Supreme Court of Texas Blog: Legal Issues Before the Texas Supreme Court
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Two opinions, one rehearing grant, and six grants [Mar. 21, 2014]

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With this week’s orders list, the Texas Supreme Court issued two opinions and chose six more cases for oral argument this fall.

Opinions Liquidated damages clause: Not [...]

With this week’s orders list, the Texas Supreme Court issued two opinions and chose six more cases for oral argument this fall.

Opinions

Liquidated damages clause: Not as “liquidated” as you might think

In a technical case about renewable-energy credits in the (somewhat) deregulated electricity market, the most interesting (and widely applicable) holding is likely to be the Court’s treatment of liquidated damages. Here, the parties had agreed to a liquidated damages formula that led to a $29 million figure, while the evidence suggested that a true after-the-fact figure would have been closer to $6 million.

So, does the parties’ agreement about damages hold, or does a later court refuse to enforce the provision?

The Texas Supreme Court began with a two-part test, looking at (1) whether the harm is difficult of estimation and (2) whether the measure of liquidated damages is a reasonable forecast of just compensation. (Slip op. at 18) The Court stated that it “evaluate[s] both prongs of this test from the perspective of the parties at the time of contracting.”

Even so, the evidence of actual damages is not irrelevant. Rather, if they are “much less than the amount contracted for,” that can be evidence that the original estimate was (in hindsight) unreasonable.

Here, the Court found that the contract “on its face, reasonably forecast[s] damages,” but that was not enough. The Court looked at how the business relationships here, and the regulatory environment, evolved in the decade after the contract was entered. It noted that (by administrative rule) some of the possible “damage” was discharged when the contract was assigned to a different kind of energy company. It noted that a different provision was pegged to either $50 or twice the market value as determined by the PUC. The PUC, however, declined to announce such a price — so the parties fell back to the $50 figure.

The Court held that where there is “an unbridgeable discrepancy between liquidated damages provisions as written and the unfortunate reality in application, we cannot enforce such provisions.”

The Court stated that it was not making new law, but it also offered no guidance to parties about how to draft liquidated damages provisions in complex transactions that can be accurate enough. I don’t have a clear answer to that, either.

The most obvious reading of the holding is that, on these facts, a ratio of nearly 5:1 is simply too much to bear, no matter what risks the parties may have been allocating. Liquidated damages provisions are then a sort of presumption that can be defeated with proof of a competing measure of damages so low as to be “unbridgeable.”

A different reading of “unbridgeable discrepancy” would focus on the two specific factors the Court discussed in its analysis — both of which related to regulatory assumptions made by the parties that proved unfounded. In this view, the situation is more akin to mutual mistake, in which the parties did not mean to allocate those two regulatory risks at all. The question then would be whether there is a logical bridge, rather than a quantitative one.

You can take your pick. Or you can do what I’m likely to do: argue from both approaches.

Contractual subrogation clauses squeeze out possible equitable subrogation claims

The Court applied its reasoning from Fortis Benefits v. Cantu that language about subrogation in an insurance contract prevented the insurer from relying on equitable remedies covering the same ground.

This case involved a subrogation clause, but also included clauses that imposed duties on an insured to make regular reports, to use due diligence, and not to make misrepresentations in applying for the policy, among others. The Court held that the insurer was bound to its contract language for these, and could not rely on equitable analogues to these defenses covering the same ground.

Rehearing Grant

The Court granted rehearing of a petition it had denied last year, ALLEN MARK DACUS, ELIZABETH C. PEREZ, AND REV. ROBERT JEFFERSON v. ANNISE D. PARKER AND CITY OF HOUSTON, No. 13-0047 . The case is back on the petition docket; the Court has not yet chosen to grant the case on its merits.

The challenge is to a recent City of Houston ballot item, raising questions about what standards to use in evaluating whether voters were adequately informed (by the ballot language or otherwise) about the contents of what they were being asked to approve.

Grants for Oral Argument

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Another quiet orders list [Mar. 14, 2014]

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It’s no surprise that the Court’s orders are light during what passes for Spring Break in Austin. There were no opinions issued and no cases [...]

It’s no surprise that the Court’s orders are light during what passes for Spring Break in Austin. There were no opinions issued and no cases chosen for argument with this week’s orders list.

The Court’s next internal conference is scheduled for March 17 and 18.

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Quiet orders list [Mar. 7, 2014]

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With its March 7 orders list, the Texas Supreme Court issued no opinions and chose no new cases for review.

The Court’s next internal conference is [...]

With its March 7 orders list, the Texas Supreme Court issued no opinions and chose no new cases for review.

The Court’s next internal conference is scheduled for March 17 and 18.

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Enforcing contractual choice of forum in “major” transactions [Feb. 28, 2014]

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With the February 28 orders list, the Texas Supreme Court issued one opinion. It also granted rehearing in a petition that had previously been [...]

With the February 28 orders list, the Texas Supreme Court issued one opinion. It also granted rehearing in a petition that had previously been denied.

Opinion

“Major transaction” venue clauses

Texas Civil Practice and Remedies Code §15.020 gives special weight to contractual choice-of-forum clauses when the transaction size exceeds $1 million.

This dispute emerges from a failed limited partnership. One of the limited partners brought suit against other participants in the venture, but not the entity itself (which was in bankruptcy). The plaintiff below (Richey) sued Fisher and Boudreaux in Wise County for a variety of claims including defamation, common-law fraud, breach of fiduciary duty, and securities violations. The defendants sought mandamus relief, either to obtain dismissal of the claims on standing grounds or a transfer to Tarrant County, the venue selected by the contract.

Standing and Jurisdiction

The Court first held that outright dismissal of Richey’s claims was inappropriate because his allegations suggested he was “personally aggrieved” enough to proceed. Among other examples, the opinion noted allegations that Richey had contributed $1 million that the other limited partners failed to make and that he was personally defamed.

The Court also rejected the argument that Richey’s claims were jurisdictionally barred because they should have been filed against Nighthawk itself, which is in federal bankruptcy court. The opinion explained that whether the claims here “should have been brought against another party … is not a question of jurisdiction requiring dismissal, but is a question of liability.”

Transfer to Tarrant County

The Court then examined where the claims should be heard. The contract for the transaction that led to this lawsuit included a forum-selection clause, and the overall transaction size exceeded the $1 million threshold.

Richey argued that his claims were insufficiently related to the contract containing the provision, both because his tort claims did not “arise from” the sale contract and because the partnership agreement creating some of the duties contained no such clause.

In determining if Richey’s claims fell within the major-transaction statute, the Court borrowed its analysis for forum-selection clauses more generally — what it calls a “a common-sense examination of the substance of the claims.” Here, the Court concluded that the tort theories were “in substance” trying to recover for damages flowing from the contract containing the clause.

The Court also rejected the argument that the statute governing defamation venue — under which suit “can only be maintained” in the county of the plaintiff’s residence (Wise County) — trumps the major-transaction statute. The Court concluded that, although a plaintiff generally has his choice among the various “mandatory” venue statutes when they conflict, here the Legislature intended for the major-transaction statute to control over other conflicting provisions, making Tarrant County the only permisible venue.

Rehearing Grant

The Court originally denied review of this petition last August. The motion for rehearing argued that the issue about Texas covenants not to compete presented here is entangled with the issue in another pending case, EXXON MOBIL CORPORATION v. WILLIAM T. DRENNEN, III, No. 12-0621 . The Court heard oral argument in *Drennen* last November, and that case remains pending.

With these orders, the Court has granted rehearing of the petition and reinstated it to the docket, but it has not yet requested full briefing. The Court will, presumably, reevaluate the situation once it announces a judgment in Drennen.

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Quiet orders list; arguments next week in Hillsboro [Feb. 21, 2014]

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The Texas Supreme Court published a quiet orders list this week. No opinions were issued, and no cases were chosen for oral argument.

Next week, the [...]

The Texas Supreme Court published a quiet orders list this week. No opinions were issued, and no cases were chosen for oral argument.

Next week, the Court will travel to Hillsboro for a special oral argument sitting on Thursday. Two cases are on the docket:

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Three petitions granted [Feb. 14, 2014]

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With this week’s orders list, the Texas Supreme Court chose three cases for oral argument. One of them will be heard in April; the other [...]

With this week’s orders list, the Texas Supreme Court chose three cases for oral argument. One of them will be heard in April; the other two appear to be waiting for the fall calendar.

The Court also issued a slightly corrected opinion in COINMACH CORP. F/K/A SOLON AUTOMATED SERVICES, INC. v. ASPENWOOD APARTMENT CORP., No. 11-0213 while denying rehearing.

Chosen for Argument

Standards for reviewing parental termination

On April 22, 2014, the Court will hear IN THE INTEREST OF A.B. AND H.B., CHILDREN, No. 13-0749 .

This is a parental-termination case, and keeping with the Court’s recent pattern, it has been allotted a special hearing date rather than waiting in a queue with other petitions.

The petition is framed to attack the “factual sufficiency” standards employed by the court of appeals, a question rarely presented but that comes up often in courts below. With that in mind, it’s possible that an opinion here might have ramifications beyond the family law context.

How commercial property insurance applies to multiple sites listed under a single policy

In RSUI INDEMNITY COMPANY v. THE LYND COMPANY, No. 13-0080 , the petition asks the Court to decide whether the policy at issue is a “scheduled” policy or a “blanket” policy, which has ramifications for what arguments an insurer can make to limit its exposure.

The court of appeals heard the case en banc and divided 4-3, with one of the four justices in the majority writing separately to encourage the Court to grant review.

Does the State automatically freeze the effect of an adverse judgment by filing an appeal?

If you litigate against state entities, you may be curious to follow IN RE STATE BOARD FOR EDUCATOR CERTIFICATION, No. 13-0537 , which asks the Court to clarify the state’s ability to supersede judgments without posting a bond.

The agency has suspended an educator’s license. The trial court held that was improper and, after the agency filed an appeal, issued an order denying it the ability to supersede that judgment. This mandamus petition asks the Court to rule that the trial court lacked any discretion in the matter.

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I’ll be a panelist at the Ms. JD conference in Austin

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On February 21st, I’ll be on a panel about what law students and new attorneys should consider about blogging (or writing for similar platforms) as [...]

On February 21st, I’ll be on a panel about what law students and new attorneys should consider about blogging (or writing for similar platforms) as they start to build their professional identities. My co-panelists are Emily Frost of Austin, Erin Gilmer of Austin, and Valarie Hogan of very far from Austin. Lisa Salazar will be moderating.

This is part of the Ms. JD conference “Passion Forward”.

Friday’s events include two other breakout panels (one on social media, one on community involvement), and a small-group workshop to help participants turn their abstract professional-development ideas into more concrete plans.

On Saturday, Ms. JD is co-hosting a “Women’s Law Institute” with UT’s Center for Women in Law, featuring a distinguished list of speakers and participating mentors.

The registration for both days is being coordinated through this page. The Friday sessions are reasonably priced, and the Saturday program is free.

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No grants or opinions on another Texas snow day [Feb. 7, 2014]

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The Texas Supreme Court was once again closed on Friday for weather that might make the rest of the south jealous, but is a little [...]

The Texas Supreme Court was once again closed on Friday for weather that might make the rest of the south jealous, but is a little cold for Texas.

Despite being closed to new filings, the clerk’s office rolled out the regular weekly orders. It included no grants or opinions.

The week of February 10th brings another private conference of the Justices. If the pattern holds, we may see a few grants, or possibly some opinions, as Valentine’s Day treats from the Court.

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