With today’s orders list, the Texas Supreme Court issued opinions in four cases and granted one new case for review.
The opinions today involve home-equity lending, hospital liens in personal-injury cases, what level of litigation conduct waives a contractual right to arbitrate, and parental-termination appeals.
Restructuring a loan without extending new credit does not trigger Texas’s constitutional homeowner protections
In this certified question from the Fifth Circuit, the Texas Supreme Court holds that a loan restructuring that merely recapitalizes the current debt — without extending new credit, as the Court clarifies that concept today — does not implicate Texas’s onerous constitutional requirements for a new home-equity loan.
These loan modifications folded in (“recapitalized”) past due amounts including taxes and insurance premiums, adding those amounts to the principal balance. They simultaneously lowered the interest rate, leading to a schedule of lower monthly payments.
The borrowers here argued that any increase in principal is an impermissible “extension of credit.” The Court disagreed, noting that the particular amounts being recapitalized here were for repayment of taxes and insurance, items that the borrower was already obligated to pay under the original terms. The Court called this “a mechanism for deferring payment of obligations already owed in a way that allows the borrower to retain his home.”
Indeed, throughout Chief Justice Hecht’s opinion, the Court expressed concern that too strict a ruling about loan modifications would force lenders to foreclose in situations where the borrower could, otherwise, be accommodated.
The opinion stopped short, however, of adopting the lender’s proposed rule. The lender argued that all that mattered was that “the borrower’s note is not satisfied and no new money is extended.” The Court called those aspects necessary, but refused to say they were sufficient. The Court gave an example that would fail the test: using the refinancing to cover another unrelated debt or obligation (such as credit card debt). “The test should be whether the secured obligations are those incurred under the original loan.” Here, the obligations being secured were payment of property tax and insurance premiums.
There is some room for future parties to argue about the contours of this test, on a closer set of facts. But refinancing narrowly tailored to save a house from foreclosure seems likely to fit the bill.
Hospital liens are not discharged until the insurer received payment; a joint payment to the insured is not enough
Under chapter 55 of the Texas Property Code, hospitals that treat an injured patient can assert a lien against that person’s personal-injury cause of action. By statute, the hospital charges must be “paid” before the underlying claim can be settled.
Here, the insurer made a check out jointly to the injured person and to the hospital. The injured person deposited the check without obtaining the hospital’s endorsement.
The hospital then sued the insurer, which asserted that it had completed its obligation under the law by issuing the check. The court of appeals agreed. The Texas Supreme Court did not.
Trying to resolve whether this constituted a payment, the Court turned to the UCC’s general principles about negotiable instruments. This check was drafted so that either copayee could endorse (“alternative copayees”) rather than requiring the signature of both (“nonalternative copayees”). For that reason, the Court held, the better view was that this did not constitute payment to discharge the insurer’s obligation to the hospital.
Does this mean that the hospital can now sue the insurer directly (a defendant much more likely to be able to easily satisfy a judgment)? The Court questions whether the statute creates such a cause of action but does not answer, because this was not a ground raised in the summary judgment motion. (The Court noted that the question had been discussed during the appeal and was “briefly discussed at oral argument.” That did not substitute for preservation of error.)
The Court therefore remanded the case to the trial court for further proceedings.
Litigation conduct that does not waive arbitration
In this dispute between a law firm and its former client over a contingency agreement, the question is whether the law firm has substantially invoked the litigation process so as to waive its right to arbitrate.
The first asserted waiver was that the law firm had, previously, sued a former associate over the same general subject matter — litigation in which the client became tangentially involved and was subjected to discovery. The firm did not, however, even have an arbitration clause with that former associate. The Court held this was not enough to waive the firm’s right to arbitrate against the client.
The second asserted waiver was that the law firm filed suit against the client and (eventually) moved for a no-answer default judgment before later moving for arbitration. Even this invocation of the court system was not enough to waive arbitration. The opinion characterized this as “filing limited pleadings” that “did not substantially invoke the litigation process.”
The Court therefore reversed the court of appeals and remanded for trial court grant the motion to compel arbitration.
An appellate court need only provide details of its factual sufficiency analysis when reversing a parental-termination judgment, not when affirming
In 2005, the Texas Supreme Court held that if a court of appeals holds a jury finding in a parental-termination case to be factually insufficient, its opinion must detail the reason why. The current petition asked the Texas Supreme Court to extend that same requirement to appellate decisions that affirm a jury’s finding of parental termination, given the high stakes.
The Texas Supreme Court declined to do so.
It explained that the “detail” requirement was to ensure that the court of appeals was according deference to the jury as fact-finder, an interest not implicated when the court of appeals affirms. Instead, all that is required is that the court of appeals actually apply the right standard, whether or not it details all the specific facts.
To determine whether the right standard was applied here, the Texas Supreme Court observed that the court of appeals panel that first heard this case “cited the correct standard … and subsequently devoted six pages of its opinion to articulating evidence presented at trial,” analysis attached to a dissent to the later en banc opinion. This is enough to signal “that the en banc court of appeals, though it did not specifically detail all evidence favorable … did in fact comply with the standard [of review].”
Grant: How to value billboards in condemnation cases
In STATE OF TEXAS v. CLEAR CHANNEL OUTDOOR, INC., No. 13-0053
, the State (supported by some local governments) challenges how billboards were valued in condemnation. The landowners contend that the installed billboards are part of the realty warranting compensation for their lost income. The State argues that they should, instead, be seen as a type of personal property that can be relocated.
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Programming note: I am regrettably behind on some recent orders. When I have added those historical summaries to the site, I’ll post a link in a new blog post to let you know.