With today’s orders list, the Supreme Court issued two substantive opinions, two per curiam reversals (applying one of today’s more substantive opinions), and formally accepted a certified question from the Fifth Circuit about exemplary damages.
The Court granted a request to reschedule oral argument in BCCA APPEAL GROUP, INC. v. CITY OF HOUSTON, TEXAS, No. 13-0768
, which had been set for March 25. The new argument date has not yet been set.
Duties between participants in an oil-and-gas royalty interest
KCM FINANCIAL LLC, R.J. SIKES, ROGER SIKES, KATHY SIKES, GREG LOUVIER, PAM LOUVIER, CHRISTY ROME, R. CRIST VIAL, DACOTA INVESTMENT HOLDINGS, L.L.P. A/K/A DACOTA INVESTMENT HOLDINGS, L.P., RANGE RESOURCES CORPORATION, AND RANGE PRODUCTION I, L.P. v. BETTY LOU BRADSHAW, No. 13-0199
A summary will be added in the next few days
Statute that limits doctors from using arbitration clauses is preempted
In the past decade, it only seemed that the Texas Supreme Court had already decided every permutation of health-care liability claim and every challenge to an arbitration clause. What happens when one case presents both — a challenge to the Texas law that restricts doctors and other health-care providers who might try to insert arbitration clauses in their contracts?
The Texas statute is Section 74.451 of the CIvil Practice and Remedies Code, which imposes some strict requirements on any arbitration clause between a health-care provider and a patient. There was no dispute in this case that the defendant nursing home (Fredericksburg) failed to meet those requirements, so if the Texas law applied, the arbitration clause it demanded of patients would be unenforceable. On its side, the Federal Arbitration Act generally preempts state laws such as this one that impose heightened requirements on the validity of arbitration clauses, at least for contracts involving interstate commerce.1
The wrinkle here is that Congress has generally permitted states, not the federal government, to take the lead in regulating insurance. Within the upside-down world of insurance, the doctrine of federal preemption yields (by virtue of the McCarran-Ferguson Act or "MFA") so that insurance-specific state laws can, in that limited sphere, be supreme over a generally applicable federal law.
The Texas Supreme Court's opinion focused, therefore, on whether Section 74.451 was a law that fit within the MFA. The question is whether it was a "law enacted by [the] State for the purpose of regulating the business of insurance." 15 U.S.C. §1012(b). If so, it could survive preemption. If not, it would be preempted.
The bulk of the Court's analysis focuses on legislative "purpose." Looking at the statute as a whole, the Court concluded that its purpose is not direclty related to the relationship between insurance companies and their insureds ("the business of insurance"). The Court acknowledged that one of the broader goals was to lower health-care costs by, among other things, lower premiums for malpractice insurance. But the Court concluded that was too attenuated to satisfy the U.S. Supreme Court's test. (The U.S. Supreme Court has distinguished the "business of insurance" from the "business of insurance companies," which basically asks whether the regulation is about paperwork or profits. If the goal is to reduce an insurer's costs and maybe get a trickle-down reduction in premiums, then it's the latter category and too attenuated.) And even zooming to focus just on Section 74.451, the picture would be the same. That provision says nothing about insurance directly but instead talks about the relationship between doctor and patient.
Section 74.451 is, the Court held, preempted by the Federal Arbitration Act for any health-care contracts that affect interstate commerce.
So, does a health-care provider now have to choose between demanding arbitration and the procedural protections they fought so hard for in 2003 (with mandatory expert reports and interlocutory appeals)? Maybe not. With this new hybrid category of arbitration and health-care liabilty appeals, a whole new world of permutations beckons. Who will be the first defendant to wait for the expert report deadline, file an interlocutory appeal challenging its adequacy, and after losing that appeal, demand arbitration — perhaps triggering a second interlocutory appeal?
The Court also issued short per curiam opinions in two related cases, in each reversing based on today’s opinion in THE FREDERICKSBURG CARE COMPANY, L.P. v. JUANITA PEREZ, VIRGINIA GARCIA, PAUL ZAPATA..., No. 13-0573
With today’s orders list, the Texas Supreme Court issued opinions in two pending cases. It did not select any new cases for oral argument.
Among the orders, the Court granted the State’s request to appear as amicus curiae to argue in MIRTA ZORRILLA v. AYPCO CONSTRUCTION II, LLC AND JORGE LUIS MUNOZ, No. 14-0067
, a case about the exemplary damages provisions in Chapter 41.
Plaintiffs suing a partnership can wait until after judgment to seek recovery from individual partners
When a plaintiff sues a partnership, must they immediately join the individual partners as defendants or risk having no recourse if the partnership entity turns out to be insolvent?
The underlying contract claim was brought against the partnership itself and, after about a decade of litigation, resulted in a judgment of liability that exceeded the partnership's own assets. The plaintiffs then turned to the individual partners for satisfaction, under the principle that they are jointly and severally liable for the partnership entity's debts. The partners invoked limitations, arguing that the clock had expired years before when they were not joined in the original action.
The Court held that limitations did not bar this post-judgment claim by a judgment creditor against individual partners.
It noted that the plaintiff could have sued the partners at the outset. And it acknowledged the general principle that a claim "accrues" when it could be brought. But, as the Court explained, the structure of this claim warranted a different result. The Court looked to the provisions of the Texas Revised Partnership Act, which makes this kind of liability contingent on there being a judgment entered against the partnership entity and on the entity failing to pay for 90 days. These features, the Court held, made this kind of statutory claim against individual partners more akin to indemnification than more typical tort or contract claims. Thus, the Court held, the claims were not barred by limitations.
When does this limitations clock start to run? Is it at the time judgment is entered against the partnership, when any appeal of that judgment is complete, or at some other time? This case did not require finely tuning that answer. The Court suggests that the limitations clock actually begins to run only when the judgment can be collected against an individual partner, which might mean 90 days after the judgment can be executed. So, a supersedeas filing may, it appears, have the side effect of extending the limitations period for collection claims against individual partners.
The Workers' Comp statute precludes courts from addressing causes of action related to claims handling, even if framed as tort or statutory claims
A claimant for workers' compensation benefits brought a separate lawsuit against the carrier and some of its employees, contending that the way they had handled his claims independently violated tort and statutory duties, for which he sought damages.
The Division of Workers' Compensation has exclusive jurisiction over the underlying claim for workers' compensation benefits. Does that exclusive grant of jurisdiction extend to these other claims, which might fall outside of its ability to grant relief?
The Court held that it does. It explained that its previous decision in TEXAS MUTUAL INSURANCE COMPANY v. TIMOTHY J. RUTTIGER, No. 08-0751 established a broad field of preemption for workers compensation, including challenges to the "investigation, handling, and settling" of claims for these benefits. The Court explained that Ruttiger was not to be read narrowly and, thus, that the claims here fell within the agency's exclusive jurisdiction.
With today’s orders list, the Texas Supreme Court granted review in eight cases to be heard in March. It did not issue any opinions.
The first two petitions on this grant list have the added distinction of being grants of rehearing. The Court originally denied both on October 3, 2014. Today’s orders reinstate them and set them for argument.
Details about each case will appear in this blog post as they are added to my system.
Grants of Review and Rehearing
With today’s orders list, the Texas Supreme Court issued opinions in two cases. It did not choose any new cases for review.
Evidence about seat-belt use is now admissible in auto accident cases
In 1974, the Court ruled that evidence about whether a car’s occupant was wearing a seat belt was not admissible in an auto-accident case. Carnation Co. v. Wong, 516 S.W.2d 116 (Tex. 1974). Today, the Court overrules that decision.
It explained that the legal background motivating that rule had changed. First, Texas no longer has a contributory-negligence system, under which a plaintiff could be absolutely barred from recovery if they were even the slightest degree negligent. It now has a system of comparative negligence, with a plaintiff’s recovery merely reduced by the percentage of their own fault — unless that fault exceed 50%.1
Second, the Court noted that mandatory seat-belt laws began, and became more strict, after its 1974 ruling. Given that change, the Court referred to its prior holding as “a vestige of a bygone legal system and an oddity in light of modern societal norms.”
The Court rejected the argument that intervening statutes had, implicitly through silence, approved the blanket rule against the admission of seatbelt evidence. In 1985, while approving Texas’s first mandatory-seatbelt law, the Legislature had passed a prohibition on the admission of evidence about seatbelt use that was even broader than the Court’s. But in 2003, the Legislature repealed that provision while making other changes. The Court saw this repeal — without adding other language about the seat-belt question — as the Legislature choosing for its part to be silent. Thus, the Court rejected the argument that the Legislature had weighed in either way.
The Court holds that normal rules of evidence should apply, leaving the details to be sorted out in the usual way:
Today’s holding opens the door to a category of evidence that has never been part of our negligence cases, but we need not lay down a treatise on how and when such evidence should be admitted. Seat-belt evidence has been unique only in that it has been categorically prohibited in negligence cases. With that prohibition lifted, our rules of evidence include everything necessary to handle the admissibility of seat-belt evidence. As with any evidence, seat-belt evidence is admissible only if it is relevant. … The defendant can establish the relevance of seat-belt nonuse only with evidence that nonuse caused or contributed to cause the plaintiff’s injuries. And the trial court should first consider this evidence, for the purpose of making its relevance determination, outside the presence of the jury. … Expert testimony will often be required to establish relevance, but we decline to say it will be required in all cases. And, of course, like any other evidence, even relevant seat-belt evidence is subject to objection and exclusion under Rule 403.
The Court also considered how this should be handled for children who are not wearing seat belts, concluding that it can be proper for a jury to consider both whether an adult in the car bears some responsibility for that injury, as well as whether the child was acting as would an “ordinarily prudent child of [the same] age, intelligence, experience and capacity.”
And the Court addressed whether the jury should be asked who caused the accident (what the Court calls “occurrence-causing conduct) and then asked separately who caused each person’s injury (“injury-causing conduct”). The Court said no, that both kinds of fault should be folded into a single apportionment question. “There is nothing about injury-causing conduct that renders it incompatible with being considered alongside occurrence-causing conduct in one responsibility apportionment for the harm suffered by the plaintiff.”
BP does not have insurance coverage as an "additional insured" under the policy purchased by Transocean
In 2010, a drilling rig owned by Transocean and developed by BP exploded in the Gulf of Mexico, leading to months of subsurface oil leakage, damage to coastal communities and industries, and other serious claims. In the parties’ drilling contract, Transocean was to be responsible for above-surface pollution risks while BP was to be responsible for subsurface pollution risks. Another provision of the contract required Transocean to provide "additional insured" protection to BP.
BP sued over the scope of this "additional insured" coverage, arguing that Transocean’s insurers must cover BP’s losses, regardless whether the specific cause was above or below the surface.
The Fifth Circuit originally ruled in favor of BP, concluding that the insurance policy itself did not limit the scope of coverage afforded to BP and that, under EVANSTON INSURANCE COMPANY v. ATOFINA PETROCHEMICALS, INC., No. 03-0647, it should not look beyond the text of that document to find a limitation to coverage. On rehearing, however, the Fifth Circuit withdrew its opinion and chose to certify this question to the Texas Supreme Court to authoritatively address two questions under Texas law:
Does ATOFINA compel a finding that BP is covered for these damages?
Does the doctrine of contra proferentem (that is, construing a contract against the person who drafted it) apply even in a sophisticated commercial context?
The Texas Supreme Court reached the opposite result, basing its decision on a less restrictive reading of ATOFINA, one that is compatible with the idea that an insurance policy can effectively “incorporate” another document needed to understand its scope:
Texas law has long allowed insurance policies to incorporate other documents by reference, and policy language dictates the extent to which another document is so incorporated. The policies here provide additional-insured coverage automatically where required and as obligated by written contract in which an insured has agreed to assume the tort liability of another party. Because BP is not named as an insured in the Transocean policies or any certificates of insurance, the insurance policies direct us to the additional-insured provision in the Drilling Contract to determine the existence and scope of coverage. Applying the only reasonable construction of that provision, we conclude that, as it pertains to the damages at issue, BP is an additional insured under the Transocean policies only to the extent of the liability Transocean assumed for above-surface pollution.
Having concluded that BP is covered by Transocean’s policies only to the extent that the drilling contract required, the Court answered the first question no, that there is no coverage.
The Court did not reach the second question about the contra preferentum doctrine because that rule applies only to ambiguous text, and it saw no ambiguity here.
With this orders list, the Court issued opinions resolving three cases and granted nine cases for oral argument.
This flurry of grants gives the Court a complete argument calendar for late February and begins to fill a (new) argument week scheduled for late March.
The effect on a statute of limitations when public records are tainted by fraud
A mineral owner sued the operator for fraud that occurred more than four years before suit, the effects of which continued in the stream of payments to the current day. The operator responded with, among other arguments, a limitations defense. The mineral owner contended that the discovery rule should have tolled that limitations period because it reasonably relied on the operator's representations. The operator contends that any such reliance was unreasonable because Railroad Commission records contained the needed information.
The opinion discussed whether "reasonable diligence" is one of fact or law, answering that it's ultimately one of fact but that there are categories of evidence — including some public records — that put a party conclusively on notice, thus starting the clock for limitations.
The Court distinguished those public-record cases because, here, the fraud had also "tainted" the integrity of the public records, with allegedly false information being included in the latest filings. Although the defendant contended that comparing these later records with earlier records should have put someone on notice of the fraud, the Court held that would require too much to be "reasonable diligence" as a matter of law.
Among the other issues, the Court interpreted the parties' "most favored nations" clause for royalty payments. The court of appeals had held this clause was not violated when the State in effect received preferential royalty payments because the State was not a market actor and thus the policy concerns were somewhat different. The Supreme Court held that the contract text did not draw such a distinction and, thus, that the contract had been breached.
The special role of the Attorney General in reporting child-support issues to a federal database
Can a trial court reviewing allegations of family violence affecting child custody have, along with that, order OAG to change how it has flagged the case file in a federal database?
Although the Court’s analysis dealt with a federal regulatory system, it approached this question as a matter of state statutory interpretation. The relevant list of statutory remedies included a catch-all provision “any other order.” The Court emphasized that it was evaluating that phrase within the larger context, not taken in isolation.
When construing statutes, or anything else, one cannot divorce text from context. The meaning of words read in isolation is frequently contrary to the meaning of words read contextually in light of what surrounds them. Given the enormous power of context to transform the meaning of language, courts should resist rulings anchored in hyper-technical readings of isolated words or phrases. The import of language, plain or not, must be drawn from the surrounding context, particularly when construing everyday words and phrases that are inordinately context-sensitive.
Against that background, the Court explained that Texas had designed the Office of Attorney General as its “Title IV-D agency, [which] must collect, store, and maintain” certain information required by federal law — information that included this flag.
The Court concluded that the phrase “any other order” was not meant to upset this balance, nor did it create a distinct right to judicial review under state law of the agency’s decision whether to flag the file in the federal database.
An unresolved request for UDJA fees can undermine the finality of a summary judgment
The Court dealt with what it called “the familiar issue of whether a trial court’s order ... is final for purposes of appeal.” This order came after a motion for summary judgment by an insurer (Farm Bureau), in which the trial court denied relief and ruled that the insurer did have a duty to cover the claims. Although both sides had requested attorney’s fees, the order made no mention of those requests — but it did contain a “Mother Hubbard” clause and made an award of court costs. Farm Bureau appealed the merits.
The court of appeals dismissed for want of jurisdiction, reasoning that the order could not be a final judgment because there was not a formal cross-motion for summary judgment filed by the insured. The Supreme Court disagreed that the lack of an underlying motion would deprive the judgment of force. Quoting its own decision in Lehmann v. Har-Con Corp., 39 S.W.3d 191 (Tex. 2001), the Court explained that “[i]f the trial court’s intent to enter a final judgment is ‘clear from the order, then the order is final and appealable, even though the record does not provide an adequate basis for rendition of judgment.’ In that case, ‘the judgment is final—erroneous, but final.’” So that basis would not defeat jurisdiction here.
But the Supreme Court saw a second problem with jurisdiction, namely, that the trial court had not ruled on attorney’s fees. In contrast to the merits issue — where the order spoke directly to the claims — there was no mention of attorney’s fees in the order and no other indication in the record that the trial court’s order was meant to resolve the question of fees. “In the absence of evidence of the trial court’s intent with respect to the parties’ claims for attorney’s fees, we find that the trial court’s order did not dispose of all parties and claims.”
For late February
For late March
CHESAPEAKE EXPLORATION, L.L.C. AND CHESAPEAKE OPERATING, INC. v. MARTHA ROWAN HYDER, INDIVIDUALLY, AND AS INDEPENDENT EXECUTRIX AND TRUSTEE UNDER THE WILL OF ELTON M. HYDER, JR., DECEASED, AND AS TRUSTEE UNDER THE ELTON M. HYDER JR. RESIDUARY TRUST, AND AS TRUSTEE OF THE ELTON M. HYDER JR. MARITAL TRUST, ET AL., No. 14-0302
Set to be argued on March 24, 2015
The big item on today’s otherwise quiet orders list is the Court formally accepting a case about the Texas school-finance system.
Schedule set in school finance cases
MICHAEL WILLIAMS, COMMISSIONER OF EDUCATION, IN HIS OFFICIAL CAPACITY; GLENN HEGAR, TEXAS COMPTROLLER OF PUBLIC ACCOUNTS, IN HIS OFFICIAL CAPACITY; THE TEXAS STATE BOARD OF EDUCATION; AND THE TEXAS EDUCATION AGENCY v. THE TEXAS TAXPAYER & STUDENT FAIRNESS COALITION, ET AL.; CALHOUN COUNTY ISD, ET AL.; EDGEWOOD ISD, ET AL.; FORT BEND ISD, ET AL.; TEXAS CHARTER SCHOOL ASSOCIATION, ET AL.; AND JOYCE COLEMAN, ET AL., No. 14-0776
Chosen for future argument by order issued January 23, 2015
The Court has now formally said that it will hear this "direct appeal" of the school finance ruling that held certain portions of the system unconstitutional.
The Court has agreed to the briefing schedule suggested by the parties, which puts the briefs due on April 13, 2015 (for the State and others challenging the judgment); July 2, 2015 (for those defending the judgment); and a reply on August 11, 2015 (for the State and others challenging the judgment).
That briefing schedule extends beyond the July 1, 2015 deadline set by the trial court's order. The State's motion states its belief that this deadline was suspended automatically by the appeal.
The briefing schedule also permits the Legislature to finish its session (and perhaps even a special session). Both sides will have an opportunity to address how any new legislation might affect this case.
Based on this schedule, I would expect the Court to hear oral argument in September 2015.
The briefing so far just consists of very short notices of appeal ("jurisdictional statements") filed by four groups challenging aspects of the judgment below:
the State Defendants (the commissioner of education and others)
a group led by the Texas Charter School Association
a group led by the Texas Taxpayer & Student Fairness Coalition
a group of six school districts that have broken with the main group of plaintiffs (Calhoun ISD, Abernathy ISD, Aransas ISD, Frisco ISD, Lewisville ISD, and Richardson ISD)
It was a quiet orders list this week, with no grants made or opinions issued.
With the holiday next Monday, the Court has scheduled its next private conference for this Thursday, January 22.
With its January 9, 2015 orders list, the Texas Supreme Court issued opinions in two cases.
Section 101.106 election of remedies does not foreclose a federal claim against state officials
Justice Lehrmann delivered the opinion for a unanimous court, affirming the court of appeals.
Section 101.106 of the Texas Tort Claims Act makes plaintiffs choose whether to sue the government entity or the state officials. If a plaintiff tries to have it both ways by suing both categories of defendant, “the employees shall immediately be dismissed.” Tex. Civ. Proc. & Rem. Code §101.106(e).
This petition asked the Court to clarify two situations:
Is a plaintiff barred from filing an amended petition after the State files a motion under Section 101.106(e)?
Does Section 101.106(e) also require the dismissal of claims that a plaintiff might have against state officials under federal law, such as a Section 1983 claim?
On the first, the Court held that this statute does not prevent a plaintiff from amending its petition to add a new claim. The Court distinguished its recent opinion in a health-care-liability case that a plaintiff could not dismiss its claim in an effort to avoid the penalty for not filing a timely expert report. See Op. at 10 (discussing AUSTIN STATE HOSPITAL, DR. VIKAR NUZHATH AND DR. ERIK LINDFORS v. JOEL GRAHAM, No. 10-0674 ). Here, the Court holds that the wording of the Tort Claims Act (using the word “immediately”) does not change the normal background rules of Texas procedure that would generally permit a party to amend its petition.
On the second, the Court held that Section 101.106(e) does not bar federal claims because they are not brought “under” the Tort Claims Act. See Op. at 6-7. The Court reached that result as a matter of statutory construction and so did not consider questions related to preemption or constitutionality. See Op. at 13.
A party cannot avoid an unambiguous contractual release that he chose not to read
Although this appeal led to a per curiam opinion, there is more than one holding of interest for commercial cases.
This dispute grows out of settlement negotiations in a related case. The allegation is that, when the parties were negotiating a formal written settlement agreement, one of them (Plank) promised the other (Westergren) that they would be in a partnership to develop a piece of property for which he would receive $1 million plus a share of future development profits. Westergren contends this agreement is enforceable.
The written settlement agreement, however, contained a provision described as a “RELEASE” that provided for a one-time $500,000 payment.
Westergren sued Plank and the developer of the property (NPH), claiming that he was defrauded into settling or that, at a minimum, those promises constituted an enforceable oral contract. His theory was that the release was unenforceable because of fraudulent inducement, as he had not actually read the provision but instead relied on the promises made. A jury largely agreed with him, but the trial court entered judgment notwithstanding the verdict. A divided court of appeals reversed, reinstating the verdict.
With this per curiam, the Court holds:
A contractual release is not defeated by a party choosing not to read the contract. The Court had little patience for the contention for Westergren’s explanation of why he did not read this release language, characterizing it as “because he was ‘in a hurry’ and did not have his reading glasses with him.” See Op. at 7.
A release is not a covenant not to sue. Plank argued that Westergren even bringing this suit was a breach of the settlement agreement, for which it should be entitled to damages. The Supreme Court holds that the language involved was merely a release of claims, and that the language used in this release did not imply a covenant not to sue.
The statue of frauds. The Court also addressed whether the alleged oral agreement was enforceable at all. The statute of frauds would normally bar an oral agreement regarding real estate. Westergren contended that an exception applied here for partial performance because Plank paid $500,000. Westergren’s theory is that this represented the first half of performance under the alleged oral contract and, thus, was partial performance.
The Court disagreed that Westergren’s framing of this issue accurately stated the law about “partial performance” — explaining in footnote 2 that more would be required but that it would reserve that issue for a proper case. See Op. 9n.2. This case does not shed much light on what law does apply in that situation.
The Court did not need to provide more clarity because, even accepting Westergren’s framing, the record was still legally insufficient here. The Court held that this $500,000 payment was not “’unequivocally referable’ to the agreement.” See Op. 9. Here, NPH’s payment of $500,000 could easily be explained as referable to the settlement agreement, not the alleged partnership agreement. The Court thus held that Westergren’s statute-of-frauds theory failed even his own suggested test.