or lien for purposes of the motion are limited to the following:

* * *

(4) the deadlines for perfecting a lien claim for retainage under this chapter have expired and the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:

(A) the claimant perfected the lien claim; and

(B) the owner received a notice of the claim as required by this chapter;

(5) all funds subject to the notice of a claim to the owner and a notice regarding the retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;

Section 53.281 is the beginning of Subchapter L, which subchapter is new to Chapter 53. Subchapter L provides the sole manner in which mechanic’s lien and bond claims under Chapter 53 may be waived.

§ 53.281. Waiver and Release of Lien or Payment Bond Claim

(a) Any waiver and release of a lien or payment bond claim under this chapter is unenforceable unless a waiver and release is executed and delivered in accordance with this subchapter.

(b) A waiver and release is effective to release the owner, the owner’s property, the contractor, and the surety on a payment bond from claims and liens only if:

(1) the waiver and release substantially complies with one of the forms prescribed by Section 53.284;

(2) the waiver and release is signed by the claimant or the claimant’s authorized agent and notarized; and

(3) in the case of a conditional release, evidence of payment to the claimant exists.

§ 53.282. Conditions for Waiver, Release, or Impairment of Lien or Payment Bond Claim

(a) A statement purporting to waive, release, or otherwise adversely affect a lien or payment bond claim is not enforceable and does not create an estoppel or impairment of a lien or payment bond claim unless:

(1) the statement is in writing and substantially complies with a form prescribed by Section 53.284;

(2) the claimant has actually received payment in good and sufficient funds in full for the lien or payment bond claim; or

(3) the statement is:

(A) in a written original contract or subcontract for the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land development related to a single-family house, townhouse, or duplex; and

(B) made before labor or materials are provided under the original contract or subcontract.

(b) The filing of a lien rendered unenforceable by a lien waiver under Subsection (a)(3) does not violate Section 12.002, Civil Practice and Remedies Code, unless:

(1) an owner or original contractor sends a written explanation of the basis for nonpayment, evidence of the contractual waiver of lien rights, and a notice of request for release of the lien to the claimant at the claimant’s address stated in the lien affidavit; and

(2) the lien claimant does not release the filed lien affidavit on or before the 14th day after the date the owner or the original contractor sends the items required by Subdivision (1).

(c) Subsection (a)(3) does not apply to a person who supplies only material, and not labor, for the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land development related to a single-family house, townhouse, or duplex.

§ 53.283. Unconditional Waiver and Release: Payment Required

A person may not require a claimant or potential claimant to execute an unconditional waiver and release for a progress payment or final payment amount unless the claimant or potential claimant received payment in that amount in good and sufficient funds.

§ 53.284. Forms for Waiver and Release of Lien or Payment Bond Claim

(a) A waiver and release given by a claimant or potential claimant is unenforceable unless it substantially complies with the applicable form described by Subsections (b)-(e).

(b) If a claimant or potential claimant is required to execute a waiver and release in exchange for or to induce the payment of a progress payment and is not paid in exchange for the waiver and release or if a single payee check or joint payee check is given in exchange for the waiver and release, the waiver and release must read:

“CONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT

“Project ___________________

“Job No. ___________________

“On receipt by the signer of this document of a check from ________________ (maker of check) in the sum of $__________ payable to _____________________ (payee or payees of check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn, this document becomes effective to release any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the property of ________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description).

“This release covers a progress payment for all labor, services, equipment, or materials furnished to the property or to __________________ (person with whom signer contracted) as indicated in the attached statement(s) or progress payment request(s), except for unpaid retention, pending modifications and changes, or other items furnished.

“Before any recipient of this document relies on this document, the recipient should verify evidence of payment to the signer.

“The signer warrants that the signer has already paid or will use the funds received from this progress payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project in regard to the attached statement(s) or progress payment request(s).

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(c) If a claimant or potential claimant is required to execute an unconditional waiver and release to prove the receipt of good and sufficient funds for a progress payment and the claimant or potential claimant asserts in the waiver and release that the claimant or potential claimant has been paid the progress payment, the waiver and release must:

(1) contain a notice at the top of the document, printed in bold type at least as large as the largest type used in the document, but not smaller than 10-point type, that reads:

“NOTICE:

“This document waives rights unconditionally and states that you have been paid for giving up those rights. It is prohibited for a person to require you to sign this document if you have not been paid the payment amount set forth below. If you have not been paid, use a conditional release form.”; and

(2) below the notice, read:

“UNCONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT

“Project ___________________

“Job No. ___________________

“The signer of this document has been paid and has received a progress payment in the sum of $___________ for all labor, services, equipment, or materials furnished to the property or to _____________________ (person with whom signer contracted) on the property of _______________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description). The signer therefore waives and releases any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the above referenced project to the following extent:

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(d) If a claimant or potential claimant is required to execute a waiver and release in exchange for or to induce the payment of a final payment and is not paid in good and sufficient funds in exchange for the waiver and release or if a single payee check or joint payee check is given in exchange for the waiver and release, the waiver and release must read:

“CONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT

“Project ___________________

“Job No. ___________________

“On receipt by the signer of this document of a check from ________________ (maker of check) in the sum of $____________ payable to _____________________ (payee or payees of check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn, this document becomes effective to release any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position that the signer has on the property of _____________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description).

“This release covers the final payment to the signer for all labor, services, equipment, or materials furnished to the property or to __________________ (person with whom signer contracted).

“Before any recipient of this document relies on this document, the recipient should verify evidence of payment to the signer.

“The signer warrants that the signer has already paid or will use the funds received from this final payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project up to the date of this waiver and release.

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

(e) If a claimant or potential claimant is required to execute an unconditional waiver and release to prove the receipt of good and sufficient funds for a final payment and the claimant or potential claimant asserts in the waiver and release that the claimant or potential claimant has been paid the final payment, the waiver and release must:

(1) contain a notice at the top of the document, printed in bold type at least as large as the largest type used in the document, but not smaller than 10-point type, that reads:

“NOTICE:

(2) below the notice, read:

“UNCONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT

“Project___________________

“Job No.___________________

“The signer of this document has been paid in full for all labor, services, equipment, or materials furnished to the property or to ___________________ (person with whom signer contracted) on the property of ______________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description). The signer therefore waives and releases any mechanic’s lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer’s position.

“Date ____________________________

“_________________________________ (Company name)

“By ______________________________ (Signature)

“_________________________________ (Title)”

§ 53.285. Attempted Compliance

(a) A waiver or release shall be construed to comply with this subchapter and is enforceable in the same manner as a waiver and release under this subchapter if the waiver or release:

(1) is furnished in attempted compliance with this subchapter; or

(2) evidences by its terms intent to comply with this subchapter.

(b) Any provision in any waiver or release furnished in attempted compliance with this subchapter that expands or restricts the rights or liabilities provided under this subchapter shall be disregarded and the provisions of this subchapter shall be read into that waiver or release.

§ 53.286. Public Policy

Notwithstanding any other law and except as provided by Section 53.282, any contract, agreement, or understanding purporting to waive the right to file or enforce any lien or claim created under this chapter is void as against public policy.

§ 53.287. Certain Agreements Exempt

This subchapter does not apply to a written agreement to subordinate, release, waive, or satisfy all or part of a lien or bond claim in:

(1) an accord and satisfaction of an identified dispute;

(2) an agreement concerning an action pending in any court or arbitration proceeding; or

(3) an agreement that is executed after an affidavit claiming the lien has been filed or the bond claim has been made.

Texas Cities Have Additional Clarification on Takings Cases

Brandon Oates — Fri, 02 Mar 2012 09:26:38 -0600

On January 27, 2012, the Texas Supreme Court withdrew its prior opinion and issued a new opinion in City of Dallas v. Stewart, 2012 WL 247966, ––– S.W.3d –––– (Tex. 2012). In its prior decision on July 1, 2011, the Texas Supreme Court upheld the jury’s award of $75,000 in a case where Stewart argued that the city improperly took and demolished her house. Stewart had previously fought and lost the demolition order in the municipal board meetings, and she then timely appealed the decision to state district court, where she prevailed and was awarded damages.

The city appealed the trial court’s decision, and this case eventually made it to the Texas Supreme Court. In July 2011, the Texas Supreme Court issued its opinion affirming the underlying court’s decision.

However, the city was concerned that the Texas Supreme Court’s July 1, 2011 decision would potentially open the door for many persons to bring similar takings cases against cities all over Texas, and therefore filed a motion for new hearing. Chief Justice Jefferson wrote: “[The cities] argue that failing to accord administrative nuisance determinations preclusive effect will open the floodgates for takings claims. Because takings claims have a ten-year statute of limitations, they contend, parties will now sue to challenge demolitions that occurred any time in the past ten years.”

The Texas Supreme Court denied the motions for new hearings, but issued a new opinion. In its new opinion, the Texas Supreme Court expressly stated that property owners must exhaust all administrative remedies and timely appeal any adverse decision to the proper court within the 30-day window set by the municipality and be subject to paying the municipality’s legal fees and court costs if they lose. The Texas Supreme Court further held that cities do not have to institute court proceedings to abate every nuisance—rather, “they only must defend the appeals of nuisance determinations and takings claims asserted in court by property owners who lost before the agency.”

Therefore, under this recent ruling, the cities would not be subject to liability for alleged takings claims by property owners who failed to exhaust their administrative remedies and failed to file an appeal to state district court. This decision should provide additional clarification and protection for cities and municipalities who follow the proper procedures in condemnation matters and not expose them to liability for those matters whose appellate time tables have long since expired.

Avoiding Illusory Arbitration Clauses

Josh White — Thu, 01 Mar 2012 16:04:37 -0600

In Carey v. 24 Hour Fitness, USA, Inc., 10-20845, 2012 WL 205851 (5th Cir. Jan. 25, 2012), the United States Court of Appeals for the Fifth Circuit found an arbitration agreement to be illusory because one party to the agreement retained the unilateral right to modify or terminate the arbitration provision at any time.

In this case, Carey (the “plaintiff”) was a sales representative for 24 Hour Fitness, USA, Inc. (the “defendant”). In consideration for continued employment, the plaintiff signed an acknowledgement of the defendant’s employee handbook (the “handbook”). The handbook provided that all employment-related disputes (including class-action claims) would be “resolved only by an arbitrator through final and binding arbitration” under the the Federal Arbitration Act.

The acknowledgement signed by the plaintiff included a “change-in-terms” clause. The change-in-terms clause stated:

I acknowledge that, except for the at-will employment, [the defendant] has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO of [the defendant] or [his/her] specified designee. No oral statements can change the provisions of the employee handbook.

After his employment ended, the plaintiff filed the the underlying lawsuit (as a class action) alleging violations of the Fair Labor Standards Act. Specifically, the plaintiff alleged that the defendant failed to pay adequate compensation for overtime work. In response to the lawsuit, the defendant moved to compel arbitration. And, in reply, the plaintiff argued that the arbitration agreement was illusory because the defendant retained the right to unilaterally amend or terminate the agreement.

The district court agreed with the plaintiff and denied the defendant’s motion to stay and compel arbitration. The defendant appealed.

On appeal, the Fifth Circuit Court affirmed the district court’s ruling and held that the arbitration agreement’s change-in-terms clause was illusory. Specifically, in its analysis of the issues, the Fifth Circuit cited Texas case law: “[A]n arbitration clause is illusory if one party can ‘avoid its promise to arbitrate by amending the provision or terminating it altogether.’” “[Or] put differently,” continued the Court, “where one party to an arbitration agreement seeks to invoke arbitration to settle a dispute, if the other party can suddenly change the terms of the agreement to avoid arbitration, then the agreement was illusory from the outset.”

* * *

Additional Arbitration Cases:

Morrison v. Amway Corp., 517 F.3d 248 (5th Cir.2008).

Torres v. S.G.E. Mgmt., LLC, 397 Fed.Appx. 63, 68 (5th Cir.2010) (unpublished)

In re 24R, Inc., 324 S.W.3d 564 (Tex.2010)

In re Halliburton Co., 80 S.W.3d 566 (Tex.2002)

Texas Supreme Court Reverses Ruling in Casados

Dillon Meek — Sat, 25 Feb 2012 20:02:46 -0600

In Port Elevator-Brownsville v. Casados, 2012 WL 247985 (Tex. 2012), the Texas Supreme Court reversed a previous judgment from the Corpus Christi Court of Appeals and held that a employee’s claim of negligence was barred by the exclusive-remedy provision of the Texas Workers’ Compensation Act. The Texas Supreme Court further held that employers cannot, intentionally or unintentionally, split its workforce by electing workers' compensation coverage for some but not all employees.

Plaintiffs argued that the workers’ compensation policy did not cover the deceased employee because: (1) the employer had not paid premiums for the employee; (2) the employee was not covered by any job classification identified in the employer's workers' compensation policy; and (3) the employer denied coverage for the workers' loss.

The Texas Supreme Court held that the employer’s failure to pay specific premiums under the workers’ compensation policy did not preclude coverage. Also, the fact that the employee was not covered by any job classification identified in the employer's workers' compensation policy did not preclude coverage. Finally, the insurer’s denial of coverage for the worker did not preclude the application of the Texas Workers’ Compensation Act. In conclusion, because the employer subscribed to workers' compensation insurance, the employee was employed by the employer, and the employee suffered a work-related injury, the remedy included in the Texas Workers' Compensation Act was the exclusive remedy for the employee’s injury and any negligence claim against the employer was barred.

Texas Supreme Court Denies Rehearing in Escabedo

Craig Cherry — Sat, 11 Feb 2012 08:32:24 -0600

On July 1, 2011, the Texas Supreme Court issued its decision in Haygood v. Escabedo, which held that evidence of a plaintiff's medical expenses at trial is limited to the amount the medical provider has a legal right to be paid. The appellant in the case sought rehearing after the Court's decision, however, the Court denied rehearing on January 27, 2012.

No Expert Testimony Needed to Establish Date of Injury in Construction Defect Coverage Case

Brandon Oates — Sat, 28 Jan 2012 17:11:18 -0600

The Dallas Court of Appeals, in Vines-Herrin Custom Holmes, LLC v. Great American Lloyds, No. 05-10-00007-CV, 2011 WL 6396473 (Tex. App.—Dallas Dec. 21, 2011, no pet. h.) handed down an opinion overturning a take-nothing judgment on behalf of an insurer of a construction company and remanding to the trial court for further proceedings. In so doing, the court held that (1) the plaintiff/owners had pled sufficient facts supporting when the physical damage to the property occurred to trigger the duty to defend on behalf of the insurer, and (2) the duty to indemnify was also triggered where the actual damages manifested during the insurer's policy period.

This case involves a home owner who purchased a defective house from a contractor builder. The owner sued the contractor, who tendered the defense of the case to its liability insurer. The insurer denied coverage on several grounds repeatedly over several years. Eventually the owner and the contractor entered into a settlement agreement, whereby the owners were assigned the contractor’s claims against its insurer. The owners then intervened in the coverage lawsuit between the insurer and the contractor. This case was originally tried to the court in June 2008 and the court applied the “manifestation rule” (the controlling law at the time) regarding when the injury occurred. The “manifestation rule” imposed a duty to defend only if the property damage became apparent during the policy period. After the trial was complete and during the period of appeal on this case, the Texas Supreme Court issued its opinion in Don’s Building Supply, Inc. v. One Beacon Ins. Co., 267 S.W.3d 20 (Tex. 2008), which adopted the “actual injury” approach to determining when an injury takes place thereby rejecting the “manifestation rule”. The “actual injury” approach holds that the property damage occurs when the actual physical damage takes place, rather than when it manifests itself or becomes discoverable. The trial court reopened evidence and eventually ruled in favor of the insurers based on the “actual injury” standard. The trial court was concerned that the owners had failed to provide expert testimony regarding the exact date on when the property damage occurred—and by failing to show when the damages actually occurred, found in favor of the insurer. This appeal followed challenging the trial court’s interpretation of Don’s Building to require a party to allege an exact date that physical damage occurred and to require expert testimony to prove actual date of injury.

As has been the rule for years, the duty to defend is determined under the “eight-corners rule,” where only the pleadings and policy language are considered. Burlington N. & Santa Fe Ry. Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 334 S.W.3d 217, 219 (Tex.2011). The first question to determine in this case was whether the pleadings potentially allege property damage that actually occurred within the policy period. The pleadings in the underlying case contained allegations of when water damages were noticed, and given the continuous coverage of the contractor’s insurance policies, the petitions adequately pled that actual physical damage occurred during the insurance policies. Therefore, this was sufficient to trigger the duty to defend.

Next, with respect to the duty to indemnify, the trial court made the following finding of fact:

In May 2000, shortly after purchasing the home, there was substantial flooding from a rainstorm that caused damage to the Resident [sic], including water leaks. This property damage manifested during the coverage period of Great American Policy No. PAC 9–86–51–21–04, which was in effect from November 9, 1999 through November 9, 2000.

Because actual damages have occurred by the time they manifest, coupled with the fact that the cause of the damages was held to be defective framing which occurred between the start of construction and the completion of construction, the appellate court held the evidence showed the insurer’s duty to indemnify was triggered, and no expert testimony establishing the exact date of injury was required. Although there were additional grounds raised in the appeal, because the trial court did not rely on them for the take-nothing judgment, the appellate court did not address them.

The case was remanded to the trial court for further proceedings.

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.