Trial & Error: Tips for Trial Lawyers

Nalle Plastics: Attorney's Fees Don't Need To Be Superseded On Appeal.

Jadd F. Masso — Tue, 21 May 2013 00:00:00 -0500

At long last, the Texas Supreme Court has resolved a question our courts of appeals have been unable to uniformly answer: Must attorney’s fees be superseded on appeal?

Historically, attorney’s fees, like damages, had to be superseded to prevent execution while a case was on appeal. However, in 2003, the Legislature enacted the well-known tort-reform package known as “H.B. 4,” which sought to make the superseding of judgments easier. Since then, judgment debtors were required to post security only in the amount of “compensatory damages” plus costs and interest for the estimated duration of the appeal. See Tex. Civ. Prac. & Rem. Code § 52.006(a); Tex. R. App. P. 24.2(a)(1).

For the last 10 years, litigation ensued over whether attorney’s fees awarded in a judgment constituted “compensatory damages” or “costs” such that they should be calculated into the amount of security required to suspend enforcement of a judgment. The Houston (1st and 14th districts), El Paso, and Corpus Christi courts held that attorney’s fees must be included; the Austin and Dallas courts found the opposite.

The Supreme Court, in In re Nalle Plastics Family Limited Partnership, settled the dispute by determining that attorney’s fees are neither “compensatory damages” nor “costs” as intended by the statute. Accordingly, they need not be included in the amount of security required to supersede a judgment. The Court was careful to note that if attorney’s fees were awarded as damages, the analysis would be different.

[1] No. 11-0903, 2013 Tex. LEXIS 396 (Tex. May 17, 2013).

Does Exclusive Federal Jurisdiction Over Patent Cases Extend to Claims of Legal Malpractice In Patent Cases?

Judith R. Blakeway — Wed, 08 May 2013 00:00:00 -0500

Legal malpractice claims are tort claims over which state courts have jurisdiction. But federal courts have exclusive jurisdiction over cases “arising under any act of Congress relating to patents.” So where does a state law claim alleging legal malpractice in the handling of a patent case belong? In state court or federal court? The Supreme Court recently decided that question in Gunn v. Minton, 133 S.Ct. 1059 (2013).

In that case, Minton hired Gunn to represent him in a federal patent infringement suit. The district court declared Minton’s patent invalid under the “on sale” bar because he had leased his patented system more than one year prior to the date of his patent application. An inventor is not entitled to a patent if “the invention was…on sale, more than one year prior to the date of the application.” Minton then filed a motion for reconsideration urging for the first time that the lease was part of ongoing testing and therefore fell within the “experimental use” exception to the “on sale” bar. When the district court denied that motion, he appealed to the Court of Appeals for the Federal Circuit. That court affirmed, holding Minton’s experimental use argument waived.

Minton then sued Gunn for malpractice in state court in Texas. Gunn argued that the lease was not an experimental use and, therefore, Minton’s patent infringement claims would have failed even if the experimental use argument had been timely raised. The court granted summary judgment to Gunn.

On appeal, Minton argued that the state court—where Minton had originally brought his malpractice claim—lacked subject matter jurisdiction because the suit fell within the exclusive jurisdiction of federal courts over cases arising under patent law. The court of appeals rejected his argument and affirmed the trial court. The Supreme Court of Texas reversed, concluding that Minton’s claim involved a substantial federal issue because the success of Minton’s malpractice claim depended upon the viability of the experimental use exception as a defense to the on sale bar. 355 S.W.3d at 644. The United States Supreme Court reversed.

The Supreme Court explained that a case can arise under federal law in two ways. First, a case arises under federal law when the federal law creates the cause of action asserted. Second, federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Applying these factors, the Court concluded that state legal malpractice claims based on underlying patent matters rarely, if ever, arise under federal patent law.

First, the court acknowledged that resolution of a federal patent question was necessary to Minton’s case: to prevail on his legal malpractice claim, Minton had to show that he would have prevailed in his federal patent infringement case if only his lawyers had timely made an experimental use argument on his behalf. That necessarily required application of patent law to the facts of Minton’s case.

Second, the federal issue was also “actually disputed”: Minton argued that the experimental use exception properly applied saved his patent from the on sale bar; the lawyers argued it did not.

Minton’s case foundered on the third requirement, however, because the federal issue in the case was not substantial, i.e., important to the federal system as a whole. No matter how the state courts resolved Minton’s hypothetical “case within a case,” it would not change the real world result of the prior federal patent litigation. Minton’s patent would remain invalid. Nor would the state court decision have any preclusive effect. The possibility that the state court could incorrectly resolve a state claim, was not, by itself, enough to trigger the federal court’s exclusive patent jurisdiction, even if the potential error resulted from a misunderstanding of patent law. Accordingly, the judgment of the Supreme Court of Texas was reversed.

Henceforth, claims of legal malpractice in patent cases must be brought in state court.

That Dog Won't Hunt

Robert M. O'Boyle — Fri, 19 Apr 2013 00:00:00 -0500

In Strickland v. Medlen, Case No. 12-0047, the Texas Supreme Court on January 10, 2013, confirmed the 122 year-old precedent that pets are property for tort-law purposes, and there can be no recovery for noneconomic damages rooted solely in emotional attachment to the pet. The Second Court of Appeals had found a right of recovery, but the Supreme Court reversed and remanded for entry of judgment in favor of the defendant. While acknowledging that Texas law does provide for recovery of noneconomic damages for loss of other types of personal property, such as family heirlooms (pistols, jewelry, and hand-made bedspreads, for example), the instrinsic value of felled trees (even though removing the trees may have increased the property’s market value) and sentimental value of personal items destroyed when a home is flooded, the Court distinguished “intrinsic value” from “mental anguish” damages and found that there could be no recovery for a beloved family pet wrongfully euthanized.

Can You Moot an Appeal by Nonsuit?

Judith R. Blakeway — Mon, 25 Mar 2013 00:00:00 -0500

Q: Can a plaintiff voluntarily nonsuit its case and thereby prevent an appeal?

A: It depends.

A plaintiff has an absolute right to nonsuit a claim before resting its case in chief, but a nonsuit cannot prejudice the right of an adverse party to be heard on a pending claim for affirmative relief. A motion for sanctions is a claim for affirmative relief that survives a nonsuit if a nonsuit would defeat the purpose of sanctions. So, for example, a sanction excluding witnesses for failure to supplement discovery does not survive nonsuit because its purpose is fully served by protecting the fairness of trial. But a sanction for filing a frivolous lawsuit does survive nonsuit.

The issue was recently considered by the Texas Supreme Court in CTL/Thompson Texas, LLC v. Starwood Homeowner’s Ass’n, 56 Tex, S.Ct.J. 244 (Jan. 25, 2013). A malpractice claim against an engineer must be accompanied by an affidavit attesting to the claim’s merit. Starwood sued CTL and attached such an affidavit to its petition. CTL moved to dismiss because the affidavit was deficient. The trial court denied CTL’s motion. CTL took an interlocutory appeal. But before the appeal could be decided, Starwood nonsuited. The Court of Appeals held that the nonsuit mooted the appeal. CTL sought review in the Supreme Court.

The Court began by discussing Villafani v. Trejo, 251 S.W.3d 466, 467 (Tex. 2008), which held that under the Healthcare Liability Act, dismissal with prejudice and attorneys’ fees were sanctions, the purpose of which was to deter claimants from filing meritless suits, and, therefore, a motion to dismiss survived nonsuit. Consequently, its denial could be appealed.

The Court concluded that the requirement that a certificate of merit accompany a suit against an engineering firm under penalty of dismissal — possibly with prejudice — served the same purpose — to deter meritless claims and bring them quickly to an end.

Starwood argued that a motion to dismiss under the statute could not survive a nonsuit because a nonsuit gives the movant all the relief the statute mandates — dismissal without prejudice. But because the statute permitted further relief —dismissal with prejudice — Starwood’s nonsuit did not moot the appeal.

The Relation-Back Doctrine: A Suit in Time Saves Related Claims from Limitations Bar

Judith R. Blakeway — Tue, 12 Mar 2013 00:00:00 -0500

The Texas Supreme Court recently considered the statute of limitations “relation-back” doctrine in Lexington Ins. Co. v. Daybreak Express, Inc. 56 Tex.S.Ct.J. 233 (Tex. Jan. 25, 2013). A computer company hired a trucking company to move computers from New Jersey to Texas. The trucking company (J. Super) hired a subcontractor (Daybreak) to transport the equipment. When the equipment was damaged in transit, the computer company sued both. Both settled, but when Daybreak balked at paying the settlement, J. Super’s insurance company, Lexington, paid the agreed amount and sued Daybreak, as subrogee, to enforce the settlement agreement.

Daybreak removed the case to federal court alleging federal question jurisdiction because the federal interstate common carrier law, called The Carmack Amendment, supersedes all state laws. The federal court remanded the case to state court because it was not a suit against a carrier to recover property damage, but rather one to enforce a settlement agreement.

After remand, Lexington amended its pleading to include a Carmack Amendment claim. Daybreak objected because limitations had run as to that claim. Lexington responded that it was not too late because the Carmack Amendment claim related back to the original suit so it was saved by Texas’ relation-back statute which provides that “if a filed pleading relates to a cause of action ... that is not subject to a plea of limitations ... a subsequent amendment ... that changes grounds of liability ... is not subject to a plea of limitations unless ... wholly based on a new, distinct or different transaction or occurrence.” Tex.Civ.Prac. & Rem. Code §16.068. The trial court agreed and rendered judgment for Lexington on its Carmack Amendment claim.

On appeal, the Court of Appeals held that the two claims by Lexington were based on wholly different transactions — a cargo damage claim and a breach of contract claim. Therefore, the relation back doctrine did not apply to save Lexington’s Carmack Amendment claim.

The Supreme Court reversed, holding that because the cargo damage claim and the breach of settlement claim both arose out of the same occurrence, Lexington’s cargo damage claim related back and was not barred by limitations.

Coming Soon to a Rule Book Near You

P. Michael Jung — Mon, 25 Feb 2013 00:00:00 -0500

Last year, we blogged about the forthcoming new Texas Rules of Civil Procedure governing pretrial motions to dismiss and expedited actions for claims under $100,000. (“Motions to Dismiss in Texas state court - coming soon!” Dec. 31, 2012; “New rules for cases seeking $100,000 or less (and more),” Nov. 27, 2012). Well, they’re nearly here. On February 12, the Supreme Court of Texas approved the final version of the new rules, which will become effective on March 1.

Although the Court made a number of changes to the preliminary version of the rules, most of these changes merely clarified the rules. Substantively, organizations and lawyers on the defense side were unsuccessful in their last-minute push to make the rules voluntary, while those who favor mediation were partially successful in restoring mediation to the expedited action rule.

The only substantive change to new Rule 91a, governing dismissal of baseless causes of action, was to change the deadline for filing a nonsuit of a challenged cause of action, and for withdrawing or amending a motion to dismiss in response to an amended pleading, from seven days before the hearing to three days before the hearing. A wording change also clarified that evidence may be received regarding attorneys’ fees and costs.

Several substantive changes were made to new Rule 169, governing expedited actions:

· The court may continue the case twice, not to exceed a total of 60 days;

· The length of trial has been expanded from five hours per side to eight hours per side; on a motion showing good cause, this may be expanded to up to twelve hours per side;

· The ban on court-ordered mediation has been replaced with a limitation to a single half-day mediation, with total cost not to exceed twice the filing fees; mediation must be completed no later than 60 days before the initial trial setting;

· A comment has been added describing factors to be considered in determining whether to remove the case from the expedited action process or extend the time limit for trial; these include aggregate damages sought by multiple claimants exceeding more than $100,000, a good-faith counterclaim seeking more than $100,000 or seeking non-monetary relief, the number of parties and witnesses, the complexity of the legal and factual issues, and whether an interpreter is necessary.

Many issues will arise as courts and lawyers begin to gain experience with the new rules. Time will tell whether they accomplish their goals of eliminating meritless claims and streamlining small cases. But for better or worse, the rule-drafting phase has ended and the implementation phase is about to begin.

E-filing in Texas state court? You will be soon.

Jadd F. Masso — Tue, 12 Feb 2013 00:00:00 -0500

If you aren’t already, it’s time to get acquainted with electronic filing in Texas state courts. The Texas Supreme Court has set a timeline by which all Texas courts must stop accepting filings on paper in civil cases.

Electronic filing is already mandatory in the Texas Supreme Court; the Courts of Appeals in Dallas, Houston, and Austin; and several district courts. Most of the more populous counties in Texas offer e-filing as an option, but some notable holdouts—like Tarrant County—remain.

Starting January 1, 2014, e-filing will be mandatory for civil cases in counties with a population of 500,000 or more and in all appellate courts. For smaller counties, the requirement is phased in over a two-year period, though counties may elect to make e-filing mandatory earlier. The Supreme Court’s order can be found here.

E- filing changes not only how we file documents with courts, but also how judges read and absorb information from those filings. Many jurists in mandatory e-filing courts report primarily reading pleadings and briefs on their computer screens or tablets. Effectively presenting information to “screen readers” involves considerations not familiar to most litigators, such as using bookmarks and hyperlinks in lengthy pleadings or briefs, avoiding footnotes, and giving more thought to layout and font choice. Electronic pleadings and briefs may need to function more like a webpage, and less like a paper document, particularly since the target audience is unlikely to read them on paper. Litigators who understand how best to communicate in this format will have an advantage over those who continue organizing and writing pleadings for the “paper age.”

Enforcing Forum Selection in Federal Court - A New Direction, For Now.

Jadd F. Masso — Tue, 29 Jan 2013 00:00:00 -0500

Of interest to litigators and corporate lawyers alike, the Fifth Circuit recently decided the correct procedure for enforcing a contractual forum selection clause—a matter of some disagreement among the circuit courts and, until now, an unanswered question in the Fifth Circuit.

The issue in In re Atlantic Marine Construction Company was how to enforce a forum selection clause when a case is filed in (what is otherwise) a federal court of proper venue. Atlantic Marine involved a dispute over work being performed in the Western District of Texas. The contract between the parties included an agreement to venue in the Eastern District of Virginia, but did not include a choice of law provision. The plaintiff sued in the Western District of Texas.

In response, the defendant moved to dismiss for improper venue under Rule 12(b)(3) and 28 U.S.C. § 1406(a). In the alternative, the defendant moved to transfer venue under § 1404(a). The difference is important: In a motion to transfer venue, the burden is on the movant to show why transfer should be granted, and courts consider other factors in determining whether venue should be changed, such as the convenience of the parties and witnesses and the interests of justice.

The court focused on whether private parties can, by contract, render a venue “improper” which would otherwise be proper under federal law. Finding that statutory venue cannot be trumped by contract, the Fifth Circuit held that a § 1404(a) motion to transfer is the only correct procedure when a case is filed in a federal court of proper venue. Accordingly, other factors—such as convenience and the public interest—must be considered. The court seemed to suggest that the result could have been different had the contract included a choice of law provision.

A final note: The procedure is different if the contractually-agreed forum is a state court, a foreign court, or arbitration. Because a federal court cannot transfer a case to such a venue, dismissal under Rule 12(b)(3) and § 1406(a) is the only remedy. This dichotomy was not lost on Judge Haynes, who concurred in the result (due to the high standard for mandamus) but disagreed with the majority’s analysis. With the circuits split on this issue, Supreme Court review may be next.

Oil and Gas Operator Liability In Texas - What's In Your Contract?

Jack Carnegie — Thu, 17 Jan 2013 00:00:00 -0500

The American Association of Professional Landmen (“AAPL”) Model Form Operating Agreement commonly used in the energy industry contains broad exculpatory language protecting the Operator. For example, the 1982 AAPL Model Form Operating Agreement contains the following language:

________ shall be the Operator of the Contract Area, and shall conduct and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of this agreement. It shall conduct all such operations in a good and workmanlike manner, but it shall have no liability as Operator to the other parties for losses sustained or liabilities incurred, except such as may result from gross negligence or willful misconduct.

This form imposes an obligation on the Operator to conduct operations in a good and workmanlike manner. At the same time, it exempts the Operator from liability as Operator, except for gross negligence or willful misconduct.

Does this language exempt the Operator from liability for breach of contract? Given the fact that this form has been in common use for 30 years, one might think that the courts would have definitively decided that question long ago. Not so. There has been a split of authority on the issue.

In Stine v. Marathon Oil Co., 976 F.2d 254 (5th Cir. 1992), Stine alleged that Marathon breached duties owed him under the JOA in connection with testing and completion of wells; that Marathon tortiously interfered with his gas sale contract; and that Marathon, by failing to drill certain exploratory wells, abandoned a substantial portion of the lease acreage and, therefore, Stine was entitled to an assignment of that acreage.

The exculpatory language of the joint operating agreement in Stine was identical to the 1982 model form quoted above. The Fifth Circuit construed it as exempting the Operator from liability for breach of contract unless the Operator was grossly negligent or committed willful misconduct:

It is clear to us that the protection of the exculpatory clause extends not only to "acts unique to the operator," as the district court expressed it, but also to any acts done under the authority of the JOA "as Operator." This protection clearly extends to breaches of the JOA. It also reaches other acts including acts performed "as Operator" under the authority of the JOA that amount to tortious interference with contracts with third parties. We, therefore, hold that the exculpatory clause protects Marathon from liability for any act taken in its capacity "as Operator" under the JOA (except for gross negligence or willful misconduct).

Id. at 261 (emphasis added).

Not all courts agreed with the ruling in Stine. For example, the district court in PYR Energy Corp. v. Samson Resources Co., 470 F. Supp.2d 709 (E.D. Tex. 2007), pointed out that “[T]hree separate Texas courts of appeals suggest that Stine may no longer correctly state Texas law.” The issue, however, had not been addressed by the Texas Supreme Court.

So does this standard form operating agreement protect the Operator from breach of contract liability or not?

Enter the Texas Supreme Court in Reeder v. Wood County Energy, LLC, 2012 Tex. LEXIS 735; 55 Tex. Sup. J. 1366 (Tex. August 31, 2012). Reeder involved a claim that Reeder breached his duty as Operator by failing to maintain production in paying quantities. The JOA being construed by the Supreme Court in Reeder was based on the 1989 version of the AAPL form. The Court noted that while the 1982 form says the Operator “shall conduct all such operations in a good and workmanlike manner, but it shall have no liability as Operator to the other parties for losses sustained or liabilities incurred, except such as may result from gross negligence or willful misconduct,” the 1989 form says that the Operator “shall conduct its activities under this agreement … in a good and workmanlike manner, … but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred except such as may result from gross negligence or willful misconduct.”

The Court found the difference between “all such operations” and “its activities under this agreement” to be significant, and held that the 1989 form provided broader protection to the Operator:

Reading the clause as written, we conclude that the model form transformation is significant, as the change in language broadens the clause's protection of operators. The model forms from 1977 and 1982 both contained clauses that protected operators from "all such operations," while the 1989 model form protects "its activities." Here, the parties modeled their JOA after the 1989 model form—recognizing the distinction between "such operations" and "its activities." The modifier "such" references operations under the JOA, while the deletion of that word and use of the term "its activities" includes actions under the JOA that are not limited to operations. The modification implicates a broader scope of conduct following the language of the contract. The agreed standard exempts the operator from liability for its activities unless its liability-causing conduct is due to gross negligence or willful misconduct.

Based on this analysis, the Supreme Court reversed and rendered a take nothing judgment. Is this the final word on the subject? Not quite yet. A motion for rehearing has been filed in Reeder and the Supreme Court has requested a response.

Stay tuned for more.

Motions to Dismiss in Texas state court - coming soon!

Jadd F. Masso — Mon, 31 Dec 2012 00:00:00 -0500

The Texas Supreme Court has adopted the new Texas Rule of Civil Procedure 91a, which will go into effect on March 1, 2013, to provide for the “dismissal of causes of action that have no basis in law or fact.” The new rule may be changed in response to public comments received by February 1, 2013.

Assuming Rule 91a is implemented as adopted, it will permit the dismissal of a cause of action that has:

· No basis in law—i.e., that the allegations, if taken as true, do not entitle the claimant to the relief sought; or

· No basis in fact—i.e., if no reasonable person could believe the facts pleaded.

A Rule 91a motion to dismiss must be filed within 60 days after the first pleading containing the challenged claim and at least 21 days before being heard. Notice of a hearing must be provided at least 14 days in advance, and any response must be filed at least 7 days before the hearing. The motion must be granted or denied within 45 days of being filed. Like a federal Rule 12(b)(6) motion, the court may not consider evidence.

Practitioners should take care when considering whether to file a Rule 91a motion, as an award of attorney fees and costs to the prevailing party is mandatory.

The complete text of the new Rule 91a is available here.

Appellate Lawyers - the Last Generalists

P. Michael Jung — Fri, 14 Dec 2012 00:00:00 -0500

At cocktail parties, I frequently get asked what appellate lawyers do. I typically answer that sort of question in procedural terms, explaining how we help make sure that the law is properly presented to the jury, that the judgment conforms to the law and the evidence, and that any legal errors committed by the trial judge are corrected on appeal. But I am sometimes tempted to answer by describing the broad substantive range of appellate practice.

Appellate lawyers stick their collective noses into everything. A Google News search on the word “appeal” produced the following, all occurring within 24 hours of the writing of this post:

· “Immigration board hears deportation appeal from former Nazi guard”

·                    “A man is appealing the dismissal of his lawsuit that sought to undo the sale of The Balsams Grand Resort”

·                    “A federal appeals court in Virginia is set to review a former Texas businessman's conviction in a $100 million life insurance fraud scheme”

·                    “South Africa’s Standard Bank said on Friday it would appeal an arbitration ruling to refund at least $60 million worth of shares to a union pension fund”

·                    “The former pharmacist, who is serving a life sentence for fatally shooting a wounded, unarmed robber in 2009, is asking the Oklahoma Court of Criminal Appeals to overturn the murder conviction”

Few appellate practitioners have a docket quite that broad. But my own cases at the moment involve bankruptcy, chiropractic practice, government contracts, immigration, insurance fraud, medical malpractice, oil & gas, partnership disputes, property insurance, real estate, securities fraud, title insurance, trade secrets, and zoning. A trial lawyer likely couldn’t competently handle such a wide range of cases, but the nature of appellate practice – confinement to the appellate record, to complaints preserved in the trial court, and to well-established standards of review – means that generalist appellate lawyers can learn what they need to know about the substantive law applicable to each case, while relying on their expertise in dealing with the appellate court system.

In Abraham Lincoln’s day, lawyers hung out their shingles and never knew whether the next client through the door would need a will, or a contract, or a divorce, or to file or defend a lawsuit. Those days are largely gone; most of today’s lawyers specialize to one degree or another. But the fun and the challenge of practicing appellate law is to compete with those specialists, using the home-field advantage of a highly-structured appellate process to make up for having to learn the opponent’s playbook for each new appeal.

New rules for cases seeking $100,000 or less (and more).

Jadd F. Masso — Tue, 27 Nov 2012 00:00:00 -0500

The Texas Supreme Court has adopted a new Texas Rule of Civil Procedure 169—and amendments to several others—implementing a number of procedures for cases seeking $100,000 or less. Although focused on smaller cases, the changes will affect the pleading requirements for all cases. The new and amended rules go into effect on March 1, 2013, but may be changed in response to public comments received by February 1, 2013.

New Pleading Requirements

Under the proposed amended Rule 47, all cases filed on or after March 1, 2013, must include a statement that the plaintiff seeks:

· Only monetary relief of $100,000 or less, including damages, penalties, costs, and attorney fees; or

· Monetary relief of $100,000 or less, plus non-monetary relief; or

· Monetary relief over $100,000 but not more than $500,000;

· Monetary relief over $500,000 but not more than $1,000,000; or

· Monetary relief over $1,000,000.

A party failing to plead the level of monetary damages sought is barred from conducting discovery until the omission is remedied.

Expedited Procedures

The new Rule 169 for “Expedited Actions” applies to all cases in which the plaintiff seeks only monetary relief of $100,000 or less, excluding cases brought under the Property Code, Family Code, Tax Code, or Chapter 74 of the Civil Practice & Remedies Code (relating to medical liability). The rule expressly limits monetary recovery in those cases to $100,000.

Also, the following procedures and limitations will apply:

· Discovery is limited by a newly-amended Rule 190.2 (see below).

· Mediation is not permitted unless agreed to by the parties or required by contract.

· On any party’s request, trial must be set within 9 months of the first discovery response.

· Trial is limited to 5 hours per side (including jury selection, opening, presentation of evidence, questioning of witnesses, and closing).

· Experts may only be challenged at trial or as an objection to summary judgment evidence (separate Daubert/Robinson motions won’t be permitted).

A case must be removed from the expedited actions process upon a motion and showing of good cause or if an amended pleading (other than a counter-claim) causes the total relief sought to exceed $100,000.

Discovery Limitations

Rule 190.2 (Discovery Level 1) will be applicable to all expedited actions, and will include the following restrictions:

· The discovery period ends 180 days after the first discovery response is served.

· Only 15 interrogatories may be served by a party on any other party.

· Only 15 requests for production may be served by a party on any other party.

· Only 15 requests for admissions may be served by a party on any other party.

· Each party is limited to a total of 6 hours to examine all witnesses in depositions, though the parties may agree to up to 10 hours.

In addition to requests for production, a party may request disclosure of all documents and electronic information that any other party may use to support its claims or defenses.

The complete text of the new and amended rules is available

here.

When will the erroneous admission of evidence cause a case to be reversed?

Judith R. Blakeway — Tue, 13 Nov 2012 00:00:00 -0500

Cases are rarely reversed for the admission or exclusion of evidence. Reversal because of erroneously admitted or excluded evidence occurs only if the error probably resulted in rendition of an improper judgment. In U-Haul International, Inc. v. Waldrip, 2012 Tex. LEXIS 737 (Aug. 31, 2012), the Supreme Court recently considered whether the erroneous admission of evidence probably led to an improper judgment.

Talmadge Waldrip was severely injured while exiting a U-Haul truck that rolled backwards on him, allegedly due to problems with the truck’s parking brake and transmission. He contended that U-Haul’s failure to discover these problems was due to negligence and gross negligence in its inspection and maintenance program. Over objection, Waldrip presented evidence about investigations of U-Haul’s safety practices in Canada.

The jury found for Waldrip on all grounds and awarded actual damages of $21,425,000 and punitive damages of $42,000,000 against one defendant and $21,000,000 against the other. The court of appeals overturned the exemplary damage award against one defendant but otherwise affirmed the trial court’s judgment.

The jury found for Waldrip on all grounds and awarded actual damages of $21,425,000 and punitive damages of $42,000,000 against one defendant and $21,000,000 against the other. The court of appeals overturned the exemplary damage award against one defendant but otherwise affirmed the trial court’s judgment.

The Supreme Court held that the Canadian evidence was not sufficiently similar to the defects Waldrip alleged to be admissible. The Court next turned to the question of whether the error was harmful. In determining whether reversal was warranted because of the erroneously admitted evidence, the Court instructed that a reviewing court should:

• evaluate the entire case from voir dire to closing argument, considering the evidence as a whole, the strength and weakness of the case, and the verdict;

• look to the role the evidence played in the context of the trial;

• examine efforts made by counsel to emphasize the erroneous evidence; and

• consider whether the improperly admitted evidence was calculated to overcome contrary evidence.

Applying these standards the Court found that:

• Waldrip’s counsel emphasized the inadmissible Canadian evidence throughout the trial; and

• The jury found one defendant grossly negligent without properly admitted evidence supporting that finding;

• giving rise to an inference that the Canadian evidence was likely important in the jury’s finding of gross negligence.

After reversing the gross negligence finding on no-evidence grounds, the Supreme Court remanded the negligence claims against all defendants for a new trial.

Property Damage, Experts and Damages.

Jack Carnegie — Wed, 07 Nov 2012 00:00:00 -0500

Insurers, contractors and property owners take note – Property damage claims are common. They arise from wind, water, fire, construction defects and every type of accident imaginable. But do you know what is required for a sustainable damages award? The Supreme Court recently addressed that issue in McGinty v. Hennen, 372 S.W.3d 625 (Tex. June 29, 2012) (per curiam).

As we have previously reported, expert testimony requires special attention at trial and is often fertile ground for an appeal. And we are not just talking about Daubert type challenges. In a number of cases the Texas Supreme Court has held that an expert’s testimony was “no evidence” even where there was no Daubert challenge and the testimony was admitted without objection. See Keeping Your Expert, and Yourself, Out Of Trouble. It is more common, however, to see these rulings in the context of liability or causation evidence. McGinty involved the adequacy of evidence quantifying damages.

The case arose from construction defects that resulted in water damage and mold contamination in the plaintiff’s house. Hennen sued the builder and recovered $651,230 on a breach of contract theory for the “reasonable and necessary cost to repair the home.” The jury also awarded Hennen $700,000 in exemplary damages on tort theories, but the trial court disregarded the jury’s finding as to the date Hennen should have discovered the wrongful act and held those damages were precluded by limitations. A divided court of appeals affirmed. McGinty then petitioned the Supreme Court, arguing that there was no evidence the estimated repair cost was “reasonable and necessary.”

It has long been the law in Texas that a party seeking to recover remedial damages must prove that the damages sought are reasonable and necessary. In order to do this, the plaintiff must show more than simply “the nature of the injuries, the character of and need for the services rendered, and the amounts charged” for the repairs. Some other “evidence showing that the charges are reasonable” is required.

In McGinty, the plaintiff presented testimony from two experts. One testified about the defects in the construction of the house and the work necessary to stop the water penetration. The other, a general contractor certified in mold remediation, prepared a written estimate and testified as to what the work would cost. The contractor testified that he derived his estimated repair costs using a software program used widely in the insurance industry known as “Exactimate.” [sic] He further testified that the program had a Houston price guide, and that because not every price issued by the program is right, “we have to cross-reference and double check all our pricing.” Finally, he testified that “some of the other costs came from subcontractors or historical data or jobs.”

The Supreme Court held that this testimony was “no evidence” that the estimated repair costs were “reasonable.” Specifically, the Court stated that testimony as to how the contractor derived the estimate “does not in itself make the figure reasonable. In some cases, the process will reveal factors that were considered to ensure the reasonableness of the ultimate price. But that did not happen here. Hennen's expert established only that some of the pricing came from a widely used software program and some from ‘subcontractors or historical data or jobs.’”

McGinty v. Hennen has wide application to first party insurance cases and other property damage cases where the Xactimate software program is commonly used to prepare repair estimates. It makes clear that some other evidence is required to establish that the resulting estimate is “reasonable.” What makes the case particularly significant is that it was not a close call. Hennen is a unanimous per curiam decision, which the Court issued without hearing oral argument.

There is one other thing of note about this case: Hennen tried to assert “cross points of error” in the Texas Supreme Court complaining about a limitations ruling made by the Court of Appeals.
The Supreme Court held that “Because he did not file a petition for review, Hennen has waived these arguments.” (citing Tex. R. App. P. 53.1). Maybe Hennen should have hired an appellate lawyer.

Deportation No Evidence of Child Endangerment

Robert M. O'Boyle — Mon, 22 Oct 2012 00:00:00 -0500

The Texas Supreme Court on October 12, 2012, in In The Interest of E.N.C., J.A.C., S.A.L, N.A.G and C.G.L., Minor Children, held that evidence of deportation alone does not constitute clear and convincing evidence that termination of parental rights is in the best interest of the child. In this case, an immigrant was convicted in another state of unlawful conduct with a minor, and given a probated sentence. After his children were born he moved to another state, which was a violation of the terms of his probation, and was deported to Mexico. The trial court and appellate court believed such evidence would support termination of parental rights, but the Supreme Court disagreed, observing that under the court of appeals' analysis virtually any offense could lead to deportation--even a minor one committed long before the child was born. The Supreme Court held that no evidence was presented of the circumstances of the earlier conviction and deportation, and rejected the argument that deportation in and of itself is an act of endangerment that justifies termination of parental rights.

Words, Words, Words

P. Michael Jung — Mon, 01 Oct 2012 00:00:00 -0500

For several years now, Texas appellate lawyers have had to swing both ways. No, get your mind out of the gutter, that’s not what we’re talking about. We're referring to words and pages.

Since 1998, federal appellate courts have measured the length of briefs in words: 14,000 for a principal brief, and 7,000 for a reply brief. (Petitions for rehearing are an exception, at 15 pages.) Gone have been the days when you could play with margins, typefaces, footnotes, and the like to cram the square peg of your overlength brief into the round hole of a page limit. With the switch to words has come a font-size requirement: 14-point type for ordinary text and 12-point type for footnotes.

Texas, on the other hand, has long stuck to page limits. Originally unlimited, the length of principal briefs in Texas appellate courts is now capped at 50 pages, reply briefs at 25, petitions for review and motions for rehearing at 15, and so on. Many are the lawyers who have had to learn new word-processing features on the date their brief was due in order to make it fit.

Effective December 1, 2012, however, Texas is joining the word-limit club. Using a ratio of 300 words per page, the length limits for appellate documents will be converted to word limits: 15,000 for a principal brief, 7,500 for a reply brief, 4,500 for a petition for review or motion for rehearing, and 2,400 for a reply in support of a petition for review. The old 90-page-per-side aggregate limit will also be converted, to 27,000 words. These limits are slightly more generous than their federal counterparts.

As in the federal rules, the preliminary and concluding parts of the brief – tables, jurisdictional statements, issues, signatures, certificates, appendices, and the like – are excluded from the word count. A new “certificate of compliance” is required. The federal font-size requirements have been adopted. And, finally, as in federal court, remember: footnotes count!

The switch from pages to words will provide lawyers with an opportunity to improve the format and content of their briefs. White space takes up zero words, and so there is no reason not to make briefs visually appealing and easy-to-read. What belongs in the text can be put in the text, and what belongs in footnotes (a controversial topic for another day) can be put in footnotes. And editing out wordiness is rewarded whether it saves a line or not.

Finally, please remember: like page limits, the new word limits are maximums, not minimums. A 10,000-word brief is too long if it can be reduced to 9,999 words without loss of clarity or content!

SLEEPING ON YOUR RIGHTS: What is the difference between a statute of repose and a statute of limitations?

Judith R. Blakeway — Sat, 22 Sep 2012 00:00:00 -0500

The Texas Supreme Court recently considered the difference between statutes of repose and statutes of limitation in Federal Deposit Insurance Corp. v. Lenk, 361 S.W.3d 602 (Tex. 2012). After a bank customer died intestate, a probate clerk presented false letters of administration to two banks and gained access to the deceased customer’s accounts. He was eventually arrested and convicted of stealing the funds. In the meantime, in 2003 the probate court appointed an administrator of the decedent’s estate. She made no attempt to recover the funds from the banks until 2005. When the banks refused her demand for payment, she sued them for breach of the depository agreements. The banks moved for summary judgment because she failed to timely notify the banks of the unauthorized transactions. The trial court granted summary judgment to the banks but the court of appeals reversed.

The Supreme Court reversed the court of appeal’s judgment for one bank holding that the statute of repose in Texas Business and Commerce Code Section 4.406 barred the administrator’s claim. The court did not grant the second bank’s motion for summary judgment because it failed to raise the statute of repose as an affirmative defense.

The Court reiterated the rule that a statute of repose is a substantive, rather than a procedural, limitation. This difference has several consequences:

A statute of limitations extinguishes the right to prosecute an accrued cause of action after a period of time. It cuts off the remedy. In contrast, a statute of repose limits the time during which a cause of action can arise and usually runs from an act of the defendant. It abolishes the cause of action after the passage of time even though the cause of action may not have yet accrued.

When a statute extinguishes a claim, the statute is substantive, that ruling has a preclusive effect, and a statute of limitation dismissal bars suit everywhere. In contrast, when statutes of limitation are procedural, litigants with untimely claims cannot refile their claims in the courts of that state, but they remain free to assert them in a jurisdiction that would apply a longer statute of limitations. A state court’s judgment based on its own statute of limitations does not preclude a second action in a different state where the statute of limitations is longer.

Texas has several statutes of repose that are substantive, that is, they extinguish the claim rather than merely bar the remedy:

A person must report an unauthorized transaction to a bank within one year of account statements being made available. Tex. Bus. & Com. Code § 4.406(f).

Actions against architects, engineers and design professionals must be brought within ten years. Tex. Civ. Prac. & Rem. Code § 16.008(a).

Actions against persons furnishing construction must be brought within ten years after substantial completion of the improvement. Tex. Civ. Prac. & Rem. Code § 16.009(a).

Actions against surveyors must be brought within ten years after the survey was completed. Tex. Civ. Prac. & Rem. Code § 16.011(a)(1).

Actions involving products liability must be brought within fifteen years of sale of the product or, if longer, the number of years the product is warranted by the seller. Tex. Civ. Prac. & Rem. Code § 16.012(b), (c).

Actions involving a fraudulent conveyance must be brought within four years after the conveyance of, if later, one year after the creditor knew or should have known about the conveyance. Tex. Bus. & Com. Code § 24.010(a)(1).

Actions against agricultural operations must be brought no later than one year after the start of the circumstance that gave rise to a nuisance. Tex. Agric. Code § 251.004(a).

A healthcare liability claim must be brought no later than ten years after the date of the act or omission that gave rise to the claim. Tex. Civ. Prac. & Rem. Code § 74.251(b).

No Harm, No Foul

Judith R. Blakeway — Mon, 10 Sep 2012 00:00:00 -0500

No Harm, No Foul: Error will not be presumed in a single-theory-of-liability jury charge including an improper theory of contributory negligence and an improper inferential rebuttal instruction.

Generally, an appellate court will not reverse because of error in the charge unless it probably caused the rendition of an improper judgment. But reversible error is presumed when a broad-form question submitted to the jury:

includes multiple theories of liability, one or more of which is invalid, Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 398 (Tex. 2000); or
commingles valid and invalid elements of damages for which there is no evidence. Harris County v. Smith, 96 S.W.3d 230, 233-34 (Tex. 2002).

This is so because an appellate court cannot determine whether the improperly submitted theories or damages form the sole basis of the jury’s findings thereby depriving the complaining party of meaningful appellate review. The cure is to granulate the submission.

Conversely, though, because an inferential rebuttal issue cannot be submitted as a separate question and instead must be presented by instruction, when an erroneous inferential rebuttal instruction is submitted, error cannot be presumed. Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d 753 (2006).

So what happens when a single broad-form issue contains both an improper theory of liability and an improper inferential rebuttal issue? Is error presumed or does the court apply the traditional harmful error analysis?

That was the issue in Thota v. Young, 55 Tex. Sup. Ct. J. 671 (May 11, 2012). There, a patient’s widow sued a doctor for malpractice when an artery torn during a catheterization resulted in her husband’s death. The doctor alleged that the patient’s injuries resulted from the patient’s own negligence or a new and independent cause and counterclaimed for contribution due to the patient’s failure to mitigate.

The charge included one broad-form question as to a single theory of liability:

“Did the negligence, if any, of those named below proximately cause the injury in question?”

Answer “Yes” or “No”.

Doctor

Patient

Accompanying the question were definitions of ordinary care, proximate cause and new and independent cause.

The jury answered “No” as to the doctor and “Yes” as to the patient. The trial court entered judgment that the widow take nothing.

The court of appeals reversed. In its view, it was error to submit an issue as to the patient’s contributory negligence because the patient’s negligence (in failing to return to a hospital before extensive bleeding) only increased the damages suffered after the catheterization or tear as opposed to being a proximate cause of the injury. The court went on to hold that massive bleeding and the resulting injuries were a foreseeable risk of the catheterization procedure so giving a new and independent cause instruction was improper. Finally, concluding that Casteel’s presumed error analysis applied, the court of appeals held that the charge commingled the doctor’s improper theory of liability (the extensive bleeding) with the patient’s proper theory of liability (the torn artery) and thus prevented the appellate court from being able to determine whether the jury’s finding of no liability as to the doctor was a finding of no negligence on his part, an erroneous finding of contributory negligence on the patient’s part, or an erroneous finding of new and independent cause.

The Supreme Court assumed without deciding that it was error to submit the patient’s contributory negligence and the instruction on new and independent cause. But the Supreme Court held that Casteel’s presumed harm analysis did not apply because the only theory of liability asserted against the doctor was negligence and the jury’s finding that the doctor was not negligent was clear.

Applying traditional harmless error analysis, the Court found any error was harmless because:

Once the jury answered “No” as to the doctor’s negligence, any finding about the patient’s negligence became immaterial—no matter what the jury found, the judgment would be the same.
As to the new and independent cause instruction, the Court reasoned that based on conflicting evidence the jury could have concluded that the doctor did not breach the standard of care without reaching the issue of proximate cause. In that case, the jury would not have relied on the new and independent cause instruction because it pertained only to proximate cause. So there was no clear indication that the erroneous instruction probably caused the rendition of an improper verdict.

So even if there was error in the charge and even if the error was preserved, the widow still lost because the mistake probably did not cause the rendition of an improper judgment.

Words Matter: Acknowledging, swearing and declaring

Judith R. Blakeway — Fri, 24 Aug 2012 00:00:00 -0500

Trial lawyers often file summary judgment motions. Most motions for summary judgment require supporting evidence. That evidence often takes the form of affidavit. An “affidavit” is “a statement in writing of a fact or facts signed by the party making it, sworn to before an officer authorized to administer oaths, and officially certified to by the officer under his seal of office. TEX. GOV’T CODE 312.011(1). A “jurat” is a certification by an authorized officer stating that the writing was sworn to before the officer. Perkins v. Crittenden, 462 S.W.2d 565, 568 (Tex. 1970). This is a jurat:

JURAT

STATE OF TEXAS                      §

COUNTY OF                                  §

      Sworn to and subscribed before me on the                      day of                        , (year), by (name of signer).



(Personalized Seal)              Notary Public’s Signature

However, sometimes, through inadvertence, the form attached at the end of an affidavit is an acknowledgment rather than a jurat. This is an acknowledgment:

ACKNOWLEDGMENT

STATE OF TEXAS                      §

COUNTY OF                                  §

      This instrument was acknowledged before me on           [date] by                    [name(s) of donor(s)].



[Notarial Seal]                 [signature of officer]

                                         Notary Public

                                         My commission expires


                                                 [date]

That is what happened in The Mansions in the Forest, L.P. v. Montgomery County, 365 S.W. 3d 314 (Tex.2012). In an affidavit in opposition to a summary judgment motion, the notary certification stated that the affiant acknowledged, rather than swore to, his statements. The opponent objected to the affidavit but not because it lacked a jurat. The trial court sustained the objections, excluded the affidavit, and granted summary judgment. The loser appealed, challenging the exclusion of the affidavit.

On appeal, the prevailing party raised a new objection to the affidavit, namely, that it lacked a jurat and was not sworn to or given under oath. The court of appeals affirmed the trial court’s ruling based on the newly-raised “jurat” argument, holding that the lack of a jurat was a defense of substance, not of form, and, therefore, could be raised for the first time on appeal.

The Supreme Court reversed, holding that neither the Government Code nor Rule 166a requires an affidavit to contain a jurat but when the record lacks any indication that the purported affidavit was sworn to by the affiant, a witness statement is not an affidavit. Such defect is waived if not raised in the trial court.

Another issue trial lawyers sometimes confront in obtaining affidavits is that the witness does not have access to a notary. For example, this may occur when a witness is outside the United States. Federal law has long permitted unsworn declarations under penalty of perjury. 28 U.S.C. § 1746. Effective September 1, 2011, for cases filed on or after January 1, 2012, Texas law also permits an unsworn declaration under penalty of perjury to be used in place of a written, sworn declaration, verification, certification, oath or affidavit required by law. TEX. CIV. PRAC. & REM. CODE § 132.001. To read Jadd Masso’s blog on unsworn declarations, please click here.

No Evidence of Joint Enterprise

Robert M. O'Boyle — Mon, 13 Aug 2012 00:00:00 -0500

In Joseph P. Pritchett v. Mike Gaines and Janet Gaines, as Next Friends for Martha Michelle Gaines, Non Compos Mentis; Cause No. 12-10-00167 in the Twelfth Court of Appeals at Tyler, the jury found that the driver of an 18-wheeler transporting a used oil rig, which struck Michelle Gaines’ vehicle and left her non compos mentis, was negligent, awarding $8 million in damages. The jury found Pritchett, to whose equipment yard the rig was being transported, jointly and severally liable for those damages under a theory of joint enterprise liability. The Court of Appeals reversed and rendered, holding that there was no evidence of an equal right of control by Pritchett in the direction of the enterprise as required for joint enterprise liability.

The jury’s verdict was based upon the following evidence as recited by the Court of Appeals. Pritchett, the equipment yard operator, saw a photograph of the rig before the accident. When Adkinson, the employer of the driver of the 18-wheeler, purchased the rig, he told the seller that he was buying the rig to blueprint it. Adkinson spoke to Pritchett about blueprinting the oil rig. Pritchett knew that Adkinson was taking the rig to Pritchett’s equipment yard near Corpus Christi. Pritchett was on Adkinson’s property just four days before the accident. After the accident, Adkinson called Pritchett to tell him about the accident. Also after the accident, Pritchett lent Adkinson a substantial amount of money, and there was significant evidence that Adkinson was not creditworthy. Gaines presented evidence that Pritchett and Adkinson were not honest to the jury.

The Tyler Court of Appeals held that the foregoing constituted no evidence of a joint enterprise concerning the oil rig. More specifically, the court held that the evidence was legally insufficient to find that Pritchett had an equal right of control over the rig and 18-wheeler at the time of the accident. The Texas Supreme Court has denied review, and a motion for rehearing is pending.

For Contingency Fee Lawyers, Time Is Now of the Essence

P. Michael Jung — Mon, 23 Jul 2012 00:00:00 -0500

Contingency fee practice has always had its pluses and minuses. Forget about that steady flow of checks from hourly-rate clients. Don’t even think about non-binding case budgets that often get exceeded. And the solvency of the defendant isn’t just the client’s problem. But at least there is an overarching compensation: unlike the hourly-rate drudges, you don’t have to keep timesheets!

Trust the Supreme Court of Texas to spoil all the fun. In El Apple I, Ltd. v. Olivas, decided on June 22, the court effectively put an end to statutory attorneys’ fee recovery based on after-the-fact general estimates of work done and time spent. Now, fee recovery requires, at a minimum, “documentation of the services performed, who performed them and at what hourly rate, when they were performed, and how much time the work required.” In other words, timesheets!

The El Apple I opinion reconfirmed Texas’ adherence to the “lodestar” method of attorneys’ fee calculation, under which a reasonable hourly rate is multiplied by the number of hours reasonably expended in pursuing the matter. But the court was troubled by the incentives for inefficiency that exist when fees are paid by the opposing party. It therefore charged trial courts with the responsibility of scrutinizing fee applications to eliminate duplicative, excessive, or inadequately documented work. It regarded documentary evidence as essential to permit the trial court to properly perform this task.

The opinion requires that fee applicants provide the trial court with substantial detail, including (1) the nature of the work, (2) who performed the services and their rate, (3) approximately when the services were performed, and (4) the number of hours worked. The court acknowledged that this level of detail could theoretically be provided from an attorney’s memory, but reasoned that in all but the simplest cases, reference to documentation will be necessary. The court therefore held that “when there is an expectation that the lodestar method will be used to calculate fees, attorneys should document their time much as they would for their own clients, that is, contemporaneous billing records or other documentation recorded reasonably close to the time when the work is performed.” In other words, timesheets!

Because of the change in the law, the court allowed the attorneys in the El Apple I case to go back and try to reconstruct the necessary detailed information. Perhaps Texas courts will also allow reconstruction for tasks performed before the opinion was issued. But going forward, the price of failing to keep timesheets will likely be disallowance of statutory fee-shifting recovery. Personal-injury contingency fee lawyers can continue as before, but those who litigate commercial, employment, or similar cases will have to, as the late Strasburger partner Tom Unis was fond of saying, “do the Lord’s work, but keep good track of your time.”

Declaring Without Swearing: Declarations Under Penalty of Perjury are Now Accepted in Texas

Jadd F. Masso — Mon, 09 Jul 2012 00:00:00 -0500

One of the lesser-known changes to Texas state-court practice brought about by the 2011 legislative session is the allowance of parties to use unsworn declarations in place of affidavits or verifications. Before September 1, 2011, such declarations could only be used as a substitute for an affidavit by inmates.

Parties in Texas cases may now use an unsworn declaration in place of any affidavit, verification, written sworn declaration, certification, or oath, except an oath of office or other oath before a specified official other than a notary public. Tex. Civ. Prac. & Rem. Code 132.001.

To be valid, the declaration must be in writing and signed by the declarant. It must also contain a jurat containing the declarant’s name, date of birth, and address; a statement that the declaration is true and correct under penalty of perjury; and a statement of the county, state, and date of execution.

The following is a substantially correct example of a jurat for a declaration under penalty of perjury under the amended Tex. Civ. Prac. & Rem. Code 132.001:

My name is James Robert Smith, my date of birth is January 1, 1965, and my address is 123 Main Street, Dallas, Texas 75201. I declare under penalty of perjury that the foregoing is true and correct.

Executed in Dallas County, State of Texas, on January 1, 2012.

James Robert Smith, Declarant

FCC v Fox: The Supreme Court finds fleeting indecency standards unconstitutionally vague but avoids First Amendment issue

Michael A. Walsh — Mon, 25 Jun 2012 00:00:00 -0500

On June 21, 2012 the United States Supreme Court issued its opinion in FCC v. Fox Television Stations, Inc., sidestepping a ruling on whether the current indecency policy applied to broadcasters violates the First Amendment. FCC v. Fox Television Stations, Inc., No. 10-1293, 2012 U.S. LEXIS 4661 (June 21, 2012). Instead, the Court deftly disposed of the matter on the unique facts of the case—holding that the decency policy failed on fair notice grounds under the due process clause. Id. The underlying case has been a widely watched case of constitutional ping-pong between the Supreme Court and the Second Circuit involving the FCC, Fox, and ABC. At issue are “fleeting expletives,” not so fleeting expletives, and partial nudity, all the makings for an important case, but the Court declined the opportunity.

In 1978 in FCC v. Pacifica Foundation, 438 U.S. 726 (1978), the Court upheld the FCC’s power to regulate the broadcast of patently offensive words. At issue was George Carlin’s famous seven “filthy” words monologue. Finding that it was “patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory activities and organs, and at times of the day when there is a reasonablerisk that children may be in the audience.” 56 FCC 2d at 98, the FCC found the broadcast sanctionable but did not actually impose any fines. Id. at 732. In Pacifica, the Supreme Court found that the First Amendment did not deny the government the power to regulate public broadcast of indecent language because “broadcast media have established a uniquely pervasive presence in the lives of all Americans [and] . . . broadcasting is uniquely accessible to children, even those too young to read.” Id. at 748-49.

Beginning in 1987, the Commission indicated it would use a “generic definition of indecency” and “assess the full context of allegedly indecent broadcasts rather than limiting its regulation to a ‘comprehensive index . . . of indecent words or pictorial depictions.’” Fox, 2012 U.S. LEXIS 4661 at *8. In the ensuing years, FCC modified its policy and in 2001, issued Industry Guidance on Commission’s Case Law Interpreting 18 U.S.C. §1461 and enforcement policies regarding broadcast indecency. 16 FCC Rcd. 7999. In that Guidance, FCC reiterated the Pacifica rule and identified three factors it would consider for enforcement:

(1) [T]he explicitness or graphic nature of the description or depiction of sexual or excretory organs or activities;
(2) whether the material draws on or repeats at length description of the sexual or excretory organs or activities;
(3) whether the material appears to pander or is used to titillate or whether the material appears to have been presented for its shock value. Id. at 8003.

At issue in FCC v. Fox was the application of 18 U.S.C. §1464, providing that “whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined . . . or imprisoned not more than two years, or both.”

There were three instances of indecency:

Cher saluted critics in an acceptance speech stating, “F ···‘em.”
Nicole Richie described “trying to remove cow's s··· out of a Prada purse” stating it was “not so f···ing simple,” and
NYPD Blue broadcast 30 seconds of nude buttocks of an adult female.

Fox, 2012 U.S. LEXIS 4661 at *12.

In 2004, after these incidents and a number of additional “fleeting expletives” by celebrities, FCC declared the F-word “actionably indecent” as “one of the most vulgar, graphic and explicit descriptions of sexual activity in the English language” and issued guidance taking a different approach to “isolated incidents.” Fox, 2012 U.S. LEXIS 4661 at *12. FCC’s new approach provided that the mere fact that specific words or phrases are not sustained or repeated does not rule out a finding of indecency for only a single use. The FCC recognized its “new approach”—adopted long after the Fox and ABC broadcasts—could not have provided adequate notice to the broadcasters. Accordingly, the FCC did not impose penalties for the Fox broadcast but did fine ABC for the NYPD Blue broadcast, finding the scene “patently offensive as measured by contemporary community standards.” Id. at 12.

In its first foray to the Supreme Court, the Court found that FCC’s regulation of decency was neither arbitrary nor capricious, the FCC had a rational basis for expanding the scope of its enforcement activity, and recognized that the FCC’s decision to “look at the patent offensiveness of even isolated uses of sexual or excretory words fits with the content-based approach [approved] . . . in Pacifica.” FCC v. Fox Televisions Stations, Inc., 556 U.S. 502, 517 (2009). Notably, the Court refused to reconsider the “less rigorous standard of [constitutional] scrutiny it provided for the regulation of broadcasters” in its landmark decision in Pacifica. Id. at 514-16.The Court remanded the case to the Second Circuit to consider the Constitutional issues. Id.at 530.

The Second Circuit addressed the respondent’s First Amendment challenges and found the FCC’s indecency policy unconstitutionally vague and invalidated the policy in its entirety. Fox Television Stations, Inc. v. FCC, 613 F.3d 317, 327 (2d Cir. 2009). The Second Circuit recognized inconsistency in how the FCC had enforced its rule, concluding that the application of exceptions created by the FCC “left broadcasters guessing whether an expletive would be deemed artistically integral to a program or whether a broadcast would be considered a bona fide news interview.” Fox, 613 F.3d at 334. The Second Circuit found the “vagueness inherent in the policy forced broadcasters to choose between not airing . . . controversial programs [or] risking massive fines and possibly even loss of their license.” Id. Based on the ruling by the Second Circuit, the case found its way back to the Supreme Court.

The Supreme Court stated that due process requires (1) that “regulated parties should know what is required of them so they may act accordingly”; and (2) “precision and guidance are necessary so that those enforcing the law do not act in an arbitrary and discriminatory way.” Fox, 2012 U.S. LEXIS 4661 at *24. The Court stated that “when speech is involved, rigorous adherence to those requirements is necessary to ensure that ambiguity does not chill protected speech.” Id. Thus, before the Court would get to the First Amendment question it required rigorous adherence to the due process requirements and, citing well-established precedent, stated as follows:

A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required. See Connally v. General Constr. Co., 269 U. S. 385, 391 (1926) (“[A] statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law”); Papachristou v. Jacksonville, 405 U. S. 156, 162 (1972) (“Living under a rule of law entails various suppositions, one of which is that ‘[all persons] are entitled to be informed as to what the State commands or forbids’” (quoting Lanzetta v. New Jersey, 306 U. S. 451, 453 (1939) (alteration in original))). This requirement of clarity in regulation is essential to the protections provided by the Due Process Clause of the Fifth Amendment. See United States v. Williams, 553 U. S. 285, 304 (2008). It requires the invalidation of laws that are impermissibly vague. A conviction or punishment fails to comply with due process if the statute or regulation under which it is obtained “fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement.” Id. at 11-12.

The Court noted that the FCC “policy in place at the time of the broadcast gave no notice to Fox or ABC that the fleeting expletive or a brief nudity could be actionably indecent.” Id. at 13. Although the Court did not reach the First Amendment issue, it applied a strict application of due process finding that the fair notice requirement would be problematic for any regulatory change but is particularly so “when applied to regulations in question, regulations, which touch upon ‘sensitive areas of basic First Amendment freedoms.’” Id.

The Court rejected the government “policy of forbearance” as sufficient to render the constitutional issue moot stating that “due process protection against vague regulations ‘does not leave [regulated parties] . . . at the mercy of noblesse oblige’ . . . [and] the government’s assurance that it will elect not to [take regulatory action] is insufficient to remedy the constitutional violation.” Id.at 14. Coincidentally, in an unrelated case also addressing regulated citizens relying on the generosity of nobility sitting in regulatory judgment, also on June 21, 2012, in Christopher v Smithkline, No. 11-204 2012 LEXIS 4657_(June 18, 2012) the Court refused to give deference to an agency’s interpretation of its own ambiguous regulations stating:

“[deference] creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby “frustrat[ing] the notice and predictability purposes of rulemaking.” It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference… We instead accord the Department’s interpretation a measure of deference proportional to the “‘thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.’” United Statesv. Mead Corp., 533 U.S. 218, 228 (2001) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

In FCC v Fox, the Court was asked to reconsider its ruling in Pacifica and to overrule its holding and require heightened scrutiny of governmental action under the First Amendment. Although the Court applied a strict due process analysis in light of First Amendment issues, it expressly did not reach Pacificaor the First Amendment implications of the Commission’s indecency policy. The Court vacated the judgments of the Second Circuit and expressly left the FTC free to modify its policy in light of the Court’s opinion. Fox, 2012 U.S. LEXIS 4661 at *32. Seven Justices joined the opinion, Justice Sotomayor did not participate and Justice Ginsberg wrote a short concurring opinion addressing Pacifica stating, “In my view the Court’s decision in [Pacifica] was wrong when it issued. Id. at *32 (Ginsburg, J., concurring in judgment). Time, technological advances, and the Commission’s untenable rulings in the cases now before the Court show why Pacifica bears reconsideration.” Id.

At the heart of FTC v Fox is how the government restricts and punishes speech, but the Court has put off for another day whether Pacifica will be overruled and the government will be subject to strict scrutiny under the First Amendment in the regulation of broadcast content. Regulatory vagueness and uncertainty and the potential for fines, criminal sanctions, and tarnished reputations restrict the free flow of information and cripple free speech. For now, it remains for the FCC to define and regulate the boundaries of decency. Although Congress might consider tackling this significant societal First Amendment issue, it appears too busy calling balls and strikes in baseball’s performance enhancing substance scandal and deciding to regulate boxing to concern itself with something as mundane as crafting the parameters of free speech for broadcasters.

Class Arbitration: Who Decides And When Are They Wrong?

Jack Carnegie — Mon, 11 Jun 2012 00:00:00 -0500

Who decides whether a particular arbitration clause allows class arbitration, and what are the parameters for making that decision? Those questions were recently considered by the Fifth Circuit in Reed v. Florida Metropolitan University, Inc., No. 11-50509, 2012 U.S. App. LEXIS 10048 (5^th Cir., May 18, 2012).

In that case, Jeffrey Reed obtained a bachelor’s degree in paralegal studies from the defendant, incurring $51,000 in student loan debt in the process. After discovering that neither law schools nor prospective employers would recognize his degree, he filed suit as a putative class action under the Texas Education Code on behalf of “any person who contracted to receive distance education from Everest University Online while residing in Texas.” The defendant moved to compel individual arbitration. The district court compelled arbitration, but held that the question of whether the parties’ agreement allowed class arbitration was “more appropriately decided by the arbitrator.” The arbitrator determined that the arbitration clause allowed class arbitration and the district court confirmed the award.

The Fifth Circuit reversed. It held that while the district court correctly referred the question of whether the agreement allowed class arbitration to the arbitrator, the arbitrator exceeded his powers in allowing class arbitration and the district court, therefore, erred in confirming the award.

When is the question of the propriety of class arbitration for the arbitrator?

It is well established that “[W]hether the parties have submitted a particular dispute to arbitration, i.e. the ‘question of arbitrability,’ is ‘an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.’” Howsam v. Dean Witter Reynolds, Inc., 537 U.S 79, 83 (2002). But is the availability of class arbitration a “question of arbitrability” that should ordinarily be decided by the court, or is it an issue for the arbitrator? As the Fifth Circuit pointed out, that issue has not been definitively decided by the U.S. Supreme Court. The closest decision is Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), where a plurality of four justices concluded that whether class arbitration is permitted is not an “arbitrability” matter for the court, but is a procedural matter for the arbitrator.

Ultimately, the Fifth Circuit in Reed found it unnecessary to confront that legal issue because it found the parties agreed to give the class arbitration issue to the arbitrator. Specifically, the parties agreed to adopt the AAA Commercial Rules, which two members of the panel interpreted to include the Supplementary Rules for Class Arbitration. Supplementary Rule 3 provides that “the arbitrator shall determine as a threshold matter … whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class…”. The Fifth Circuit concluded that by agreeing to the AAA Commercial Rules, the parties had explicitly agreed to allow the arbitrator to decide whether the agreement allowed class arbitration. Thus, the Fifth Circuit held that the district court did not err in submitting this issue to the arbitrator.

When does class arbitration exceed the arbitrator’s powers?

The Fifth Circuit next turned to the question of whether the district court erred in confirming the arbitrator’s award authorizing class arbitration. It began by noting that one of the most often litigated grounds for vacating an arbitration award is whether the arbitrators have “exceeded their powers.” 9 U.S.C. § 10(a)(4). While courts give a great deal of deference to arbitration awards, including an arbitrator’s interpretation of a contract, that deference is not unlimited. An arbitrator cannot “dispense his own brand of industrial justice.” An arbitrator’s award must at least “draw its essence” from the agreement at issue. But as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, even “serious error” does not permit his decision to be overturned. Despite this exceedingly deferential standard of review, the Fifth Circuit held that the arbitrator’s ruling allowing class arbitration should not have been confirmed.

In doing so, the Fifth Circuit relied first on Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010), where the U.S. Supreme Court considered an arbitration clause in a maritime contract, which the parties stipulated was silent (in the sense that they simply had no agreement) on the question of class arbitration. The parties agreed to submit the question of whether their arbitration agreement allowed class arbitration to a panel of arbitrators, which found that it did. The district court vacated the panel’s award on the basis that the panel acted in “manifest disregard” of the law. The Second Circuit reversed, concluding that because there was no federal maritime rule of custom and usage against class arbitration, and nothing in New York case law establishing a rule against class arbitration, the arbitrators’ decision was not in manifest disregard of either maritime or New York law.

The U.S. Supreme Court reversed the Second Circuit and held that the arbitrators had “exceeded their powers” by allowing class arbitration. The Supreme Court explained that where the agreement is silent on the issue of class arbitration, the arbitrator’s task is to identify the governing rule of law and whether it contains a “default rule” under which an arbitration clause is construed as allowing class arbitration in the absence of express consent. Instead of looking to governing law, the panel exceeded its authority by acting as a common law court to develop what it viewed as the best rule to apply. The Supreme Court held that the panel was not permitted simply to “impose its own conception of sound policy.” Rather the panel was bound by the parties’ agreement regarding what they agreed to arbitrate and with whom they agreed to arbitrate. Thus the panel exceeded its powers by imposing class arbitration on the parties when “the parties concurred that they had reached ‘no agreement’ on that issue.” Id. at 1775.

Last year, the Court, in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), went further and held that a state law invalidating class action waivers in arbitration agreements was preempted by the FAA. The arbitration clause in that case required arbitration of all disputes between the parties, but also explicitly required that all claims be brought in the party’s “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” The common thread is that the court must enforce the parties’ agreement, at least when it comports with the FAA.

After summarizing these two cases, the Fifth Circuit looked to the arbitrator’s rationale for allowing class arbitration. The arbitrator noted that the arbitration clause provided that “any dispute … no matter how described, pleaded or styled shall be resolved by binding arbitration” and that “any remedy available from a court under the law shall be available in the arbitration.” These two provisions, the arbitrator concluded, embodied an implicit agreement to class arbitration. The Fifth Circuit disagreed and held that “[n]one of the provisions the arbitrator identified … even remotely relates to or authorizes class arbitration.” It characterized the “any dispute” provision as a standard provision that may be found in many arbitration agreements, including the one found insufficient to authorize class arbitration in Stolt-Nielsen. Similarly, it rejected the arbitrator’s reliance on the “any remedy” provision. The court distinguished a “remedy” as being anything a court can do for a litigant who has been wronged,” while a class action is a “procedural device.” The court concluded that “[a]t most, the agreement in this case could support a finding that the parties did not preclude class arbitration, but under Stolt-Nielsen this is not enough.”

Finally, the Fifth Circuit held that the Education Code provisions on which the plaintiff in Reed based its claim could not be read to establish a “default rule” allowing class arbitration, as those provisions address only class litigation and say nothing regarding arbitration.

But is the Fifth Circuit right?

The court in Reed itself pointed out both the Second and Third Circuits have recently come to different conclusions. In Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), cert. denied Mar. 10, 2012, the district court, relying on Stolt-Nielsen, vacated a class arbitration award. The Second Circuit reversed. It distinguished Stolt-Nielsen as being narrowly based on the parties’ stipulation that there was no agreement regarding class arbitration, which effectively eliminated any question about the construction of the contract. On that basis, it held that the district court erroneously focused on whether the arbitrator correctly interpreted the arbitration agreement, and should instead have restricted its analysis to whether the agreement or law prohibited the arbitrator from reaching the class arbitration issue. Taking a different view as to how the “exceeding powers” ground for vacating an arbitration award is to be applied, the court ruled that if the issue was correctly submitted to the arbitrator for decision then “whether the arbitrator was right or wrong in her analysis, she had authority to make the decision” and did not exceed her powers by doing so. The Third Circuit recently made a similar ruling. Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3^rd Cir. 2012).

In short, the Fifth Circuit’s decision in Reed appears to create a circuit split as to how Stolt-Nielsen is to be applied. The ultimate answer as to when an arbitrator exceeds its powers by engaging in class arbitration may have to await yet another decision from the Supreme Court. More broadly, Reed evidences the difficulty of determining how much leeway arbitrators have in construing a contract before they “exceed their powers.”

Purposeful Appellate Pro Bono

Robert M. O'Boyle — Fri, 25 May 2012 00:00:00 -0500

Most appellate lawyers, or lawyers generally for that matter, have engaged in unintentional pro bono legal services. Now the Texas Supreme Court, and the Third, First, Second and Fourteenth Courts of Appeals, have a program whereby cases are screened and can be assigned for purposeful appellate pro bono.

A visit to one of the courts' web sites will take you to the necessary applications and also forms helpful to the pro bono appellate lawyer. Forms and practice aids are likely to become more prevalent once these programs, which are in their relative infancy, have matured. Lawyers can sign up to be lead counsel or mentor other lawyers handling such cases.

With the ever-dwindling number of civil cases going to trial and being appealed, this is an excellent opportunity for counsel to gain valuable experience and exposure to the appellate courts while ensuring that a larger group of citizens has meaningful access to the justice system.

Traps for Trial Lawyers: Statute of Limitations in Contract Cases

Judith R. Blakeway — Mon, 14 May 2012 00:00:00 -0500

Determining the appropriate statute of limitations in contract cases can be tricky. As every trial lawyer knows, in Texas the default statute of limitations applicable to a claim for breach of contract is four years. Tex. Civ. Prac. & Rem. Code §§ 16.004(a), (c), and 16.051.

As a general rule a cause of action accrues on breach. But sometimes the discovery rule can delay accrual.

And particular contracts may be governed by more specific statutes. For example, an action for breach of a sales contract has a four-year statute. Tex. Bus. & Comm. Code § 2.725. The cause of action accrues when the breach occurs regardless of the aggrieved party’s lack of knowledge of the breach. Id. A breach of warranty occurs on tender of delivery. Id.

Thus, a claim for breach of contract may expire before the buyer is even aware that he has been provided nonconforming goods. In the case of a latent defect which may not manifest itself until more than four years after the sale, the claim may be barred before any damages have been incurred. Section 2.725 rejects the discovery rule except for warranties explicitly extending to future performance of goods.

A claim for default under a lease contract must be commenced within four years after the cause of action accrued. Tex. Bus. & Comm. Code § 2A.506. A cause of action for default accrues when the act or omission on which the default or breach is based is or should have been discovered by the aggrieved party. Id.

Section 2.725 and Section 2A.506 both provide that parties can by agreement shorten the limitations period to not less than one year.

While parties can, by agreement in advance, limit the time for bringing a suit on a contract to a shorter period than that fixed by the otherwise applicable statute of limitations, Section 16.070 of the Civil Practice and Remedies Code provides that a contractual provision that establishes a limitations period shorter than two years is void as a matter of law:

CPRC § 16.070. Contractual Limitations Period

(a) Except as provided by Subsection (b), a person may not enter a stipulation, contract, or agreement that purports to limit the time in which to bring suit on the stipulation, contract, or agreement to a period shorter than two years. A stipulation, contract, or agreement that establishes a limitations period that is shorter than two years is void in this state.
(b) This section does not apply to a stipulation, contract, or agreement relating to the sale or purchase of a business entity if a party to the stipulation, contract, or agreement pays or receives or is obligated to pay or entitled to receive consideration under the stipulation, contract, or agreement having an aggregate value of not less than $500,000.

Tex. Civ. Prac. & Rem. Code § 16.070.

Presumably, Sections 2.725 and 2A.506, directed expressly to sales and leases, control over the more general provisions of Section 16.070.

Be Careful When You Say Your Prayers

P. Michael Jung — Tue, 08 May 2012 00:00:00 -0500

Your Sunday School teacher always taught you to say your prayers, right? Well, the Supreme Court of Texas recently taught a litigant to say her prayers RIGHT. And the lesson was an expensive one.

Lenk v. FDIC was a suit by the administrator of a decedent’s estate against the bank that held the estate’s funds. A former probate clerk, who apparently had learned a lot during his tenure about bank accounts belong to estates, looted the estate’s account by using forged documents, eventu-ally getting away with over $148,000. He did this with dozens of other estates as well. Ulti-mately, he got caught and was sentenced to ten years in prison. And so, the administrator turned for redress to (you guessed it) the bank.

The bank moved for summary judgment, and the administrator moved for partial summary judgment on all issues except her attorneys’ fees. The trial court granted the bank’s motion and denied the administrator’s. The administrator appealed; her brief urged the Court of Appeals to reverse the judgment and render judgment in her favor. The court did almost exactly that, re-versing and remanding to the trial court for entry of judgment in the administrator’s favor. The bank sought Supreme Court review, and the administrator cross-petitioned based on the Court of Appeals’ refusal on rehearing to remand the attorneys’ fees issue.

The Supreme Court granted both petitions. It held that the bank was liable, rejecting the bank’s statute of limitations defense on the ground that a cause of action for breach of the account agreement accrued when the administrator made demand for the funds, separate and apart from any cause of action for wrongful allowance of withdrawals by the fraudster. But it denied the administrator’s request for a remand on the attorneys’ fee issue. Why? Because the administra-tor had not briefed the issue in the Court of Appeals, and so had waived it.

The problem was that the administrator had gotten exactly what she had prayed for – effectively a reversal and rendition on her damage claim against the bank. Had she prayed a little bit longer, asking not only for that relief but also for a remand to the trial court for consideration of an issue (attorneys’ fees) not yet addressed by that court, the Court of Appeals would presumably have given it to her, no cross-petition for review would have been necessary, and the Supreme Court would have affirmed the whole thing. She apparently realized her mistake after the Court of Ap-peals ruled, and moved for rehearing, but as we all know (or should know), rehearing is too late to seek relief not requested in your brief.

Careful appellate brief-writers write the prayer for relief early in the drafting process, not at the end of it. Not only does imagining what you’ll get if (when!) you hit a home run improve your spirits when drafting the rest of the brief, but it helps focus the arguments that will get you there. And thinking about everything you will want if you win – supersedeas bond relief, costs, partial remands, and everything else – will save you from having to make that awkward call to the cli-ent: “We won, but …”

Discovery of Computers and Other Electronic Devices—How to Take Matters into Your Own Hands

Jadd F. Masso — Tue, 17 Apr 2012 00:00:00 -0500

It is now standard in almost every case to seek discovery of electronic data. When a responding party fails to produce all its responsive electronic data, courts may order the direct examination of its computers and other electronic devices (such as mobile phones and PDAs). Such work is typically done by employing a “forensic” computer expert to access the computers or devices, copy their contents, and search for relevant information.

In general, Rule 196.4 controls discovery of electronic data. In In re Weely Homes, L.P.,[1] the Texas Supreme Court established the standard for obtaining direct, “forensic” examination of an opposing party’s computers. Last week, the Dallas Court of Appeals in In re Jordan[2] granted a writ of mandamus when this standard was not correctly applied. These cases suggest a number of best practices to follow when electronic data is sought.

In your requests for production:

Include a request for responsive electronic data (possibly as part of your definition of “document”) in accordance with Rule 196.4.
Be specific in describing the information sought. Requesting “defendant’s computer hard drive” is ordinarily not sufficient. Requests along the lines of “emails regarding plaintiff’s contract with defendant” or “records of transactions with plaintiff” are much better.

If the response or additional discovery suggests that responsive electronic data has not been produced, a motion to compel may be appropriate to obtain a forensic search. Such an order will only be proper upon a showing of the following:

The characteristics of the particular devices you wish to search.
Your forensic expert’s familiarity with the devices to be searched.
The likelihood that the proposed search methodology will yield the information sought.

Finally, a protective order may be advisable to preserve the confidentiality of any sensitive information that may be collected in the process.

[1] 295 S.W.3d 309 (Tex. 2009).

[2] No. 05-12-00240-CV (Tex. App.—Dallas April 3, 2012).

CPRC § 18.061 Means You Can Say You’re Sorry

Judith R. Blakeway — Tue, 03 Apr 2012 00:00:00 -0500

There is a school of thought that doctors would be sued less often if they apologized to their patients. But apologizing is fraught with peril. If you did nothing wrong, what are you apologizing for? Fear that an expression of sympathy will be used as an admission of liability has sealed many lips.

On the other hand, failure to express regret may also be used against you. If you do not say anything, plaintiff’s lawyers may argue that you are a cold, unfeeling monster who never expressed the least remorse or sympathy for the plaintiff’s injuries.

Civil Practice and Remedies Code § 18.061 provides the solution to this dilemma. Expressions of sympathy are not admissible to prove liability but statements concerning negligence or culpable conduct are:

CPRC § 18.061. COMMUNICATIONS OF SYMPATHY

(a) A court in a civil action may not admit a communication that:

(1) expresses sympathy or a general sense of benevolence relating to the pain, suffering, or death of an individual involved in an accident;

(2) is made to the individual or a person related to the individual within the second degree by consanguinity or affinity, . . .; and

(3) is offered to prove liability of the communicator in relation to the individual.

* * * *

(c) Notwithstanding . . . a communication, . . . which also includes a statement or statements concerning negligence or culpable conduct pertaining to an accident or event, is admissible to prove liability of the communicator.

For example, if you say “I’m so sorry, are you hurt?” that is not admissible to prove liability. On the other hand, if you say “I’m so sorry, I didn’t see you because I was texting on my cell phone” that is admissible to prove liability. So be contrite, but don’t confess.

Arbitration: What is a “Reasoned Award” and Why Does It Matter?

Jack Carnegie — Tue, 20 Mar 2012 00:00:00 -0500

It is well known that the standards for vacating an arbitration award are generally quite narrow.

The Federal Arbitration Act states that an award may be vacated:

1. Where the award was procured by corruption, fraud, or undue means.
2. Where there was evident partiality or corruption in the arbitrators, or either of them,
3. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or any other misbehavior by which the rights of any party have been prejudiced.
4. Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter was not made.
Note the common thread running through these provisions: “corruption,” “fraud,” “evident partiality,” misconduct,” “exceeded their powers.”

Recognizing the difficulty of challenging an award under these standards, parties began drafting arbitration agreements designed to provide for judicial relief where the award was just wrong. These included provisions to the effect that the award would be reviewable for errors of law on the same basis as a bench trial. The United States Supreme Court, however, held that such provisions were unenforceable under the FAA because the statutory grounds for vacating an arbitration award were exclusive. Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). Three years later, the Texas Supreme Court reached the opposite result under the Texas Arbitration Act. Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011). Under these decisions, the enforceability of clauses providing for expanded judicial review depends on the law applicable to the arbitration agreement.

Parties have also sought to expand the scope of judicial review of arbitration awards by crafting their arbitration agreements to impose limits on the arbitrator’s authority, or by imposing requirements as to how the arbitrator must render the award. One of the more common provisions calls for the arbitrator to render a “reasoned award.”

But just what is a reasoned award and what is the impact of such a provision on judicial review of an award? One aspect of that question was recently examined by the Fifth Circuit in Rain CII Carbon, LLC v. ConocoPhillips Co., Cause No. 11-30669 (5th Cir., March 9, 2012).

Rain involved a long term agreement for ConocoPhillips to supply Rain with green anode coke. The agreement included a formula for capturing the market price of green coke. If either party concluded that the formula no longer resulted in a market price, the party was entitled to reopen price negotiations. If the negotiations were unsuccessful, the issue was to be submitted to “baseball” arbitration under which each party was to submit a proposal and the arbitrator was required to select one of the two. The arbitration agreement also called for a “reasoned award.”

In 2008, ConocoPhillips reopened price negotiations. The parties were unable to agree on a new price so the matter was submitted to arbitration. Ultimately, the arbitrator sided with Rain and issued an 8 page decision awarding Rain $17.7 million. In the award, the arbitrator set forth the parties’ contentions and then adopted Rain’s formula, stating:

Based upon the testimony, exhibits, arguments, and submissions presented to me in this matter, I find that the price formula contained in Section 4 of the Green Anode Coke Sales Agreement dated August 23, 2005, as amended January, 2007, and July, 2008, shall remain in effect for the balance of the term as stated in the contract.

ConocoPhillips sought to vacate the award on the grounds that the arbitrator had “exceeded his powers” by failing to render a “reasoned award.” In particular, ConocoPhillips based its argument on the summary nature of the arbitrator’s statement that, based upon all the evidence, he found that the initial price formula should remain in effect.

In considering ConocoPhillips’ argument, the Fifth Circuit first noted that its only previous discussion of what constituted a “reasoned award” was contained in a footnote stating that, “[A] reasoned award is something short of findings and conclusions but more than a simple result.” Sarofim v. Trust Co. of the W., 440 F.3d 213, 215 n.1 (5th Cir. 2006). The Court found more analysis in an Eleventh Circuit decision, which reasoned that there is a “spectrum of increasingly reasoned awards” ranging from a “standard award,” which simply announces a result, to full “findings of fact and conclusions of law,” which it characterized as an “exacting standard.” Cat Charter, LLC v. Schurtenburger, 646 F.3d 836, 844-46 (5th Cir. 2006). The Eleventh Circuit adopted Sarofim’s conclusion that “a reasoned award is something short of findings and conclusions but more than a simple result,” and declined to vacate the award.

The Fifth Circuit did the same in Rain. In doing so, it pointed to the fact the award thoroughly described Rain’s contention that Conoco had failed to show that the initial formula failed to yield a market price, before it summarily concluded that the evidence supported that contention. In light of the deference employed when evaluating arbitral awards, the Court concluded that the arbitrator had rendered a sufficiently “reasoned award.”

What does this mean in practical terms? If you want a detailed award setting out findings of fact and conclusions of law, you must provide for more than a “reasoned award” in your arbitration agreement. If the arbitrator then fails to issue such an award, it may be a basis for vacatur on the ground that the arbitrator exceeded his powers. In cases governed by the Texas Arbitration Act, specifically requiring findings and conclusions may be even more significant, particularly where the agreement provides for expanded judicial review for errors of law. In those cases, explicit findings can constrain the grounds on which an appellate court may affirm a decision.

When an Award of Attorney's Fees must be Superseded, and all that Mumbo-Jumbo

Robert M. O'Boyle — Mon, 27 Feb 2012 00:00:00 -0500

The Dallas Court of Appeals, in Popcap Games, Inc. v. MumboJumbo, 317 S.W.3d, 913, 914 (Tex. App. -- Dallas 2010, pet. filed), held that attorney’s fees awarded under a statute are not “compensatory damages” that must be superseded on appeal under Sec. 52.006(a) of the Texas Civil Practices And Remedies Code.

Citing the 2003 amendments to Chapter 52 of the Texas Civil Practices And Remedies Code, which was part of the infamous HB4 passed in 2003, the Court agreed with the Austin Court of Appeals in Shook v. Walden, 304 S.W.3d 910, 918-919 (Tex. App. – Austin 2010, no writ), that the 2003 amendments reflect a policy shift away from a primary goal of protecting judgment creditors toward the goal of protecting judgment debtors’ ability to appeal.

The Court observed that it would reach a different conclusion in the event a contract between the parties provided that attorneys’ fees could be recovered as compensatory damages.

The New Federal Courts Jurisdiction and Venue Act: Top 10 Things You Need to Know

Judith R. Blakeway — Mon, 06 Feb 2012 00:00:00 -0500

On December 7, 2011, President Obama signed into law the Federal Courts Jurisdiction and Venue Clarification Act of 2011 which took effect on January 6, 2012. The law applies to all state and federal suits commenced on or after that date. The law clarifies rules affecting removal and venue.

Here's what you need to know.

1. Each defendant has 30 days from the date of service on that defendant to remove (rather than the date of service on the first served defendant or last served defendant).

2. All defendants must consent to removal.

3. After 30 days a defendant still may remove a complaint without specific allegations of the amount in controversy if it receives discovery from a plaintiff indicating that the jurisdictional amount is met.

4. A defendant can allege the amount in controversy in a removal notice when the initial pleading seeks non-monetary relief.

5. The standard for proving the amount in controversy is preponderance of the evidence.

6. For purpose of venue, residency is defined as a natural person's state of domicile.

7. Parties may stipulate to transfer to a district where suit could not originally have been brought "for the convenience of the parties and witnesses and in the interest of justice."

8. If a federal claim is joined with a claim not within the district court's original or supplemental jurisdiction or which has been made nonremovable by statute, the entire action may be removed and the unrelated state claims severed and remanded.

9. In determining diversity jurisdiction, permanent resident aliens are treated as citizens of the states in which they are domiciled.

10. For venue purposes, a natural person, including a permanent resident alien, resides where domiciled. A corporation is deemed to reside, if a defendant, in any judicial district where subject to personal jurisdiction and, if a plaintiff, only where its principal place of business is located.

“Interlocutory” Appeal Spells the End for Texas Abortion Informed Consent Litigation

P. Michael Jung — Mon, 30 Jan 2012 00:00:00 -0500

Q. When is an interlocutory appeal not interlocutory?

A. When it’s final.

On January 10, the U.S. Court of Appeals for the Fifth Circuit decided an appeal from a preliminary injunction that had blocked enforcement of Texas’ new abortion informed-consent statute. The Texas statute requires a physician to perform and display a sonogram of the fetus, play the heart sounds of the fetus, and explain to the woman the results of each procedure, and establishes a 24-hour waiting period in most cases. It was scheduled to take effect on September 1 of last year, but was enjoined by a federal district court in Austin.

The Fifth Circuit reversed and dissolved the injunction. The court’s opinion addresses important issues of constitutional law, and is of obvious interest to the lay public and press because of its controversial subject-matter and result. But the procedural outcome of the appeal reveals an important truth about certain types of cases where a preliminary injunction is appealed on an interlocutory basis: the appeal may wind up determining the merits of the entire case.

The Fifth Circuit based its decision on the first required element for a preliminary injunction – a probability of ultimate success on the merits. Because the issues were primarily legal rather than factual in nature, and the record had been sufficiently developed, the court proceeded to the merits of the constitutional questions, and determined that the statute was constitutional. It accordingly held that the plaintiffs had no likelihood of success on the merits, and that the injunction was therefore erroneous.

Procedurally, of course, this did not end the case, which was remanded to the district court for further proceedings consistent with the opinion. But the appellate decision effectively sounds the death knell for the plaintiffs’ claims in the district court. At best, all that remains is to resolve any peripheral issues and obtain a final judgment, which will be controlled by the appellate opinion. The Fifth Circuit presumably recognized as much; it directed that any further appeals in the matter would be heard by the same panel.

In an appeal from a preliminary injunction, the appellate court does not ordinarily review the merits, but instead confines itself to the question of whether the trial court abused its discretion. “Probability of success on the merits” is usually part of that discretionary decision. But a trial court has no discretion to misapply the law to undisputed facts. And so, where the issues are primarily legal in nature, what the appellate court says about the probability of success on the merits will have a profound effect on the ultimate outcome of the case in the trial court.

We may get a chance to see this principle in action at a higher level in the near future. The Supreme Court of the United States has granted certiorari in an interlocutory appeal from a preliminary injunction blocking implementation of several portions of Arizona’s controversial new statute addressing illegal immigration. In the course of deciding whether the plaintiffs in that case will “likely” win, the Court may well effectively decide whether they do win.

Careful With That Nonsuit, You Might Subject Yourself to Attorneys’ Fees

Jadd F. Masso — Mon, 09 Jan 2012 00:00:00 -0500

A few months ago, the Texas Supreme Court decided Epps v. Fowler, 54 Tex. Sup. Ct. J. 1759 (Tex. Aug. 26, 2011), in which it attempted to clarify if and when a defendant may recover its attorneys’ fees as a “prevailing party” when a plaintiff voluntarily nonsuits its case. [1] In a Split decision, the Court held that... it depends.[2]

Under the following circumstances, a plaintiff’s nonsuit will cause the defendant to be considered a “prevailing party,” opening the door to a claim for attorneys’ fees:

If the defendant can show that the nonsuit was taken “in order to avoid an unfavorable judgment.”
If the nonsuit is with prejudice (since such a nonsuit is a judgment on the merits).

Under other circumstances—i.e., a nonsuit without prejudice which the defendant cannot show to have been taken “in order to avoid an unfavorable judgment”—a defendant will not be considered a “prevailing party” and will not be able to pursue attorneys’ fees.

What does Epps mean for plaintiffs?

Many practitioners think of the Texas practice of “nonsuit” as allowing litigants to drop unwanted claims voluntarily, without penalty, at any time before resting its case at trial. But the framework set out in Epps suggests that if you wait until it is arguably obvious that a particular claim is a loser, you may not escape an attorney fee claim by nonsuiting. Plaintiffs may be best advised to think twice before pleading a potentially meritless claims, or to at least take a nonsuit before the “writing is on the wall.”

What does Epps mean for defendants?

Defendants may be inclined to file a motion for an award of attorneys’ fees any time a plaintiff nonsuits a claim. After all, if not to avoid an “unfavorable judgment,” why else would a plaintiff take a nonsuit? Will plaintiffs now have to come up with some non-merits-related reason for a nonsuit in order to avoid the assessment of fees? As in any case in which attorneys’ fees may be available, defendants should plead their request for fees from the beginning; waiting until after the plaintiff’s nonsuit might be viewed as too late.

[1] Of course, this analysis assumes that attorneys’ fees are available in the case; litigants may recover attorneys’ fees only if specifically provided for by statute or contract.

[2] Justice Hecht authored a colorful dissent focusing on the meaning of the word “prevail.” Hecht, joined by Justices Medina and Johnson, would have held that defendants always prevail when claims against them are nonsuited and accordingly should always be entitled to seek attorneys’ fees.

Can a Court Grant Injunctive Relief Pending Arbitration?

Judith R. Blakeway — Tue, 03 Jan 2012 00:00:00 -0500

What happens when a dispute is subject to an arbitration agreement but, unless a court enters an injunction preserving the status quo pending arbitration, the arbitration proceeding will be rendered meaningless? Does a motion to compel arbitration strip a court of its power to grant an injunction?

Suppose, in a case involving an alleged Ponzi scheme, a receiver seeks a preliminary injunction pending arbitration to freeze funds which may otherwise be transferred beyond the reach of creditors. Can he get one, or does the court have to stay for arbitration?

Suppose a professional basketball team has a dispute with one of its players. Can it obtain a preliminary injunction prohibiting the player from joining another team pending arbitration?

Suppose a company claims it has the right to purchase another company’s assets but the asset purchase agreement has an arbitration provision. Can the company get an injunction to stop a sale of the assets to another company before arbitrating because there may not be much point in arbitrating after the assets are transferred?

One of the drawbacks of arbitration, despite its purported speed and efficiency, is that the procedure takes time. The parties have to agree on the arbitrators, set an arbitration date, and conduct a hearing. If a party must go through the administrative process before obtaining injunctive relief, that party may suffer irreparable harm which may render any arbitration award meaningless.

Oddly, in Texas the answer to the question whether injunctive relief can be obtained pending arbitration may depend on whether the dispute is in state court or federal court.

In federal court every circuit to consider the question, except the Eighth Circuit, has held that a court can, and should, grant a preliminary injunction in an arbitrable dispute whenever an injunction is necessary to preserve the status quo pending arbitration.[i]

The Fifth Circuit acknowledged the circuit split in RGI Inc. v. Tucker & Associates, Inc., 858 F.2d 227, 229 (5th Cir. 1988), but concluded that it could avoid the issue because the agreement in that case specified that if the dispute was submitted to arbitration, the contract would continue in full force, authorizing an injunction.

The Fifth Circuit recently ducked the question again in Janvey v. Alguire, 2011 U.S. App. LEXIS 15262 (5th Cir. July 27, 2011). There, the court decided it need not reach the question because the district court had not yet ruled on the motion to compel arbitration. It posed the issue as: Whether a court may preserve the status quo pending its resolution of a motion to compel arbitration, not pending the actual arbitration itself. The Fifth Circuit agreed that the district court had the power to enter a preliminary injunction to preserve the status quo but expressly “reserved for another day the issues of whether the district court divests itself of the discretion to maintain the status quo once it decides the case before it is arbitrable and, if not, what the limits of that discretion may be.”

In contrast to most federal courts, the two state court cases that have considered the question have held that the issuance of preliminary injunction is not appropriate when the underlying claims are subject to arbitration.[ii]

Because both the federal and state courts were construing the Federal Arbitration Act (FAA) one would think the results would be consistent. However, the Texas Supreme Court has not always agreed with the federal courts’ interpretation of the FAA.[iii] Perhaps the Texas Supreme Court will have occasion to address the issue one day.

[i] Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1st Cir. 1986)(enjoining debtor from disposing of assets pending arbitration); Roso-Lino Beverage Distribs., Inc. v. The Coca-Cola Bottling Co., 749 F.2d 124 (2d Cir. 1984)(reversing denial of preliminary injunction because district court believed decision to refer dispute to arbitration stripped it of power to grant injunctive relief); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir. 1972)(affirming preliminary injunction enjoining basketball player from playing for another club pending arbitration); Ortho Pharm. Corp. v. Amgen, Inc., 882 F.2d 806 (3rd Cir. 1989)(ordering biotechnology company to withdraw request to FDA pending arbitration); Merrill Lynch, Pierce Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048 (4th Cir. 1985)(upholding injunction preventing former employee from using records or soliciting clients pending arbitration); Performance Unlimited, Inc. v. Questar Publishers Inc., 52 F.3d 1373 (6th Cir. 1995)(district court erred in holding that it could not enter preliminary injunction because dispute was subject to arbitration); Sauer-Getriebe KG v. White Hydraulics Inc., 715 F.2d 348 (7th Cir. 1983), cert. denied, 464 U.S. 1070 (1984)(enjoining transfer of assets until arbitration); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Salvano, 999 F.2d 211 (7th Cir. 1993)(recognizing equitable power of court to grant injunctive relief in arbitrable dispute); PMS Distrib. Co. v. Huber & Suhner, A.G., 863 F.2d 639 (9th Cir. 1988)(holding arbitration agreement does not strip court of authority to issue an injunction); Merrill Lynch, Pierce Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286 (8th Cir. 1984)(preliminary injunction against former employees to prevent them from using former employer’s records and soliciting clients pending arbitration was precluded by Section 3 of the Federal Arbitration Act). But see Ferry-More Seed Co. v. Food Corn, Inc., 729 F.2d 589 (8th Cir. 1984)(two months after the Hovey decision, another Eighth Circuit panel affirmed grant of preliminary injunction in arbitrable dispute.)

[ii] Metra United Escalante v. The Lynd Co., 158 S.W. 3d 535, 539 (Tex. App.—San Antonio 2004, no pet.)(issuance of preliminary injunction not appropriate when the underlying claims are subject to arbitration under the FAA); Welderman/Matz Interest LLP v. Capital Corp., 140 S.W. 3d 879 (Tex. App.—Houston [14th Dist.] 2004)(injunctive relief requiring the court to consider the merits of the underlying dispute would interfere with arbitrators’ independent determination of the issues).

[iii] Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011)(holding that the Texas Arbitration Act allows parties to contract for expanded judicial review of arbitration awards, rejecting the U.S. Supreme Court’s contrary interpretation of the FAA).

Keeping Your Expert, and Yourself, Out Of Trouble

Jack Carnegie — Mon, 19 Dec 2011 00:00:00 -0500

The Texas Supreme Court has a penchant for taking a series of related cases to examine various aspects of a particular issue. Recently, the Court’s interest has turned to experts. Understanding just what the Court has held is critical at trial and later, on appeal, to know when your expert’s opinion passes muster and when your opponent’s doesn’t. Here is a summary of a few of these recent cases; in all of them, the Court held that the expert’s opinion was “no evidence”:

The experimental data should fit the facts.

In Merck & Co., Inc. v. Garza, 347 S.W.3d 256 (Tex. 2011), the Court held that a study showing patients taking Vioxx had 5 times as many heart attacks as those taking Naproxin was no evidence that the plaintiff’s heart attack was caused by Vioxx. The reason was that those in the study had taken 50 mg. of Vioxx for a median duration of 9 months, while the plaintiff took only half as much for 25 days.

The expert’s testimony should actually address causation.

In BIC Pen Corp. v. Carter, 346 S.W.3d 533 (Tex. 2011), the plaintiff’s expert testified that the “sparkwheel force” required to operate a child resistant lighter did not meet specifications. “Sparkwheel force,” however, was only one of five child resistant factors and the expert did not show that reduction in sparkwheel force alone increased the number of children who could operate the lighter. More importantly, the testimony did not show that this particular child could not have operated the lighter even if it had met specifications.

Equally plausible theories should be ruled out.

In Wal-Mart Stores Inc. v. Merrell, 313 S.W.3d 837 (Tex. 2010), the plaintiff’s expert opined that a fire was caused when a halogen lamp exploded. The defendant’s theory was that improperly disposed of smoking materials caused the fire. The plaintiff’s expert attempted to rule out smoking as a cause because he did not find any smoking materials where the fire started. But then again, he did not find any glass shards from the halogen lamp either. The Court held that the expert’s opinion was “no evidence” to support the verdict.

If the expert’s theory is testable, the expert should test it.

In Whirlpool v. Camacho, 298 S.W.3d 631 (Tex. 2009), the plaintiff’s expert opined that a fire broke out when a clothes dryer exhaust tube became clogged and caused lint particles to re-circulate through the heater element where they ignited. The defense argued that the lint particles were too small to ignite the clothes and that the circulating clothes would have a stop, drop and roll effect that would extinguish any fire. The Court held that because the plaintiff’s theory could have been, but was not, tested it amounted to nothing more than the expert’s subjective conclusory opinion and constituted “no evidence” to support the verdict.

What can you take away from this?

In light of the Supreme Court’s careful scrutinizing of expert opinions, an inadequately supported opinion will be fodder for appeal to those who know what to look for.

Can a Court Compel a Party Who Did Not Sign an Arbitration Agreement to Arbitrate?

Judith R. Blakeway — Mon, 05 Dec 2011 00:00:00 -0500

Because arbitration is contractual, a party who has not agreed to arbitrate cannot be forced to do so. Arbitration is a matter of consent, not coercion.

In a pair of recent opinions the Fifth Circuit considered whether non-signatories to arbitration agreements can nevertheless be compelled to arbitrate. In Covington v. Aban Offshore Limited, 2011 U.S. App. LEXIS 16508 (5th Cir. Aug. 10, 2011) and DK Joint Venture 1. v. Weyand, 2011 U.S. App. LEXIS 16107 (5th Cir. Aug. 4, 2011), the Fifth Circuit reversed district court orders compelling arbitration by non-signatories.

In Covington, Aban hired Beacon to refurbish its oil rig. Russell and Guy Covington were officers and employees of Beacon. Guy signed the contract on behalf of Beacon. Russell never signed the contract at all. The contract had an arbitration clause. A dispute arose. Aban initiated arbitration against Beacon and the Covingtons individually. The Covingtons sued in state court, seeking a declaration that they were not required to arbitrate. Aban removed the case to federal court and obtained an order compelling the Covingtons to arbitrate.

The Fifth Circuit reversed, holding that under settled principles of agency and contract law, the fact that Beacon entered into a contract with Aban did not cause Beacon’s agents, the Covingtons, to be personally bound by that agreement, even though Guy Covington signed the contract on behalf of Beacon. Under established agency law, when an agent signs a contract on behalf of a disclosed principal, the principal is a party to the contract but the agent is not. Therefore, the Covingtons were not bound by the terms of Beacon’s arbitration agreement with Aban.

Weyand was an appeal from a district court order confirming an arbitration award. The plaintiffs were six businesses who claimed that they had been defrauded. Weyand and Thiessen were CEO and CFO respectively of defendant corporations. Plaintiffs and defendant corporations entered into contracts with arbitration provisions. Plaintiffs initiated arbitration against defendant corporations and Weyand and Thiessen. After winning, plaintiffs moved to confirm the arbitration award in federal court. Weyand and Thiessen protested that they had not agreed to arbitrate anything. Nevertheless, the district court entered judgment on the award against them.

The Fifth Circuit reversed, holding that Weyand and Thiessen were not personally bound by the arbitration agreement and that the arbitrators exceeded their powers in rendering an arbitration award against them.

The court rejected the argument that it had to defer to the arbitrators’ determination of their own jurisdiction, holding that it is for the court, not the arbitrators, to decide whether a party has agreed to arbitrate.

Next, plaintiffs argued that Weyand was estopped because, when he was a defendant in another suit involving different plaintiffs, he successfully filed a motion to compel arbitration. The court was not persuaded that there was any inconsistency between Weyand’s position in the other case and the present case. The key question, said the court, was whether the party resisting arbitration is a signatory or not. In the present case the parties resisting were not signatories to the arbitration agreements. In contrast, in the other case, the parties resisting arbitration were signatories to an arbitration agreement. Because Weyand had not taken inconsistent positions, the plaintiffs’ estoppel argument failed.

Personally signing an arbitration agreement is not the only way to agree to arbitrate. Non-signatories may be bound to arbitration agreements under normal principles of agency and contract law demonstrating consent including:

Incorporation by Reference. An unsigned arbitration clause can be incorporated by reference into another contract that is signed.[1]
Assumption. A non-signatory can assume an obligation to arbitrate.[2]
Agency. An agent can bind his principal to an arbitration agreement.[3]
Alter Ego. A non-signatory can be bound to arbitrate by the signature of its alter ego.[4]
Estoppel. A non-signatory seeking the benefits of a contract containing an arbitration provision may be compelled to arbitrate on the theory that he cannot enjoy the benefits of a contract without bearing its burdens.[5]
Third-party Beneficiary. A non-signing third-party beneficiary of a contract containing an arbitration clause can be required to arbitrate.[6]
Derivative Claims. Non-signatories whose claims are derivative of a signatory’s rights can be compelled to arbitrate.[7]

These cases are all permutations on the rule that a party who consents to arbitration can be compelled to honor his agreement.

Even though a signatory to an arbitration agreement cannot compel a non-signatory to arbitrate, the converse is not true. A non-signatory to an arbitration agreement can compel a signatory to arbitrate. In a recent Texas Supreme Court decision, a non-signatory to a contract containing an arbitration clause enforced arbitration against a signatory to the agreement. In re Rubiola, 334 S.W.3d 220, 226 (Tex. 2011). In that case, the Salmons bought a house from Greg Rubiola. The Salmons financed the purchase with Rubiola Mortgage Co. The loan agreement provided for arbitration of all disputes between the “parties” which was defined to include officers and employees of the corporate signatory. When one of the corporate officers of the finance company (who was the agent for, and brother of, the seller of the house) was sued, the Supreme Court held that he was a “party” entitled to compel the home buyer/borrower to arbitrate.

To summarize: A non-signatory to an arbitration agreement can compel a signatory to arbitrate, but a signatory cannot compel a non-signatory to arbitrate.

[1] In re Bank One, 216 S.W.3d 825, 826 (Tex. 2007)(per curiam).

[2] Ace Am. Ins. Co. v. Huntsman Corp., 255 F.R.D. 179, 193 (S.D. Tex. 2008).

[3] Rice Co. (Suisse), S.A. v. Precious Flowers, Ltd., 523 F.3d 528, 538 (5th Cir. 2008).

[4] Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356-58 (5th Cir. 2003).

[5] Graves v. BP America, Inc., 568 F.3d 221, 223-24 (5th Cir. 2009); Hellenic Inv. Fund, Inc. v. Det. Norske Veritas, 464 F.3d 514, 517-20 (5th Cir. 2006); In re Kellog Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005); In re Weekley Homes, L.P., 180 S.W.3d 127, 135 (Tex. 2005).

[6] J.P. Morgan Chase & Co. v. Conegie ex. re. Lee, 492 F.3d 596, 600 (5th Cir. 2007).

[7] In re Labatt Food Service, L.P., 279 S.W.3d 640, 642 (Tex. 2009); In re Jindal Saw Ltd., 289 S.W.3d 827 (Tex. 2009).

Is this damage measure for the dogs?

Robert M. O'Boyle — Mon, 21 Nov 2011 00:00:00 -0500

Time to bone up on damages recoverable for loss of a pet animal, such as a dog.

In Medlen v. Strickland, the Fort Worth Court of Appeals on November 3, 2011, unleashed a measure of recovery not seen in over one hundred years of Texas jurisprudence on the loss of pets: recovery of sentimental-value damages.

After the Medlen's pet dog, Avery, was mistakenly put to sleep by an animal shelter the Medlens brought suit to recover damages based Avery's sentimental value to his family. The trial court dismissed, based upon long-standing precedent that only the market value of an animal can be recovered. The Court of Appeals disagreed.

Relying upon later decisions that have held that where property has no market value damages can be based upon the animal's instrinsic or sentimental value, the court reversed and remanded for trial. Veterinary groups are howling about the decision, which they fear may expose them to additional liability.

When Can A Federal Court Enjoin A State Court?

Judith R. Blakeway — Mon, 14 Nov 2011 00:00:00 -0500

The United States has a dual system of state and federal courts. That fact gives rise to some interesting questions when the two intersect.

Fidelity to principles of federalism means that usually—but not always—federal courts cannot interfere with state courts.

The Anti-Injunction Act explicitly provides that “A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Act of Congress, or when necessary in aid of its jurisdiction or to protect or effectuate its judgments. 28 U.S.C. § 2283.

The third exception, known as the relitigation exception, was recently considered by the Supreme Court in Smith v. Bayer Corp., 180 L. Ed. 2d 341 (June 16, 2011). The relitigation exception authorizes an injunction to prevent state relitigation of an issue that was previously decided by a federal court.

Smith involved an attempted class action. McCollins sued Bayer in federal court and sought class certification, which was denied. Smith then sued Bayer in state court and moved for class certification. Bayer sought an injunction from the federal court to order the state court not to consider the motion for class certification. The district court enjoined the state court class certification hearing. The Eighth Circuit affirmed.

The Supreme Court reversed, holding that the federal court’s rejection of McCollins’ proposed class did not preclude a later adjudication in state court of Smith’s class certification motion. The reason for its holding was two-fold.

First, the issue the federal court decided was not the same as the issue in state court because the two courts employed different legal standards for predominance. The federal court applied a strict test barring class treatment when proof of each plaintiff’s injury was necessary. In contrast, the state court had adopted a balancing test that meant that objections to certification based upon causation or reliance—which typically involve showings of individual injury—would not bar predominance satisfaction.

Second, a court judgment binds only parties to the suit. Smith—an unnamed member of a proposed but uncertified class—did not qualify as a party to the McCollins litigation. The recognized exception to the rule against nonparty preclusion for members of class action did not apply because the court refused to certify the class and an uncertified class action cannot bind proposed class members.

Because the issues in the federal and state lawsuits were not identical (because the relevant legal standards differed) and the mere proposal of a class in the federal action could not bind persons who were not parties there, the relitigation exception did not apply.

Who Wins the Race to the Courthouse?

Judith R. Blakeway — Mon, 31 Oct 2011 00:00:00 -0500

Sometimes a suit can be brought in more than one place. When you are sued in an inhospitable venue, can you file a second suit in a friendly forum? When there are two suits in two different places with the same parties involving the same issues, which one has priority? That was the question in the recent case In re Puig, 2011 Tex. LEXIS 515 (No. 10-0460, July 1, 2011).

Here is what happened. Puig Brothers, a company, had title to a Webb County ranch. The corporation was owned by Luis Puig and his six kids. When Luis and his wife Alicia were divorced, Alicia was awarded 60% of the ranch. Alicia died shortly after the divorce, leaving her entire estate to her daughter, Alice. Alice filed her mother’s will for probate in Fort Bend county court at law. Because her daddy refused to deed over 60% of the ranch, the county court approved an attorney-in-fact to sign a deed for him. After the deed was recorded, Alice’s brothers and the company sued in Webb County district court, seeking to quiet title and declare them the rightful owners of the ranch.

Alice filed a plea to the jurisdiction and moved to transfer the case to Fort Bend county. The trial court denied the plea to the jurisdiction. The court of appeals refused mandamus. The case came to the Supreme Court on a writ of mandamus.

What to do? The Court first determined that because the controlling issue involved title to land, it raised issues appertaining and incident to the estate so the county court had jurisdiction. Therefore, the Court concluded, that the plea to the jurisdiction was no good. The Court explained that because the county court and district court both had jurisdiction, the court where suit was first filed had dominant jurisdiction. The Court went on to hold that because the issue was one of dominant, rather than exclusive jurisdiction, the proper procedure was to file a plea in abatement, not a plea to the jurisdiction. Mandamus was denied.

Challenging Governmental Action: When in doubt, don’t leave the officials out.

Tom Anson — Mon, 17 Oct 2011 00:00:00 -0500

When challenging governmental action (or inaction), it is important to carefully consider exactly what your suit challenges. If the complaint is that the governmental entity is not complying with a statutory or constitutional provision, it is characterized as an “ultra vires” suit, and must be brought against the appropriate state official in his or her official capacity. Ultra vires suits against a governmental entity will be dismissed, as governmental entities have sovereign immunity to such claims.1 If, on the other hand, the suit challenges the validity of the statute itself, a governmental official need not be joined; the suit can (and should) proceed directly against the governmental entity.2

A recent example shows why it is better to be safe than sorry by suing both the governmental entity and its officials. In Wynne v. Lower Colorado River Authority, plaintiff complained that LCRA improperly contributed to drainage of Lake Travis by “exceeding its constitutional mandate to conserve and reclaim the State’s water and violating statutory prohibitions on denying public access to the lake for recreational use.”3 LCRA filed a plea to the jurisdiction, asserting that its governmental immunity barred the suit against the entity. The Austin Court of Appeals agreed: “In both form and substance, Wynne’s suit seeks to require the LCRA to comply with statutory and constitutional provisions; it is, therefore, an ultra vires suit that may only be maintained against LCRA officials and not against the LCRA as an entity.”4 However, because Wynne had sued both the entity and the officials in their official capacity, LCRA’s plea to the jurisdiction only resulted in severance and dismissal Wynne’s action against the entity, and the appeals court was only concerned with the claims against the entity.

Therefore, even though Wynne vigorously but unsuccessfully argued to the appeals court that he properly sued the entity, Wynne’s suit against the officials in their official capacity could still proceed. In other words, when in doubt, don’t leave the officials out!

__________________________________

1 An exception to this general rule is for judicial review of an administrative agency decision. The Texas Administrative Procedure Act waives sovereign immunity to permit such suits. See Tex. Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 198 (Tex. 2004). Grounds for review include the decision being “in violation of a constitutional or statutory provision” and “in excess of the agency’s statutory authority” (i.e., claims of “ultra vires”). Tex. Gov’t Code § 2001.174(2)(A)-(B). Thus, suits for judicial review, including on ultra vires grounds, can name the agency itself as defendant; some statutes even require it. See, e.g., Tex. Util. Code § 15.002 (“The [Public Utility Commission] must be a defendant in a proceeding for judicial review.”).

2 See, e.g., Tex. Lottery Comm’n v. First State Bank, 325 S.W.3d 628, 633-634 (Tex. 2010) (“For claims challenging the validity of ordinances or statutes . . . the Declaratory Judgment Act requires that the relevant governmental entities be made parties, and thereby waives immunity.”).

3 2010 Tex. App. LEXIS 9790 at *3 (Tex. App.—Austin 2010, pet. den.) (mem. op.)

4 Id. at *5.

Interlocutory Appeals: Pause for Concern

Jadd F. Masso — Mon, 03 Oct 2011 00:00:00 -0500

New changes to the Texas Civil Practice and Remedies Code may make interlocutory appeals more available to litigants in trial courts.

In Texas state-court practice, interlocutory appeals are primarily governed by Section 51.014 of the Civil Practice and Remedies Code. In addition to listing interlocutory orders that can always be appealed before final judgment, Section 51.014 provides the procedure for “permissive” interlocutory appeals of other orders. Until recently, such an appeal required the agreement of the parties to take the issue to a higher court. But no more.

This year’s legislative session changed the availability of permissive interlocutory appeals for cases filed on or after September 1, 2011. The “new and improved” Section 51.014(d) removes the necessity of an agreement of the parties, but makes the appellate court’s review of the order discretionary.

Now, on any party’s motion or on its own initiative, a trial court may enter an order permitting an appeal from an order that is not otherwise appealable if:

The order to be appealed involves a “controlling question of law as to which there is a substantial ground for difference of opinion” and
An immediate appeal from the order may “materially advance the ultimate termination of the litigation.”

Tex. Civ. Prac. & Rem. Code § 51.014(d).

Within 15 days after the date of the trial court’s order, the appealing party must file with the court of appeals an “application for interlocutory appeal” explaining why the appeal is warranted under Section 51.014(d). Id. § 51.014(f). As before, such an appeal does not stay proceedings in the trial court unless the parties agree to a stay or the trial or appellate court orders a stay. Id. § 51.014(e).

Federal court practitioners will recognize the new procedure as a close parallel to the federal scheme for permissive interlocutory appeals provided by 28 U.S.C. § 1292(b).

Bipartisanship Prevails: a Proposed New Frivolous Suit Rule

P. Michael Jung — Mon, 19 Sep 2011 00:00:00 -0500

If the Republicans and Democrats in Washington agreed on a long-term fiscal plan, the country would sit up and take notice, right? On a smaller scale, that’s what’s happening right now in Texas as the Supreme Court of Texas ponders the rule for dismissal of frivolous claims that it is required to adopt under the new Texas “loser pays” statute.

On August 25, three groups – the Texas Trial Lawyers Association, the Texas affiliate of the American Board of Trial Advocates, and the Texas Association of Defense Counsel – jointly proposed to the Supreme Court a rule for “Dismissal of Causes of Action That Have no Basis in Law or in Fact.” It remains to be seen whether the Court will adopt the rule as proposed, but it is safe to say that any time these divergent groups agree on something, the Supreme Court sits up and takes notice.

So what does the proposed rule do? It:

Requires the motion to be filed within 60 days after the pleading it attacks
Requires an oral hearing as soon as practicable, and a ruling within 45 days after the motion is filed
Requires the court to accept the factual allegations of the pleading as true, and to construe the pleading and draw all reasonable inferences from it in favor of the party who filed it
Allows amendment of the pleading prior to the hearing on the motion to dismiss
Prohibits the reception of evidence, and the consideration of any document not attached to the pleading or incorporated by reference in it
Prohibits conversion of the motion to a motion for summary judgment
States that the rule does not apply to or waive a special appearance or motion to transfer venue
Requires an “official record” to be kept of the hearing on the motion
Provides, as the statute requires, that the court shall award costs and reasonable and necessary attorney's fees to the prevailing party.
These appear to be sensible provisions that will make the new motion practice resemble in many (but not all) respects the Rule 12(b)(6) motion practice in federal court, with the largest difference being the mandatory fee-shifting provision imposed by the statute.

What does the proposed rule not address? Most of the questions posed in our August 8 posting, “Loser Pays – Much Ado About Nothing:” What does prevailing party mean? What if there are 6 claims in motion and the court dismisses 3? Who prevailed? Does the moving party get all of its fees? What if the court dismisses 1 out of 3? Does a defendant who won 1 but lost 2 have to pay the plaintiff’s costs and fees? Can the court award costs and fees by claim? How does a court determine that a claim has no basis in fact without evidence? Can a party who loses amend to reassert a claim? If the proposed rule is adopted, these and other questions will be fertile ground for lawyers and judges at the trial and appellate levels.

MacFrugal's Bargain Basement Bonanza: How a Slip and Fall Became a Multi-Million Dollar Judgment

Judith R. Blakeway — Mon, 12 Sep 2011 00:00:00 -0500

Deadlines make trial lawyers lose sleep. If you miss one, it can be catastrophic. PNS Stores, Inc. v. Rivera, 335 S.W.3d 265 (Tex. App.—San Antonio, 2010, pet. filed) illustrates the point. Depending on your point of view, it was either a dream come true or your worst nightmare. Either way, it’s calculated to keep you up at night.

Ms. Rivera Slips and Falls

Rachel Rivera, a 68-year-old senior citizen was shopping at MacFrugal’s Bargain Closeout store when she slipped and fell on a toy lying in the aisle and broke her hip. She sued PNS Stores, Inc. d/b/a MacFrugal’s in state court.

PNS Wins Round One

PNS removed the case to federal court and won a summary judgment. The court dismissed the case “without prejudice” in 2000.

Three months later, Rivera refiled her case in state court reasserting the same claims. PNS’s agent for service received notice of process, forwarded it to PNS, and received acknowledgment that PNS had received it. PNS claimed it never received the second lawsuit.

Rivera Wins Round Two by Default

When PNS did not file an answer, Rivera took a default in the amount of $1,480,677. According to PNS’s agent for service, the agent received notice of the default judgment, forwarded it to PNS, and received an acknowledgment of receipt from PNS. PNS once again contended, however, that it never received notice of the default and only learned of the judgment almost nine years later when it received a writ of execution through a new registered agent. By then the default judgment had reached $3,513,070.

PNS filed a bill of review to set aside the default judgment.

Federal Court Rebuffs PNS’s Plea for Help

PNS filed a motion with the federal court asking it to revise its original dismissal to state that it was “with prejudice” instead of “without prejudice.” In 2009 the federal court granted PNS’s motion and entered a nunc pro tunc judgment stating dismissal of Rivera’s suit was “with prejudice”.

PNS then asked the federal court to stop the state court from proceeding with the refiled case. The federal court declined, instructing PNS that challenges to the correctness of the state court’s determination as to the conclusive effect of a federal judgment had to be pursued by way of appeal through the state court system.

State Court Won’t Help Either

PNS moved for summary judgment in state court claiming that the default judgment was void because:

res judicata and collateral estoppel rendered the default void, and
service was improper.

Rivera moved for summary judgment arguing that:

PNS’s bill of review was barred by the four year statute of limitations, and
there was no evidence of extrinsic fraud that would overcome limitations.

The trial court granted Rivera’s motion and denied PNS’s motion. PNS appealed.

Appellate Court Rejects PNS’s Attempt to Avoid Judgment

          A.      Res Judicata and Collateral Estoppel Are Not Jurisdictional

On appeal, the Fourth Court rejected PNS’s argument that the federal court summary judgment was
res judicata or collaterally estopped the state court proceeding, depriving the state court of subject matter jurisdiction. Even meritorious claims of res judicata and collateral estoppel do not deprive a court of jurisdiction; they are affirmative defenses, not pleas to the jurisdiction.

          B.      Bill of Review Came Too Late

Next, because the bill of review was filed more than four years after the default judgment and there was no evidence extrinsic fraud, the court held that the trial court properly denied PNS’s bill of review.

          C.      Collateral Attack Fails Too

Having determined the bill of review was barred by limitations, the court could have simply affirmed the summary judgment in favor of Rivera. However, in Middleton v. Murff, 689 S.W.2d 212 (Tex. 1985), the Supreme Court recognized an exception to the rule that only a timely-filed bill of review is available to set aside a trial court’s judgment, when the court had no jurisdiction to render a judgment. Under Middleton, an untimely-filed bill of review is proper only if there is an absence of subject matter jurisdiction. Some courts, after determining a direct attack by bill of review lacked merit, construed the unmeritorious bill of review as a collateral attack and reviewed it accordingly.

But that didn’t get PNS off the hook either. In a collateral attack, the challenger must show the judgment is void, not voidable, and must do so based on the face of the judgment. Because personal jurisdiction (by serving PNS’s registered agent) was established on the face of the judgment, PNS’s collateral attack also failed.

Finally, in a last ditch effort to stave off disaster, PNS argued that, because the court reporter who made a record of the default judgment hearing (who was required to keep her notes for only three years) had destroyed her records from 2000 by the time PNS filed its bill of review in 2009, there was no proof of unliquidated damages to support the default judgment. The court of appeals nixed that argument too, holding that any error with regard to proof of damages would render the judgment voidable, not void, and, therefore, could not support a collateral attack.

The court of appeals affirmed the judgment.

Ms. Rivera can now shop at Neiman’s.

The moral of the story—ignore process at your peril.

Removal and Remand: How a State Court Wrongful Foreclosure Became—and Remained—a Federal Case

Judith R. Blakeway — Wed, 31 Aug 2011 00:00:00 -0500

The choice of forum can be outcome-determinative. Plaintiffs naturally sue in plaintiff-friendly places, affectionately known as “hellholes" by defendants. Defendants, of course, try to move the suit to a more favorable venue, frequently a federal forum.

A defendant can remove a case to federal court if it could have been filed there originally. Federal courts have original jurisdiction in federal question cases and in diversity actions when the amount in controversy exceeds $75,000 and the suit is between citizens of different states.

A defendant loses the right to remove if he does not do so within 30 days after receipt of the first pleading that sets forth on its face a removable claim. 28 U.S.C. § 1446(b).

These rules were applied by the Fifth Circuit in Cuevas v. BAC Home Loans Servicing, LP, 2011 U.S. App. LEXIS 15499 (5th Cir. July 27, 2011).

The Bank Forecloses

The Cuevases fell behind on their mortgage. The bank notified them of default and gave them an opportunity to cure. The Cuevases alleged they mailed a cashier's check for the full amount due but the bank refused to accept it. The bank then foreclosed, purchased the home at the foreclosure sale and, to add insult to injury, offered to sell the Cuevases their own home back for a profit.

The Cuevases Sue

The Cuevases were not amused. They sued for wrongful foreclosure, alleging state law claims only. They sued three defendants, only one of whom, Countrywide Home Loans of Texas (Countrywide), was a Texas corporation. Because there was not complete diversity on the face of the Cuevases’ petition, the case was not removable unless the Texas defendant was improperly joined.

Defendants did not remove the case to federal court. More than 30 days passed.

The Plot Thickens

Then the Cuevases added a claim under the Truth in Lending Act (TILA), a federal statute, giving rise to federal question jurisdiction.

The Defendants Remove to Federal Court

Defendants promptly removed the case to federal court, alleging federal question and diversity jurisdiction, asserting that Countrywide’s presence in the lawsuit did not destroy diversity because it was improperly joined.

The improper joinder doctrine constitutes a narrow exception to the rule of complete diversity. To establish improper joinder, the removing party must demonstrate either:

actual fraud in pleading jurisdictional facts; or
inability of the plaintiff to establish a cause of action against the non-diverse party in state court.

The Cuevases Ask to Go Back to State Court

The Cuevases moved to remand. They agreed that the federal court had federal question jurisdiction, but argued that the district court could not exercise removal jurisdiction based on diversity because:

Countrywide’s notice of removal was not filed within 30 days after the original complaint, and
defendants failed to prove joinder was improper.

The District Court Remands (But Not for Improper Removal)

The district court held that it did not have removal jurisdiction based on diversity because defendants failed to prove improper joinder and removal was untimely.

Nevertheless, it held that it did have removal jurisdiction because the complaint alleged a federal claim under the TILA. But then the district court dismissed the TILA claim and remanded, declining to exercise supplemental jurisdiction over the state law claims. Defendants appealed.

Here’s Where It Gets Interesting

Was the district court obliged to hear the case after it dismissed the federal claim because it had diversity jurisdiction over the state law claims?

Whether the court could remand the state law claims depended on whether its jurisdiction over them was supplemental or whether it had diversity jurisdiction. If supplemental, it could remand; if due to diversity, it could not.

A. Effect of Waiver of Right to Remand

The Fifth Circuit first noted that no court of appeals had yet decided “the issue of whether a party’s previous failure to argue fraudulent joinder and timely remove the case on the basis of diversity jurisdiction affects the district court’s authority to remand state law claims after the case has been properly removed to district court.”

The court concluded that once the district court assumed jurisdiction over a properly removed case, whether a party had previously waived its right to a federal forum by failing to timely remove was irrelevant to whether the district court could or should remand. What was determinative was the court’s jurisdiction over the claims at the time of remand.

B. Improper Joinder

Whether the court had diversity jurisdiction turned on whether Countrywide was improperly joined.

The test for improper joinder is:

Whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently, means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant.

Because Countrywide did not originate or service the Cuevases’ loan, there was no possibility the Cuevases could recover against it.

Therefore, the parties were diverse and the district court had diversity jurisdiction over the state law claims at the time of remand. When a district court has original subject matter jurisdiction over state law claims (such as in a diversity suit) it cannot decline to exercise it and send the claims back to state court; exercise of that jurisdiction is mandatory. Consequently, the district erred in remanding the state law claims.

Countrywide won the forum fight. The Cuevases were stuck in federal court.

I am confused

1. Why did the district court find removal on the basis of diversity was untimely? If Countrywide was properly joined, as the district court found, there was not complete diversity, so the case was not removable until the federal claim was added. So how could failure to remove within 30 days from the original complaint be untimely?

2. The Fifth Circuit assumed the case was properly removed, but was it?

(a) If Countrywide was properly joined, there was no diversity jurisdiction, the only basis for removal was federal question, and when the federal question was dismissed, the court could decline to exercise supplemental jurisdiction.

(b) If Countrywide was improperly joined, as the Fifth Circuit found, then there was diversity jurisdiction and failure to remove within 30 days waived the right to remove, didn’t it? So why wasn’t the removal based on federal question jurisdiction more than 30 days later untimely?

(c) The opinion recited that all parties agreed that the court had federal question jurisdiction. But parties cannot create jurisdiction by agreement.

Little Miss Muffet’s Health Care Liability Claim

Judith R. Blakeway — Mon, 22 Aug 2011 00:00:00 -0500

In Omaha Healthcare Center, LLC v. Johnson, 2011 Tex. LEXIS 506, 54 Tex. Sup. Ct. J. 1314 (July 1, 2011), the Texas Supreme Court decided that a spider bite is a healthcare liability claim that requires service of an expert report within 120 days. Here’s what happened.

The Healthcare Center

Had an old renter

In the nursing home she did stay.

Along came a spider

Who decided to bite her

And the poor woman passed away.

Her sister the nursing home did sue

For its failure to

Have an exterminator spray.

She claimed that it could

She claimed that it should

Treat to keep spiders and bugs away.

The home moved to dismiss

Claiming the sister was remiss

For failing to file an expert report.

The sister’s retort:

There was no need for a report

A spider bite is not a health care tort.

The trial court decreed

For a report there was no need

Insecticide is not integral to health care.

The appellate court agreed

And allowed the suit to proceed

Without a report on the standard of care.

The Supreme Court disagreed

Holding that a spider bite is indeed

A health care liability claim.

The Court said any failure

To keep a patient safe and secure

Is a health care liability claim.

The Court had ruled before

If you slip on the floor [1]

That’s a health care liability claim.

And the Court had already said

If you’re injured by a defective bed [2]

That’s a health care liability claim.

Rape of a resident,[3]

Dentures that don’t fit [4]

Are both health care liability claims.

Hiding a defibrillator in the back,[5]

Credentialing a quack[6]

Those too, are health care liability claims.

If the ventilator stops

Or the battery charge drops,[7]

That’s a health care liability claim.

If you’re a health care provider its true

Virtually anything you do

Is a health care liability claim.

Justice Lehrmann disagreed.

She asked what kind of expert you would need

To prove the applicable standard of care?

Could a health care provider

Say how to poison a spider?

Surely, not a medical standard of care.

So where do we go from here?

Will the Supreme Court make it clear?

What exactly is a health care liability claim?

Sexual assaults during medical examinations? [8]

Laser hair removal causing burns and lacerations? [9]

Is there anything that is not a health care liability claim?

[1] Harris Methodist Fort Worth v. Ollie, 2011 Tex. LEXIS 358, 54 Tex. Sup. Ct. J. 976 (May 13, 2011).

[2] Marks v. St. Luke’s Episcopal Hosp., 319 S.W.3d 658 (Tex. 2010).

[3] Diversicare General Partners, Inc. v. Rubio, 185 S.W.3d 842 (Tex. 2005).

[4] Walden v. Jeffrey, 907 S.W.2d 446 (Tex. 1995)
.

[5] Yamada v. Friend, 335 S.W.3d 192 (Tex. 2009).

[6] Garland County Hosp. v. Rose, 156 S.W.3d 541 (Tex. 2004).

[7] Turtle Healthcare Group LLC v. Linan, 337 S.W.3d 865 (Tex. 2011).

[8] Wasserman v. Gugel, 2010 WL 1992622 (Tex. App.—Houston [14th Dist.] 2010), pet. granted, 54 Tex. Sup. Ct. J. 750 (April 1, 2011)[10-0513].

[9] Ghazali v. Brown, 307 S.W.3d 499 (Tex. App.—Fort Worth 2010), pet. granted, 54 Tex. Sup. Ct. J. 537 (Feb. 8, 2011)[10-0232].

Anti-SLAPP Act Compels Dismisal Unless Plaintiffs Can Prove Claims Before Discovery

Judith R. Blakeway — Wed, 03 Aug 2011 00:00:00 -0500

On June 17, 2011, Governor Perry signed the Citizens Participation Act, popularly known as the anti-SLAPP bill. The acronym SLAPP stands for Strategic Lawsuits Against Public Participation. These are lawsuits to intimidate individuals or public interest groups who criticize government or corporate action from speaking out on matters of public concern. They generally take the form of lawsuits for defamation, tortious interference, abuse of process or conspiracy.

To discourage these suits, anti-SLAPP laws allow defendants to have the cases dismissed early in the proceedings by forcing plaintiffs to substantiate their claims before discovery.

Expedited Hearing on Motion to Dismiss

If a legal action is based on, relates to, or is in response to, a party’s exercise of rights to freely speak, petition, or associate, a party may file a motion to dismiss which must be heard within 30 days and ruled on within 30 days of the hearing.

Discovery Stayed

All discovery suspended until the court rules on the motion.
BUT a court can allow limited discovery on a showing of good cause.

Burdens of Proof

The court shall dismiss the action if the moving party shows by a preponderance of the evidence that it relates to the party’s exercise of rights of free speech, petition or association.
UNLESS the plaintiff proves by clear and specific evidence each element of his claim.
In deciding to dismiss, a court can consider the pleadings and affidavits.

Attorneys Fees and Sanctions

A defendant who brings a successful motion is entitled to:

mandatory court costs, attorneys fees, and
sanctions sufficient to deter future actions.

A respondent who defeats a motion and proves that the motion was frivolous and intended solely for delay, may recover court costs and reasonable attorneys’ fees.

Accelerated Appeal

An appeal must be filed within 60 days of the court’s order.
Any appeal is expedited.

Exemptions

The Act does not apply to:

an enforcement action brought by the government;
action against a person in the business of selling or leasing goods or services, if the conduct arises out of the sale or lease of goods or services or an insurance product or commercial transaction in which the intended audience is a potential customer;
personal injury, wrongful death or survival actions.

The Rest of the Story-Other Provisions of the "Loser Pays" Bill

Judith R. Blakeway — Tue, 02 Aug 2011 00:00:00 -0500

In addition to “Loser Pays”, HB 274 makes several procedural changes.

Responsible Third Parties

A defendant cannot join a responsible third party if limitations has run and defendant failed to timely disclose that the person could be a responsible third party. (Under the current law, a plaintiff can sue a responsible third party, even when limitations has run, if he does so within 60 days of designation.)

Speedy Trials

It directs the Supreme Court to adopt rules to
expedite civil actions
seeking damages from $10,000 to $100,000
without conflicting with Family Code, Property Code, Tax Code, or Medical Malpractice Act.

Interlocutory Appeals

Currently a trial court can permit an appeal from an order involving a controlling question of law only if all parties agree.
The new law allows the court to permit such an appeal on its own motion or a motion by a single party.
The appealing party must file an application within 15 days from the trial court’s ruling.
Appellate court has discretion whether to accept the appeal.
An appeal does not stay trial court proceedings unless the parties agree or the trial court orders.
A petition for review is allowed to the Supreme Court.

Allocation of Litigation Costs

Adds deposition costs to recoverable litigation costs (currently includes court costs, fees for two testifying experts, and attorneys’ fees).
Excludes small claims court actions.
Parties are not required to file a settlement offer with the court.
If judgment ultimately rendered is significantly less favorable to the rejecting party than settlement offer, defendant can offset recoverable litigation costs against a plaintiff’s recovery up to the amount of the recovery. Plaintiffs will not be required to come out-of-pocket to pay fees that exceed their recovery (or any fees at all if a defendant wins a take-nothing judgment).

Loser Pays-Much Ado About Nothing

Judith R. Blakeway — Tue, 02 Aug 2011 00:00:00 -0500

There has been much media hype about the "loser pays" law due to take effect September 1, 2011. From the name, you would think it provides that unsuccessful litigants will have to pay their adversary’s attorneys’ fees. That would be a logical assumption, but wrong. Many questions remain. We will have to see how these play out in practice.

What does the law do?

Early Dismissal of Frivolous Claims

It directs the Supreme Court to adopt rules:

dismissing claims with no basis in law or fact;
on motion without evidence;
within 45 days after motion filed; and
if court grants motion in whole or in part, court shall award costs and attorneys’ fees to prevailing party.

That’s it. The sum and substance of the fee–shifting provisions of "loser pays." Nothing more.

Queries: What does prevailing party mean? What if there are 6 claims in motion and court dismisses 3. Who prevailed? Does moving party get all of its fees–motion was granted "in part"? What if court dismisses 1 out of 3? Does defendant who won 1 but lost 2 have to pay plaintiff’s costs and fees? Can the court award costs and fees by claim? What is the standard for determining the motion? Is it the same as the standard for a Rule 12(b)(6) motion in federal court? How does a court determine that a claim has no basis in fact without evidence? Can a party who loses amend to reassert a claim?