The Texas Supreme Court issued opinions in three cases with today’s orders list. It also chose one new petition to be argued this fall.
The issues the Court addressed today included: (1) when the constitutional ratio for exemplary damages has to be applied and when it can be exceeded (the cattle-rustling case), (2) when litigation has to be stayed for arbitration of a related issue, and (3) another application of City of Waco v. Kirwan, about the government’s duties as a landowner.
Justice Lehrmann, who was sworn in on Monday, did not participate in these three decisions.
Exemplary damage ratios applied to cattle rustling; corporate liability for exemplary damages
Thomas O. Bennett, Jr. and James B. Bonham Corp. v. Randy Reynolds, No. 08-0074 (docket and briefs)
For this case, I’ll borrow the summary of the Court’s Staff Attorney for Public Information. The background:
The principal issues in this dispute over cattle belonging to one rancher allegedly sold by another are (1) whether $1.25 million in punitive damages violates due process when actual damages were $5,300 and (2) whether agency principles support punitive damages against a corporation for its president’s acts. In this case Reynolds sued Bennett and Bonham Corp. for conversion, alleging Bennett sold Reynolds’ cattle found on the corporation’s land. Bennett’s daughters own the corporation. Bennett, the president but not a shareholder, lives on the corporate property and runs his own cattle on it without charge. The court of appeals affirmed the punitive damages.
The Supreme Court HOLDS that (1) punitive damages were justified but that awarded on a combined 235-to-1 ratio to actual damages violated due process and (2) the corporation was liable for exemplary damages because Bennett, as a corporate vice-principal, authorized and approved his own act of converting the cattle, satisfying Civil Practices and Remedies Code section 41.005(c)(1)’s allowance for such damages if the corporation authorized doing and manner of the tort.
The question whether punitives were justified on this record:
¶ Reprehensibility. Bennett’s alleged extra-conversion misdeeds (at least most of them) count properly toward reprehensibility, as they relate back to the underlying theft and sought to extend and exacerbate harm to Reynolds. As a general matter, exemplary damages are not meant to redress wrongdoing that occurs in litigation, but to redress wrongdoing that results in litigation. A reprehensibility analysis can therefore consider, to some extent, surrounding circumstances beyond the underlying tort. Some of Bennett’s furtive actions may go to motive, underscore the parties’ animosity, shed light on provocation, demonstrate deliberateness and culpability and otherwise show heightened reprehensibility. In short, most of Bennett’s non-theft wrongdoing, while perhaps separately redressable via court-ordered sanctions or other legal proceedings, is sufficiently entwined with the theft to enter the exemplary-damages calculus.
Whether the “ratio” for punitive damages has to be applied, given this context:
¶ Ratio analysis. Facts of this case are not meaningfully distinguishable from those in Gullo Motors v. Chapa. Under the first four reprehensibility factors, as interpreted in Gullo Motors, Bennett’s conduct did not cause physical harm, did not endanger the health or safety of others, did not involve repeated actions and did not threaten financial ruin. Only the fifth factor favors exemplary damages, in that Bennett’s conduct was the result of “intentional malice” rather than mere accident. Both ratios were constitutionally excessive.
Whether Bennett’s corporation could also be liable for exemplary damages:
¶ Corporate liability. The corporation cannot be liable for exemplary damages if the vice-principal’s misconduct occurred while he was acting in a personal capacity unrelated to his authority as a corporate vice-principal. But in this case Bennett used corporate authority over corporate employees, on corporate land, to convert cattle using corporate equipment. Ample evidence shows that Bennett was acting in a corporate capacity.
Justice Willett delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Hecht, Justice Wainwright, Justice Medina, Justice Green, and Justice Guzman joined, and in all but Part II(A)(1) of which Justice Johnson joined.
Justice Johnson delivered a concurring opinion.
Stay of litigation pending a related arbitration
In re Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc., No. 09-0161 (per curiam) (docket and briefs)
The Court framed this case as similar to a previous decision, In re Merrill Lynch Trust Company FSB, 235 S.W.3d 185 (Tex. 2007) (orig. proceeding). That case held that there are “many circumstances in which litigation must be abated to ensure that an issue two parties have agreed to arbitrate is not decided instead in collateral litigation.” Id. at 197.
Here, we apply the same principle to hold that the trial court abused its discretion by refusing to stay the litigation related to one corporation, MetroPCS Communications, Inc. (Communications), until the identical claims of its corporate affiliate, MetroPCS Wireless, Inc. (Wireless), are decided by arbitration or until Wireless is a member of a certified class action.
The Court noted that the two sets of claims were quite interrelated:
Wireless and Communications, jointly referred to in their petition as ‘MetroPCS,’ assert identical claims with virtually identical facts. Their pleadings do not meaningfully distinguish between the two affiliates, which also share counsel.
The difference was that one of them was covered by an arbitration clause and the other was not. But that arbitration clause contained a second layer of complication — it has a carve-out for claims within a class action (mirroring certain NASD rules, we are told). This rule ensures that securities class actions are heard by the courts without permitting duplicative arbitration proceedings.
This is tricky stuff. As I understand the Court’s holding, a stay of this litigation is required until either (a) an arbitration concludes or (b) a class is certified.
It’s easy to understand what happens after an arbitration concludes; it would have the force of a final judgment and might resolve some of these issues or claims.
But what about after a class is merely certified? At that point there would be a pending class action, so the arbitration clause would yield — permitting this Texas lawsuit to go forward. But that would mean two court proceedings, in some sense, racing toward final judgment and creating a different kind of risk of inconsistent judgments.
This seems to be the result of how the NASD designed this arbitration clause. But the courts may be better equipped to navigate that more traditional sort of forum conflict than to try to peer inside the the black box of an arbitration proceeding.
Remand “in light of” City of Waco v. Kirwan
Texas State University-San Marcos v. Sam and Betty Bonnin, No. 09?0061 (per curiam) (docket and briefs)
The parents of a student who drowned in the San Marcos River sued the university alleging that some of its repairs to a nearby dam had created an “unreasonably dangerous condition.”
In a per curiam opinion, the Texas Supreme Court vacated the court of appeals’ judgment and remanded so that it could reconsider the case in light of the Court’s later clarification of the rule in City of Waco v. Kirwan, 298 S.W.3d 618, 620 (Tex. 2009).
New issue about tolling the time to file medical-expert reports
Just when you thought that the Court had exhausted every possible combination of issues about the 2003 medical-malpractice changes . . .
Today the Court granted review in Jose Carreras, M.D., P.A. v. Carlos Francisco Marroquin, et al., No. 09-0857 (docket and briefs). Here’s how the petition for review frames the issue:
Can a Plaintiff Benefit from the Section 74.051 Tolling Provision if the Plaintiff Fails to Provide the Pre-suit Notice and Authorization Required by Sections 74.051 and 74.052 of the Texas Civil Practice and Remedies Code?
The case will be set for oral argument sometime this fall.