STATE BAR LITIGATION SECTION REPORT A DVOCATE THE THE “BEST OF” LITIGATION UPDATE 2004 ✯ VOLUME 26 SPRING 2004 STATE BAR LITIGATION SECTION REPORT B ADVOCATE THE EDITORS TOM C OWART LITIGATION SECTION OFFICERS COUNCIL MEMBERS Windle Turley, P.C. E DITOR IN C HIEF 1000 Turley Law Center TALMAGE B OSTON, C HAIR TERMS EXPIRE 2004 L ONNY S. HOFFMAN 6440 North Central Exp. Winstead Sechrest & Minick University of Houston Law Center 1201 Elm St., Ste. 1500 K IM J. A SKEW Dallas Texas 75206 100 Law Center Dallas, TX 75270 Dallas Tomc@Wturley.com Houston, TX 77204-6060 firstname.lastname@example.org A LISTAIR DAWSON Lhoffman@central.uh.edu Houston A LISTAIR DAWSON Beck Redden & Secrest A NDY TINDEL , C HAIR -E LECT JUDGE R OYAL F URGESON E DITOR E MERITUS 1221 McKinney, Ste. 4500 Provost & Umphrey Law Firm, L.L.P. San Antonio J. PATRICK H AZEL Houston, TX 77010 304 W. Rusk St. University of Texas School of Law email@example.com Tyler, TX 75701 J AN WOODWARD FOX firstname.lastname@example.org Houston A SSISTANT E DITORS WALKER C. FRIEDMAN DANIEL W. B ISHOP, JUSTICE L INDA R. YANEZ JEFFREY M. B ENTON Friedman, Suder & Cooke Edinberg Univ. of Houston, J.D. exp. May 2005 Tindall Square Warehouse No. 1 VICE -C HAIR 604 East 4th Street, Suite 200 Watson, Bishop, London & Brophy TERM EXPIRING 2005 E LVIN HOUSTON Fort Worth, Texas 76102 106 E. 6th St., Ste. 700 JUDGE L EVI B ENTON Univ. of Houston, J.D. exp. May 2004 email@example.com Austin, TX 78701 Houston firstname.lastname@example.org G RAPHIC D ESIGNER G EOFFREY L. H ARRISON FRED B OWERS R EBECCA B RIDGES R ICE Susman Godfrey, L.L.P. S USAN I. NELSON, SECRETARY Lubbock email@example.com 1000 Louisiana Street, Ste. 5100 The Nelson-Lewis Law Firm, PLLC River Square Center JEFFREY T. L UCKY Houston, TX 77002-5096 El Paso firstname.lastname@example.org P. O. Box 1 Waco, TX 76703 E LIZABETH E. M ACK EDITORIAL BOARD THE HONORABLE email@example.com Dallas K IM J. A SKEW K AREN JOHNSON Hughes & Luce, L.L.P. Judge, 95th Judicial District Court E DUARDO R. R ODRIGUEZ , M ICHAEL C. SMITH 1717 Main St., Ste. 2800 TREASURER Marshall Geo. Allen Courts Building, 3rd Floor Dallas, TX 75201-7342 600 Commerce Street Rodriguez, Colvin, Chaney & Saenz L.L.P. TERM EXPIRING 2006 firstname.lastname@example.org Dallas, Texas 75202 1201 E. Van Buren St. Brownsville, TX 78522 WALKER C. FRIEDMAN Fort Worth JOE B ROPHY JEFFREY K APLAN email@example.com Watson, Bishop, London, & Chevron Phillips Chemical Company G EOFFREY L. H ARRISON Brophy, P.C. P. O. Box 4910 JOHN E. SIMPSON, PAST C HAIR Houston 106 East Sixth Street, Suite 700 The Woodlands, TX 77387-4910 Splawn & Simpson, Inc. Austin, Texas 78701 firstname.lastname@example.org P.O. Box 1376 JUDGE K AREN JOHNSON JBrophy@watsonbishop.com Lubbock, TX 79408-1376 Dallas TOM K URTH email@example.com G REGORY S. C OLEMAN L INDA S. MC D ONALD Haynes and Boone, LLP San Antonio Weil Gotshal & Manges, L.L.P 901 Main Street, Suite 3100 L UTHER H. S OULES III 8911 Capital of TX Hwy., Ste. 4140 Dallas Texas 75202 PAST C HAIR A UGUSTIN R IVERA JR . Austin, TX 78759 Thomas.Kurth@Haynesboone.com Langley & Banack, Inc. Corpus Christi firstname.lastname@example.org Trinity Plaza II SUPREME COURT LIAISON E LIZABETH E. M ACK 745 East Mulberry, Suite 900 Locke Liddell & Sapp L.L.P. San Antonio, TX 78212-3166 JUSTICE H ARRIETT O’NEILL 2200 Ross Ave., Ste. 2200 email@example.com STATE BAR OF TEXAS ADVISORS Dallas, TX 75201-6776 firstname.lastname@example.org M ACK BARNHART PAULA W. H INTON S USAN I. NELSON The Nelson – Lewis Law Firm, PLLC TEXAS YOUNG LAWYERS ASSOCIATION River Square Center REPRESENTATIVE ✯ P. O. Box. 1 Waco, TX 76703 email@example.com JOE B ROPHY VOLUME 26 M ICHAEL C. SMITH The Roth Firm 115 N. Wellington, Ste. 200 SPRING Marshall, TX 75670 firstname.lastname@example.org 2004 STATE BAR LITIGATION SECTION REPORT 1 ADVOCATE THE T ABLE OF C ONTENT S SPRING 2004 E DITOR ’S C OMMENTS by Lonny S. Hoffman 2 C HAIRMAN ’S R EPORT by Talmage Boston 3 T HE “ BE S T O F ” L I T IG AT IO N UP DAT E 20 0 4 S UPREME C OURT U PDATE by Justice Priscilla R. Owen, Julie Buchanan, Osler McCarthy, Casey Low & Michel Walter 6 THE C OURT ’S C HARGE : THE STATE OF PAYNE AND THE P ROGENY OF C ASTEEL by Nina Cortell, Karen S. Precella & Heather D. Bailey 45 L IVING IN A WORLD OF E XPERTISE —THE P ERILS OF I NNOCENCE , G UIDELINES FOR TRIAL C OUNSEL’S C AREFUL H ANDLING OF E XPERT W ITNESSES by Ladd A. Hirsch & Ester R. Donald 61 B USINESS TORT U PDATE by Daniel Bishop 73 A NNUAL S URVEY OF TEX AS I NSUR ANCE L AW —2003 by Mark L. Kincaid & Trevor A. Taylor 96 C URRENT D EVELOPMENTS IN A PPELL ATE P ROCEDURE by Luther H. Soules III & Susan S. Patterson 114 M ULTI -PART Y I SSUES A FTER H OUSE B ILL 4 by Steve McConnico & Daniel Bitting 136 V ENUE : STATE AND F EDER AL I SSUES I NCLUDING HB4 U PDATES by Jeff Joyce 149 ✯ ✯ ✯ THE A DVERSARY SYSTEM , L ITIGATION , AND A LTERNATIVES IN THE SEPTEMBER 12TH E RA Excerpt of Speech by Steven Brill (Nov. 13, 2003, Univ. of Houston Law Center) 163 O RAL H ISTORY, B ROADUS SPIVEY by Pat Hazel 165 ADVOCATE ✯ SPRING 2004 THE 2 EDITOR’S COMMENTS T HIS ISSUE OF THE ADVOCATE IS DEVOTED TO providing a “Best Of” from the 2004 Litigation Update that was held in Austin, Texas in January. It has been a long-standing tradition of this journal to republish some of the works from that continuing legal education program for all members of the Litigation Section. I also want to take this opportunity to preview what we are working on for the remaining two issues in the 2004 calendar year. Our next issue, the Summer 2004 issue (which should be coming out around July 1), will address Privileges, Protective Orders and Confidentiality Agreements. The symposium will undertake a detailed examination of the law relating to these subjects. Articles will also focus on recent and important legislative changes and address several key questions, LONNY S. HOFFMAN including: How will the new rules impact these areas of legal practice? What can be expected as a result of the changes? How will they influence pretrial and trial strategy? The final issue of the year (anticipated publication date of October 2003) will be devoted to the subject of depositions and deposition practice in state and federal courts in Texas. Our goal, as always, is to put together an issue that makes a serious and useful contribution to the literature on the subject for members of this section. Finally, a note of correction and apology. Our last issue on Binding Arbitration (Winter 2004) included an article, The Basics of Confirming, Vacating, Modifying and Correcting an Arbitration Award under the FAA and the TAA, coauthored by David Pluchinsky and John Lynd. We inadvertently failed to credit Mr. Lynd for his contribution to this work. I regret the error. If you have any questions or comments about this or prior issues, I welcome your feedback. My email address is LHoffman@central.uh.edu. Lonny Hoffman Editor in Chief ADVOCATE ✯ SPRING 2004 THE 3 CHAIRMAN’S R EPORT E ACH YEAR, THE SPRING ISSUE OF THE ADVOCATE (per the Spring 2004 issue that follows) is devoted to recognizing some of the best papers delivered at our annual “Litigation Update” seminar presented every January by the State Bar’s Litigation Section. I am sure this issue shaped under Lonny Hoffman’s able editorial guidance will meet with the reader’s approval. I attended the Update two months ago in Austin, and the presentation that stands out in my memory today was made by Fifth Circuit Judge Patrick Higginbotham on his chosen topic, “The Vanishing Trial.” Judge Higginbotham recited all the statistics about how many fewer jury trials and judge trials there have been in the last five years throughout the country compared to the decades before, and how this downward TALMAGE BOSTON trend will likely continue. This phenomenon has been previously recognized in articles appearing in the ABA JOURNAL and LITIGATION magazine over the past eighteen months, so the speech’s contents did not surprise me. I was surprised, however, by Judge Higgenbotham’s essential criticism of Alternative Dispute Resolution as the cause of trials’ decline in that an overabundance of settlements reduces the amount of precedent created by our judicial system. Yes, more settlements mean fewer trials, fewer trials mean fewer appeals, and fewer appeals mean less precedent. A district judge in Dallas has typically tried only 13-15 jury trials per year since the county courts at law acquired concurrent jurisdiction more than six years ago, and most of those tried cases involve either car wrecks or grocery store slip-and-falls. Thus, those few lawsuits that go to trial almost always involve plaintiffs who have their lawyer hired on a contingent fee basis, such that they essentially have no downside to rolling the dice at trial since it doesn’t cost them any money to proceed. One Dallas district judge told me in early February that the judge had not had a jury trial go past voir dire since the first week in November. A justice on the Dallas Court of Appeals confirmed the impact on appellate practice, telling me in late January it had been over two months since the justice had heard an oral argument. So the ultimate question for litigators to ask themselves: “Is the Vanishing Trial a good thing or a bad thing?” Maybe the question deserves some tweaking – “A good thing or a bad thing for whom?” And therein lies the rub. Certainly, trials are good things for litigators and judges. Historically, they have been a big part of what we most enjoy doing in our practice, and where reputations are made and war stories created. They put the notches in our belts. In over twenty-five years of practicing as a trial lawyer in downtown Dallas, however, I have yet to have a client who truly wanted to proceed through the entire litigation process and go to trial when an acceptable settlement became available. Throughout my career, I have always represented business people. They don’t like coming out-of-pocket to pay sometimes enormous fees. They don’t like giving ADVOCATE ✯ SPRING 2004 THE 4 depositions themselves, or having their adversaries respond to deposition questions with “I don’t recall.” They don’t like fighting over document production that may involve having to turn over proprietary information to a competitor and ultimately shown in court for anyone to see. Overall, they would prefer to decide their own fate, over having it decided by a jury, a politically elected or appointed trial judge, or an appellate court. So, I respectfully disagree with Judge Higginbotham. In my opinion, the vanishing civil trial is not caused so much by the influx of Alternative Dispute Resolution; rather, it is a natural result of the development of discovery over the last several decades. Amplified and sophisticated discovery took trial by ambush out of lawyers’ bags of tricks, and allowed parties assisted by capable counsel to (i) learn and evaluate the pertinent facts in a case well before trial, (ii) perform their own internal handicapping as to the likelihood for success or failure in the trial, (iii) determine a reliable estimate of how much going forward will cost them and how much time it will take, (iv) analyze the ultimate solvency of a defendant, and (v) arrive at a settlement that seems prudent in light of all these factors. So, the Vanishing Trial – not so good for litigators and judges, but very good for the parties to the lawsuit, who our judicial system is supposed to be serving. How do you answer the question? Our Litigation Section will examine a different angle on the question during the keynote luncheon held Friday, June 25, 2004, at the State Bar’s Annual Meeting in San Antonio. A debate between former Solicitor General and Special Prosecutor Kenneth Starr and San Antonio’s Court of Appeals’ Chief Justice Phil Hardberger, moderated by Court TV legal analyst Roger Cossack, will focus on whether the scope of our state and federal judicial systems is being reduced by the expanded reach of both the executive and legislative branches of government. We hope you will join us in San Antonio for what should be a very lively presentation regarding an issue that should be on every litigator’s radar screen. Talmage Boston Chairman, Litigation Section STATE BAR LITIGATION SECTION REPORT ADVOCATE 5 STATE BAR LITIGATION SECTION REPORT A DVOCATE THE THE TEXAS LAW U PDATES ON RECENT CASE LAW UPDATES in selected topical areas as determined by the Texas Supreme Court and intermediate appellate courts. THE “B EST OF ” L ITIGATION UPDATE 2004 ✯ ADVOCATE ✯ SPRING 2004 THE 6 SUPREME COURT UPDATE HON. PRISCILLA R. OWEN, JULIE BUCHANAN, OSLER MCCARTHY, CASEY LOW, AND MICHEL WALTER I. SCOPE OF THIS ARTICLE judge’s ruling upholding revocation of a child-care facility’s This article surveys cases that were decided by the Supreme license is subject to judicial review. After a hearing before Court of Texas from October 1, 2002 through December 31, the State Office of Administrative Hearings, an administrative 2003. Petitions that have been granted but not yet decided law judge upheld the revocation. Mega Child Care, Inc. filed are also included. suit seeking judicial review of the determination. The trial court dismissed the case for lack of jurisdiction. The court of I. ADMINISTRATIVE LAW appeals reversed, holding that a right to judicial review exists A. Appeal/District Court Jurisdiction/Field Rules under Texas Government Code section 2001.171. 1. Tex. R.R. Comm’n v. WBD Oil & Gas Co., 104 S.W.3d 69 (Tex. February 13, 2003) [01-0177]. The issue is whether the The Supreme Court granted the Texas Department of district court has jurisdiction under the state’s Administrative Protective and Regulatory Services’ petition for review to Procedures Act to review Texas Railroad Commission special consider whether the trial court had subject matter jurisdic- field rules adopted after a contested-case proceeding. In this tion to review the administrative law judge’s ruling. The Court case, WBD had notice of the hearing involving Panhandle heard argument on September 10, 2003. oil and gas fields, but did not participate in it. When oil and gas operators sued to force WBD’s compliance with the rules, C. Public Utility Commission/Jurisdiction WBD sued the Railroad Commission and the operators to 1. In re Entergy Corp. & Entergy Gulf States, Inc., argu- declare the rules invalid. The trial court dismissed WBD’s ment granted on pet. for writ of mandamus, 46 Tex. Sup. Ct. lawsuit, but the court of appeals reversed, concluding that J. 1058 (August 28, 2003) [03-0024]. The issue in this the field rules are rules of “general applicability” that can be case is whether a dispute over a private agreement that subject to a declaratory judgment suit under the administra- requires Public Utility Commission (PUC) approval to be tive procedures law. effective is within the exclusive jurisdiction of the PUC. In 1992, Entergy Corp. agreed to purchase Gulf States Utility The Supreme Court reversed and remanded, holding that Company, and the companies merged to form Entergy Gulf Railroad Commission field rules adopted in a contested-case States, Inc. (EGSI). In 1993, EGSI customers entered into a proceeding cannot be challenged in a declaratory-judgment settlement agreement with EGSI to capture a portion of the action. The Court compared rule-making and contested-case expected savings from the merger. The agreement was to be proceedings, concluding that contested-case procedures limit implemented via a regulatory plan that required EGSI to file participation to those directly affected by the dispute, in con- three Public Utility Regulation Act (PURA) rate cases over trast to the maximum public participation necessary for rule- an 8-year period. The PUC entered an order approving the making. Participants in a contested case would expect any merger and the regulatory plan. While the second rate case further challenge to follow immediately after the proceeding was pending in 1999, the Legislature passed Senate Bill 7, and that after that time the decision would stand. The court which made sweeping changes to the electric utility industry of appeals had suggested that determining field rules is a to implement retail competition in Texas and created a new hybrid process, but the Supreme Court said contested-case and completely different regulatory scheme from that in place and rule-making procedures are mutually exclusive in that a when the settlement agreement was made. The PUC issued rule cannot be adopted without public input and a contested orders in three subsequent EGSI proceedings altering the case cannot be decided with it. regulatory plan in the agreement to conform with Senate Bill 7, including an order that Senate Bill 7 had eliminated the B. License Revocation/Review requirement for EGSI to file the third rate case. 1. Tex. Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 81 S.W.3d 470 (Tex. App.—Houston [1st Dist.] Shearer, an EGSI customer who is not a signatory to the 2002), pet. for review granted, 46 Tex. Sup. Ct. J. 527 (March 27, Agreement, filed a class action suit for breach of contract 2003) [02-0728]. The issue is whether an administrative law alleging that Entergy and EGSI failed to pass on all the ADVOCATE ✯ SPRING 2004 THE 7 merger savings contemplated in the agreement to their judgment on the procedural issues. The court of appeals held Texas customers by not filing the third rate case. Entergy that (1) the Commission had provided a reasoned justifica- filed a motion to transfer venue and subsequently a motion to tion for enacting the fees guideline and that the Commission dismiss for want of subject matter jurisdiction, arguing that was not required to republish the fees guideline after minor PURA grants the PUC exclusive jurisdiction over the case, alterations because the amendments did not affect anyone which was essentially a dispute over EGSI’s rates pursuant who had not already received notice; (2) the Commission to a PUC-approved regulatory plan. The trial court denied had made sufficient copies of the fees guideline available and both motions. that requiring the Commission to make more copies would be prohibitively expensive because of its length; and (3) the The Supreme Court heard argument in this original pro- Commission had not exceeded its statutory authority in set- ceeding on November 12, 2003. ting caps on medical fees and that the imposition of a time limit on a request for medical dispute resolution complied D. Worker’s Compensation/Medical Fee Guidelines/ with the purpose of a statute of limitations. The court of Promulgation appeals also held, however, that the Commission exceeded 1. Tex. Workers’ Comp. Comm’n v. Patient Advocates of Tex., its authority in promulgating the Dispute and Audit Rules 80 S.W.3d 66 (Tex. App.—Austin 2002), pet. for review granted, because the rules grant the insurance carriers authority to 46 Tex. Sup. Ct. J. 617 (May 1, 2003) [02-0804]. The issue audit health-care providers’ bills. The court of appeals stated is whether the Texas Workers’ Compensation Commission’s that the delegation of the Commission’s authority to conduct dispute and audit rules impermissibly grant administrative audits to private insurance carriers was improper because the authority to a private entity. A related issue raised in this Commission had not provided “sufficient standards to guide appeal is whether the court of appeals properly invalidated the carriers in the performance of their delegated public function.” rules. Patient Advocates of Texas challenged the validity of a The court of appeals declared the Dispute and Audit Rules, series of rules governing workers’ compensation medical-cost 28 Tex. Admin. Code ‘’ 133.301-.305, to be invalid. guidelines and reimbursement procedures promulgated by the Texas Workers’ Compensation Commission (Commission). The Supreme Court granted the Commission’s petition for In 1995, the Commission published a Medical Fee Guideline review and heard argument on September 10, 2003. that sets caps on the amount a health-care provider may charge an insurance company for any given medical proce- II. ARBITRATION dure provided to an injured worker. The Commission also A. Enforcement/Employer Reserving Right To Abolish Or promulgated a set of administrative rules, some of which Modify Agreement implement and govern procedures by which insurance carriers 1. J.M. Davidson Inc. v. Webster, S.W.3d , Tex. Sup. Ct. may audit health care providers’ billing. Patient Advocates J. (December 31, 2003) [01-0774]. The issue is whether an challenged the validity of these rules on both procedural arbitration agreement between an employer and an employee and substantive grounds. Patient Advocates claimed that is enforceable when the agreement is contained in a document the Commission did not follow the procedures mandated that reserves to the employer the unilateral right to abolish or by the Administrative Procedures Act in promulgating the modify “any personnel policy” without prior notice. In this fees schedule. Specifically, Patient Advocates argued that the lawsuit, Chelsey Webster sued his employer, J.M. Davidson, Commission (1) had not provided a reasoned justification claiming he had been fired for filing a worker’s compensation for establishing the fees guideline; (2) had not republished claim. J.M. Davidson sought to compel arbitration under an the fees guideline after making changes to it; and (3) had alternative-dispute resolution policy Webster signed when he not made sufficient copies of the fees guideline available. was hired. Under the policy, Davidson reserved the right to Substantively, Patient Advocates complained that the Medical abolish or modify “any personnel policy” without notice. The Fee Guideline imposes an impermissible cap on medical costs. trial court denied Davidson’s motion to compel arbitration, Patient Advocates also claimed that the rules impermissibly and the court of appeals affirmed in a split decision. delegated the Workers’ Compensation Commission’s auditing powers to private insurance companies and that the rules The Supreme Court held that the arbitration agreement was improperly created a statute of limitations. ambiguous as to whether the modification language applied to the arbitration agreement. The question, the Court said, The trial court granted summary judgment in the Commission’s was whether the arbitration policy was a “personnel policy,” favor on all claims. The court of appeals affirmed summary within the meaning of the agreement, and whether the ADVOCATE ✯ SPRING 2004 THE 8 reservation of rights rendered the agreement to arbitrate Mistake illusory. Because the Court found that it was unclear as to 1. Callahan & Assocs. v. Orangefield Indep. Sch. Dist., 92 whether the arbitration agreement was a personnel policy S.W.3d 841 (Tex. December 19, 2002) [01-0993]. The issue under the agreement, the Court remanded the case to the is whether an arbitrator’s refusal to award damages for a trial court for consideration of that issue. In In re Halliburton, faulty driveway Callahan designed was an “evident mistake 80 S.W.3d 566 (Tex. 2002), however, the Court previously or violated common law,” posing a fact issue that avoided held that when an employer’s right to modify or terminate summary judgment on the arbitration award. In this case, the an arbitration agreement, by its express terms, applies only arbitrator found both the school district and Callahan at fault prospectively to unknown claims, requires prior notice, and for the driveway’s failure and awarded Callahan additional applies to both the employer’s and the employee’s rights, the fees for work on the driveway but awarded no damages to agreement to arbitrate is not illusory. the district. In dissent, Justice Schneider, joined by Justice O’Neill, said The Supreme Court held that an arbitrator’s mere failure to the agreement was not ambiguous and that the company’s award damages is not a ground under the Texas Arbitration promise to arbitrate was illusory. Justice Schneider observed Act for modifying or correcting an arbitration award. The that the arbitration policy lacked protections similar to the Act only permits a court to modify or correct an award that ones the Court relied on in Halliburton to find the promises contains an “evident miscalculation of figures” or an “evident to arbitrate mutually binding. mistake in the description of a person, thing, or property referred to in the award.” Justice Smith also dissented, agreeing with Justice Schneider that the arbitration agreement was not ambiguous, but dis- D. Nonsignatories To Agreement agreeing that the promise to arbitrate was illusory. Justice 1. In re Weekley Homes, L.P., argument granted on pet. for writ Smith said that the provision allowing J.M. Davidson to of mandamus, 46 Tex. Sup. Ct. J. 1204 (September 25, 2003) “abolish or modify any personnel policy without prior [03-0309]. The issue in this original proceeding is whether notice” applied to the arbitration policy, but did not waive nonsignatory minor children are bound to a valid arbitra- the employee’s right under Texas at-will employment law tion clause entered into by their parents concerning the con- to contemporaneous notice of any change in the company’s struction of a family residence. Dawn and Scott Richardson arbitration policy. entered into a contract with Weekley for the construction of a residence in Austin, Texas. This contract contained a B. Enforcement/Fraudulent Inducement Claims valid arbitration clause. After five weeks in their new home, 1. In re J.D. Edwards World Solutions Co., 87 S.W.3d 546 the Richardson family moved out, alleging adverse health (Tex. October 10, 2002) [01-0630]. The issue is whether man- effects. The Richardsons sued Weekley, alleging negligence, damus relief is available to compel arbitration of a fraudulent gross negligence, fraud, negligent misrepresentation, DTPA inducement claim under an agreement to arbitrate “all dis- violations, breach of contract, and products liability claims. putes involving [the] Agreement,” when the agreement specified The minor children, however, asserted only negligence, gross that Colorado law would control and the arbitrator would negligence, and products liability claims for their personal be “appointed and operating under the Uniform Arbitration injuries. After a hearing, the trial court granted Weekley’s Act and the procedural rules of the American Arbitration motion to compel arbitration with respect to all of the adult Association.” The trial court denied J.D. Edwards’s motion Richardsons’ claims, but the court denied Weekley’s motion to compel arbitration of its fraudulent inducement claim, and with respect to the children’s claims. The Supreme Court the court of appeals denied mandamus relief. heard argument in this case on December 10, 2003. The Supreme Court held that the parties’ agreement to arbitrate III. ATTORNEYS all disputes “involving” the underlying contract was broad A. Appointments enough to encompass the fraudulent inducement claim, relying 1. Gibson v. Tolbert, 102 S.W.3d 710 (Tex. March 27, 2003) in part on Colorado law. The Court further concluded that [02-0190]. The question presented in this case is whether mandamus relief was available because the interlocutory appeal “exceptional circumstances” were present that required the provisions of the Texas Arbitration Act did not apply. trial judge to appoint counsel in a civil case absent a statutory or constitutional provision requiring such an appointment. C. Modification of Award/Evident Miscalculation or Here, a prison inmate, acting without counsel, sued a prison ADVOCATE ✯ SPRING 2004 THE 9 doctor for medical malpractice for assigning him to a farm suspension order and affirmed the judgment after the lawyer, work detail after a back specialist recommended against such on rehearing, brought a disqualification challenge to a board an assignment. The trial court denied Tolbert’s motion to member based on new facts. After the Court denied review, appoint him counsel. The court of appeals reversed, holding the lawyer sued in district court to declare the suspension that the fact that Tolbert was suing an employee of the very judgment void based on the disqualification issue. The trial facility in which he was incarcerated constituted exceptional court voided BODA’s suspension order. The State Bar of circumstances warranting appointed counsel. Texas and BODA sought mandamus relief directly from the Supreme Court, arguing that the trial court interfered with The Supreme Court held that an indigent inmate does not have BODA’s continuing jurisdiction over the lawyer’s suspension a right to appointed counsel in a civil case merely because the and litigated an issue already decided by the Court. inmate’s suit is against an employee of the prison in which he is incarcerated. In Traveler’s Indemnity Co. v. Mayfield, 923 The Supreme Court conditionally granted mandamus relief, S.W.2d 590, 594 (Tex.1996), the Court suggested that in holding that the district court interfered with BODA’s jurisdic- exceptional circumstances “justice may best be served by tion. Texas Rule of Disciplinary Procedure 2.20 establishes appointing a lawyer to represent an indigent civil litigant.” that BODA retains jurisdiction during an attorney’s entire Beyond that, the Court has never considered what might suspension period. Based on Rule 2.20, a board judgment constitute “exceptional circumstances” warranting appointed revoking a probated suspension cannot be superseded or counsel. But the mere fact that an indigent inmate has sued stayed. Incidental district court rulings, which include pleas a prison employee in the prison in which he is incarcerated to the jurisdiction, generally are not reviewable by mandamus does not constitute exceptional circumstances such that because an adequate appellate remedy exists. But an exception it warrants appointed counsel. The Court also noted that to the general rule arises when, like in this case, one court Tolbert’s indigence would not prevent him from employing renders an order that directly interferes with another court’s counsel on a contingency-fee basis. jurisdiction. In such a situation, the Court has determined that an ordinary appeal is inadequate and mandamus relief B. Clients/Fiduciary Duty/Lawyer as City Councilman is available. 1. Joe v. Two Thirty Nine Joint Venture, 60 S.W.3d 896 (Tex. App.—Dallas 2001), pet. for review granted, 46 Tex. Sup. Ct. J. D. Fees/Proof 434 (February 13, 2003) [02-0218]. The issues in this case 1. S. Union Co. v. City of Edinburg S.W.3d , Tex. are whether: (1) a lawyer-legislator whose actions as a city Sup. Ct. J. (October 31, 2003) [01-0785]. In this appeal councilman allegedly conflict with the interests of his law from the City of Edinburg’s claim for underpayment of nat- firm’s clients is entitled to have his immunity defense ruled ural-gas franchise fees, the city variously alleged breach of on before discovery; (2) the lawyer-legislator and his law firm contract, fraud, and tortious interference with the franchise have a duty to the firm’s clients to check for and inform clients agreement. Among the issues raised on appeal was whether of potential conflicts between the clients’ interests and the the court of appeals erred by finding joint liability based lawyer’s position as a city councilman on public issues; and on the gas supplier and its related subsidiaries operating a (3) the lawyer-legislator is entitled to absolute or qualified “single business enterprise.” Edinburg’s claims arose from its immunity. The Supreme Court heard oral argument in this contract with Rio Grande Valley Gas Co. (RGVG) to supply case on April 9, 2003. gas to Edinburg customers. Under the franchise agreement, RGVG agreed to pay the city 4 percent of gross income from C. Disciplinary Proceedings/State Bar of Texas/ gas it sold in the city. The dispute started after subsidiaries Jurisdiction of the company that owned RGVG—and eventually other 1. In re State Bar of Tex. [02-0293], consolidated with In companies—began supplying Edinburg industrial customers re State Bar of Tex. [02-0294], In re Bd. of Disciplinary at spot-market rates lower than the regulated rates RGVG Appeals [02-0343], and In re Bd. of Disciplinary Appeals charged, but using RGVG’s pipelines to deliver the gas. [02-0344], 113 S.W.3d 730 (Tex. July 3, 2003). In this case, Eventually, RGVG transferred its entire gas-transportation the Supreme Court considered whether a party is entitled system to a related subsidiary. The City claimed breach of to mandamus relief when a trial court voids a judgment contract and fraudulent inducement, among other things, by the Texas Board of Disciplinary Appeals suspending a and sought a finding that certain companies were jointly and lawyer from practicing law. The Supreme Court denied the severally liable to the City under a theory of “single business lawyer’s petition to review the Board of Disciplinary Appeals’ enterprise,” under which separate corporations may be ADVOCATE ✯ SPRING 2004 THE 10 jointly and severally liable for the debts of another, based appeals affirmed the trial court’s class certification. on a common business purpose. Based on the jury’s findings, the trial court rendered judgment against the defendants, The Supreme Court first determined that it had conflicts jointly and severally, for over $6.5 million in actual damages jurisdiction over the case. Plaintiffs’ argument that the court and prejudgment interest, plus over $3.5 million in attorney’s of appeals’ decision did not conflict with Bernal because the fees, including conditional appellate attorney’s fees. The court court did not refuse to follow Bernal did not negate a conflict of appeals reduced the actual damages award to $774,445, with Bernal. What is required for conflicts jurisdiction is that including prejudgment interest, affirmed the award of attor- the two decisions cannot stand together. The Court said the ney’s fees, and reversed the awards based on fraud. Plaintiffs correctly asserted that Bernal should not be read to require a “trial plan” by that name, set out in a separate docu- The Supreme Court held that provisions of the franchise ment, but according to Bernal, Texas Rule of Civil Procedure agreement reflected the parties’ intent that “gross income 42 does require a rigorous analysis and a specific explanation derived from all gas sales within the City” (on which the of how class claims are to proceed to trial. The trial court franchise fee was to be calculated) meant gross income did not set out any plan for trying the plaintiffs’ claims. The from RGVG’s sales within the city, not sales by other par- certification order only listed some common issues and simply ties. Thus, RGVG was not required to pay the fee for gas that concluded that there is “nothing to indicate” that individual was transported through its pipeline system and sold within claims could not be managed. The court of appeals brushed the city by unregulated affiliated suppliers. The Court did aside arguments that the trial court had not explained how not decide whether Texas should recognize the single busi- other individual issues, like reliance, and other claims, like ness enterprise theory as an addition to the alter-ego theory fraud, would be tried. The Supreme Court said, however, for disregarding corporate structure and the joint-venture, that Bernal does not permit these issues to be a matter of an joint-enterprise or partnership theories for imposing joint appellate court’s confidence in a trial court’s rulings; rather, and several liability. The Court further said that article 2.21 Bernal requires actual, demonstrated compliance with Rule of the Texas Business Corporation Act provided the exclusive 42. The court of appeals’ contrary holding thus conflicted remedy regarding shareholder and affiliate liability and that with Bernal. the questions submitted to the jury were intended to embody article 2.21’s requirements. Finally, the Court held that the Turning to the merits of the case, the Court reversed and gas suppliers did not tortiously interfere with the city’s remanded, holding that the certification order was improper right to franchise tax revenue from RGVG; and that RGVG for the following reasons: did not fraudulently induce the city to enact an ordinance embodying the franchise agreement and RGVG’s obligation Reliance. Plaintiffs contended that they had established “class- to pay franchise taxes. wide reliance” on misrepresentations made by Schein, but this was not supported by the record. The trial court did not IV. CLASS ACTION explain in its certification order how plaintiffs could avoid A. Certification individual proof of reliance or why the necessity for such 1. Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675 (Tex. proof would not defeat the predominance requirement for October 31, 2002) [00-1162]. The issue is whether certifi- certification. The court of appeals premised its affirmance of cation of two nationwide classes conflicted with standards the certification order on the mistaken belief that reliance was established by Southwest Refining Co. v. Bernal, 22 S.W.3d not an element of plaintiffs’ principal causes of action. 425 (Tex. 2000). In this case, dentists who bought office- management software from Schein and two subsidiaries Damages. Evidence existed that plaintiffs’ claim for restitution sued for breach of contract, deceptive trade practices, fraud, of amounts paid could be proved by Schein’s records or by negligent misrepresentation, and promissory estoppel. They checks, charge slips, receipts or other evidence of payment. alleged the software failed to perform properly and that The record apparently demonstrated that the determination they were charged for technical support that should have of such amounts would be common to the class and would been free and for upgrades they never requested. They not require individual examination of class members except pleaded actual, consequential, punitive and statutory dam- in unusual instances. But the same was not true for plaintiffs’ ages. This interlocutory appeal challenged the trial court’s other damage claims. Consequential damages, for one, would certification of two classes of purchasers, one for the DOS have to be determined class member by class member. version and one for the Windows version. The court of ADVOCATE ✯ SPRING 2004 THE 11 Common legal questions. The lower courts determined that Ct. J. 762 (June 5, 2003) [02-0705]. This case involves a common legal questions predominated because all of plain- class action certified under Texas Rules of Civil Procedure tiffs’ claims should be governed by Texas law. Schein offered 42(b)(2) and 42(b)(4). On January 28, 2000, Hal LaPray evidence of the differences in the law of other states, but the filed this class action on behalf of himself and an estimated Supreme Court said it did not have the benefit of an analysis 1.8 million purchasers against Compaq Computer Corp. The of those differences by the lower courts. Accordingly, the class alleges that Compaq “designed, sold, manufactured, Court could not say that Texas law would not govern any offered for sale or created” computers that contain floppy of the class members’ other claims besides those for breach disk controllers with a defective microcode. The class argues of licensing agreements with choice-of-law provisions. The that the disk controller was defective “in the box” when the Court could say, however, that plaintiffs failed to demonstrate class members bought the computers and Compaq failed to that Texas law should apply to so many of those claims that meet recognized industry standards. The class sued Compaq common legal issues predominated. for declaratory relief, breach of contract, and breach of Compaq’s express warranty. The class sought certification Superior adjudication. The court of appeals did not discuss as a “Nationwide Equitable Relief Class” and a “Nationwide whether a class action is superior to the pursuit of individual Damages” class. After a hearing, the trial court certified the claims. The trial court alluded to the requirement in a single class as a mandatory declaratory judgment class under Rule sentence concluding that the economics of pursuing these 42(b)(2) and alternatively as an opt-out class for damages claims individually by small-business owners would not be under Rule 42(b)(4). The court of appeals affirmed the trial feasible for the members of both subclasses, but the amount court’s certification order. of recovery might not be so small as to prohibit individual claims. Plaintiffs specifically pleaded that they would limit The Supreme Court granted Compaq’s petition for review their recovery to $74,000 so as to avoid removal to federal and heard argument on October 15, 2003. court, strongly suggesting that individual recoveries could exceed that figure. Nothing in the record suggested any basis B. Commonality for the trial court’s conclusion that claims of the size indicated 1. Union Pac. Res. Group, Inc. v. Hankins, 111 S.W.3d 69 would not be prosecuted individually simply because plain- (Tex. July 3, 2003) [01-0836]. In this case, the Supreme Court tiffs are small businesses. But, more importantly, plaintiffs determined whether a proposed class met the requirements failed to satisfy the superiority requirement of Rule 42(b)(4) for class certification under Texas Rule of Civil Procedure by failing to show that a class action would be either more 42. The trial court certified a class consisting of gas royalty fair or more efficient under the circumstances. owners in Crockett County who claimed that the lessees breached an implied duty to “obtain the best current price In dissent, Justice O’Neill argued that the Court had no jurisdic- reasonably obtainable.” As certified, the class included some tion to consider the merits of the trial court’s certification order. royalty owners whose leases calculated royalty payments on She observed that class certification decisions present complex an amount-realized (or proceeds) basis and other royalty and important issues—concerns that would, perhaps, justify owners whose leases calculated royalty payments based on the Court’s interlocutory review of class-certification orders current market value. Because a covenant to obtain the best should the Texas Legislature decide to grant it jurisdiction price reasonably attainable is implied under Texas law only to do so. But, Justice O’Neill said, the Legislature has limited to proceeds leases, and not to market-value leases, the Court the Court’s jurisdiction over interlocutory appeals like the one concluded that the royalty owners did not establish that there in this case unless there is a dissenting opinion in the court were “questions of law or fact common to the class” sufficient of appeals or the court of appeals’ decision conflicts with a to support certification. prior decision of this court or another court of appeals. Justice O’Neill remarked that the Court, frustrated by this legislative C. Opt Out Procedures/Municipalities constraint, distorted well-established conflicts jurisprudence 1. City of San Benito v. Rio Grande Valley Gas Co., 109 to usurp the power that the Legislature deliberately denied and S.W.3d 750 (Tex. June 26, 2003) [02-0038]. This case involves that the important issues presented in this case could not over- a class action brought by South Texas cities over a franchise- ride due respect for precedent and legislative boundaries. fees dispute related to gas sales within city limits. The prin- cipal issues are (1) whether unnamed class members must 2. Compaq Computer Corp. v. LaPray, 79 S.W.3d 779 (Tex. have intervened in the trial court to appeal either the denial App.—Beaumont 2002), pet. for review granted, 46 Tex. Sup. of their opt-out requests or the final judgment approving the ADVOCATE ✯ SPRING 2004 THE 12 class settlement, and (2) whether the court of appeals erred acknowledged that under TMAP, other medical assistance is by refusing to allow the cities to opt out of the class because provided upon a showing of medical need. TLIWT alleged that their decisions to do so allegedly failed to comply with the TMAP’s implicit incorporation of the Hyde amendment’s abor- Texas Open Meetings Act. The trial court certified the class tion funding limits violates Texas’s Equal Rights Amendment, and set an opt-out deadline. San Benito and other cities in Equal Protection Clause, and privacy guarantees. Both parties this appeal, with one exception, gave opt-out notice before moved for summary judgment. the deadline. Although the respective city councils had not specifically approved the decision to opt-out before the opt- The trial court granted the State’s motion and rendered judg- out deadline, many later voted to ratify the opt-out decisions. ment for the State. On appeal, the court of appeals held that: The trial court ruled that those cities did not comply with (1) TLIWT’s declaratory action under the Maternal-Infant the open meetings law and that later ratification of the opt- Health Act program was not ripe because the State ceased out decision did not “relate back” to make the opt-out notice funding for the program in 1991, but (2) TMAP “effects an timely and valid. The court of appeals dismissed the cities’ impermissible form of sex discrimination against pregnant appeal for lack of jurisdiction and denied their petition for women” in violation of the Texas Equal Rights Amendment mandamus relief. because TMAP applies a different standard of medical neces- sity to men than it does to women, without a compelling The Supreme Court held that an unnamed class member is state interest to justify the different treatment. Accordingly, not required to intervene in order to appeal its objections to the court of appeals dismissed the Maternal-Infant Health a class settlement or its opt-out request and that the cities Act claim, reversed the trial court’s summary judgment, ren- could authorize their attorneys to opt out of the litigation dered judgment granting TLIWT declaratory and injunctive without formal action in an open meeting. The Court said relief, and remanded the case to the trial court to determine that the Cities’ attorney had implied authority under the cities’ attorney’s fees and costs. contracts to take them out of the class, similar to an attorney’s authority to nonsuit a client’s claim; thus, the cities were not The Supreme Court held that the restriction on medically required to specifically authorize the opt-out requests. The necessary abortions does not violate the Texas Equal Rights Court also said that requiring intervention before a settlement- Amendment because it does not discriminate by gender, is fairness hearing creates more work with no corresponding rationally related to a legitimate governmental interest, and benefit, and that a timely request to opt out is sufficient notice does not violate State privacy or State equal-protection rights. to preserve a complaint for appellate review. Regarding the specific constitutional challenges, the Court said the following: V. CONSTITUTIONAL LAW A. Equal Rights Amendment Equal Rights Amendment. Because the State treats indigent 1. Bell v. The Low Income Women of Tex., 95 S.W.3d 253 women seeking abortions differently from all others, plaintiffs (Tex. December 31, 2002) [01-0061]. The issue is whether established the first prong of the analysis in In re McLean, Texas statutes that effectively limit state funding for abor- 725 S.W.2d 696 (Tex.1987) (plurality opinion) that equality tions are constitutional. The Low-Income Women of Texas under the law has been denied. But the next question under (TLIWT) sought a declaratory judgment against the State McLean is whether equality has been denied “because of” of Texas, challenging both the Maternal-Infant Health Act gender. If the State were to deny funding of all medically and the Texas Medical Assistance Program (TMAP), Texas’s necessary pregnancy-related services, the classification might Medicaid program. Under TMAP, the Department of Health be comparable to overt gender-based distinction. Texas pays and Human Services “may not authorize the provision of any for all other medically necessary pregnancy-related services, service to any person under the [State’s Medicaid] program but not abortions. The classification is not so much directed unless federal matching funds are available to pay the cost of at women as a class as it is at abortion as a medical treatment. service.” TEX. HUM. R ES. CODE ‘ 32.024(e). The Hyde amend- To analyze whether the Texas Medicaid scheme is merely a ment, under federal law, restricts federal matching funds pretext designed to prefer males over females for health care available for abortions to cases involving rape or incest, or requires examination of the Medicaid funding scheme as a in which the pregnancy threatens the mother’s life. Because whole, which involves the interplay between the limitation on federal matching funds are available for abortions only in these Texas Medicaid treatment to what the federal government pays limited circumstances, Texas’s Medicaid program only covers for and the Hyde Amendment. Federal law provides guidance abortions under the same limited circumstances. The State as to how courts should decide the issue when classification ADVOCATE ✯ SPRING 2004 THE 13 is not overtly gender-based and arises at least in part from Texas Medicaid abortion restriction was rationally related to a law neutral on its face. The Court noted that in Village of the underlying legislative purpose and did not violate state Arlington Heights v. Metropolitan Housing Development Corp., equal protection. 429 U.S. 252 (1977), the U.S. Supreme Court established that discriminatory intent could be shown by available cir- B. First Amendment/Free Speech/Texas Highway cumstantial and direct evidence, including disproportionate Beautification Act impact, the context for the challenged action, the sequence 1. Tex. Dep’t of Transp. v. Barber, 111 S.W.3d 86 (Tex. of events leading to it, departures from normal procedural July 3, 2003) [01-0414]. In this case, the Supreme Court and substantive course, and the legislative or administrative determined whether the Texas Highway Beautification history. In this case, the Texas Legislature intended from its Act violated Barber’s free-speech rights by forbidding him beginning to conform the Texas Medicaid program to the from placing a sign on his property that warned drivers federal program’s contours, and the record demonstrated the on the interstate highway about police searches. Barber, an State has never deviated from it. And, to the extent federal attorney, erected a sign that said “Just say NO to searches” money has been available, Texas has consistently paid for and included a phone number that directed callers to a medically necessary abortions. The Court thus determined voice message warning motorists that officers do not have that the historical background of the Medicaid program’s blanket authority to search cars they stop. TxDOT sought creation and administration supported the conclusion that a court order requiring Barber to take the sign down, and the abortion-funding restriction did not discriminate because Barber challenged the Act’s constitutionality as applied to his of gender. As for the Hyde Amendment, the Court said its expression of noncommercial, ideological speech under both abortion restriction implements a legitimate governmental the federal and state constitutions. Barber argued, in part, purpose, a value judgment condoned by the U.S. Supreme that the law is unconstitutionally content-based because it Court favoring childbirth over abortion. Although the Court allows, among other things, political-campaign signs along recognized that the Texas Medicaid scheme could give rise to the highway and signs for businesses at their locations. The an inference of discriminatory purpose, the inference was not trial court ordered Barber to take down the sign. The court proved. Because the Court found that the Medicaid restric- of appeals reversed, holding the state law unconstitutional tion on medically necessary abortions was rationally related as applied to Barber because it discriminates against purely to legitimate governmental purposes, it did not violate the ideological” speech. Equal Rights Amendment. The Supreme Court reversed, holding that (1) the Act is State Right to Privacy. Plaintiffs argued that paying for “content-neutral” and constitutes a valid, constitutional time, medical expenses for childbirth but not for medically place and manner restriction on Barber’s free-speech rights as necessary abortions effectively coerced a woman’s deci- applied to his billboard and (2) the Texas Constitution affords sion whether to terminate or continue a pregnancy, but the him no more protection under the circumstances than the Court noted that the U.S. Supreme Court has distinguished U.S. Constitution. The Court stated that the U.S. Supreme between direct state interference with a protected right and Court has indicated a willingness to treat some content- state encouragement of an alternative. Citing Harris v. McRae, based regulations as content neutral if the regulations are 448 U.S. 297 (1980), the Court concluded that the funding motivated by permissible content-neutral purposes, citing restriction leaves an indigent woman with at least the same City of Renton v. Playtime Theatres,475 U.S. 1132 (1986), Ward range of choice to obtain a medically necessary abortion as v. Rock Against Racism, 491 U.S. 781 (1989), City of Ladue v. she would have had if the State had chosen not to subsidize Gilleo, 512 U.S. 43 (1994), and Metromedia Inc. v. City of San health-care costs at all. Diego, 453 U.S. 490 (1981). The Court determined that the Highway Beautification Act is not content-based because it State Equal Protection Clause. The Court said that the permits commercial and noncommercial speech in all areas Legislature’s intent from the Medicaid program’s inception if the speech relates to an activity on the property and per- has been to provide indigent health care only to the extent mits both types of speech in all commercial and industrial that federal matching funds are available. Even under the more areas, even if the speech does not relate to an activity on the rigorous standard of rational basis review under the Texas property. Moreover, the Texas Legislature did not adopt the Equal Protection Clause advocated by the plaintiffs—that Texas Highway Beautification Act because it disagreed with a statutory classification must be related to the very object any particular type of message, but instead adopted the Act or subject of the legislation—the Court concluded that the to control the secondary effects of billboards and signs along ADVOCATE ✯ SPRING 2004 THE 14 the interstate and primary highway system. Because the Act’s rights to their twin boys based on the parents’ voluntary purpose is unrelated to expressive content, it is deemed neu- affidavits of relinquishment. The principle issues are: (1) tral, even if it has an incidental effect on some speakers or whether the adoption attorney’s failure to translate the affi- messages but not others. And because the Court concluded davit of relinquishment into the father’s native language vio- that the Texas Act is content-neutral, the constitutional test lated his constitutional right to due process; and (2) whether the Court applied is whether the Act is narrowly tailored the mother’s signature on the affidavit of relinquishment to serve a substantial state interest. The Court found the was procured by undue influence or overreaching. At the Act sufficiently narrowly tailored to serve a substantial state conclusion of a bench trial, the trial court terminated the interest because it contains exemptions to accommodate as parent-child relationship between natural parents and their much speech as possible and still accomplish the goals of twin sons, concluding that their affidavits of relinquishment preserving the landscape and promoting travel safety. were voluntarily executed and were not procured by undue influence, coercion or overreaching. The court of appeals As for broader state constitutional protection, the Court said affirmed. Barber did not articulate any reasons based on the text, history or purpose of Article I, section 8 of the Texas Constitution to The Supreme Court held that the father did not preserve the show that its protection of noncommercial speech is broader issue he presented for appellate review. The father’s answer than that provided by the First Amendment of the United and counterclaim to the termination proceedings cited no States Constitution under the circumstances presented. constitutional authority and he did not raise the due-pro- cess issue in any post-judgment motion. The Court said In a dissenting opinion, Justice Owen, joined by Justice Hecht that allowing appellate review of unpreserved error would and Justice Smith, said that the Texas Highway Beautification undermine the Legislature’s intent that parental-termination Act cannot be distinguished from the city ordinance held cases be expeditiously resolved. unconstitutional in City of Ladue v. Gilleo. As a result, the reasoning in that case, as well as other U.S. Supreme Court In an opinion joined by Justices Enoch, Schneider and Smith, opinions dealing with restrictions on signage, compels the Justice O’Neill said that the mother also failed to preserve her conclusion that the Act is constitutionally infirm. Justice Owen undue-influence and fraud complaints. The mother argued questioned in the first instance whether the restrictions the Act in the Supreme Court that she agreed to sign a voluntary imposes are content-neutral, noting that the Act permits on- affidavit of relinquishment based on unenforceable prom- site commercial speech and some noncommercial speech, but ises made by the adoptive parents to send her pictures and prohibits a property owner from expressing a broad range of updates about the children, but she did not plead or move noncommercial speech. According to Justice Owen, the Act is after trial to challenge the enforceability of the adoptive content based because whether a sign is prohibited could only parents’ promises. Justice O’Neill also said that the mother be determined by examining its contents. Even if the Act were never raised in the trial court her complaint that the police content neutral, however, it would still be unconstitutional detective and his wife and the mother’s sister acted illegally under City of Ladue, Justice Owen said. Although the sign at as adoption intermediaries and never secured a ruling on issue in this case was larger than the sign at issue in City of this theory in the trial court. Ladue and was erected on private property that was not the residence of the owner, Justice Owen said the U.S. Supreme In a concurring opinion, Justice Wainwright said that when Court’s decision in City of Ladue could not be so narrowly read a “voluntarily” executed relinquishment affidavit is the sole as to turn entirely on the size of the sign or, more importantly, ground for terminating parental rights, placing the burden on whether a private property owner resides on the property. on the parents to set aside the affidavit—as the court of Justice Owen also stated that nothing in the legislative history appeals and the parties did—may run afoul of constitutional or the record of the case suggested that the secondary effects and statutory mandates. The burden of proof issue, however, of signs like Barber’s distinguish such signs from speech that was not briefed, nor was it expressly decided in the courts is permissible under the Act. In short, Barber’s sign was no below, Justice Wainwright said. Moreover, Justice Wainwright more harmful than the types of signs the law permits. concluded that the mother’s appeal was unsuccessful regard- less of whether or not she carried the burden of proof, so a C. Preservation of Claim decision on that issue was not necessary in this case. 1. In re L.M.I., 119 S.W.3d 707 (Tex. September 18, 2003) [02-0244]. In this case, the trial court terminated parents’ In a concurring and dissenting opinion joined by Chief ADVOCATE ✯ SPRING 2004 THE 15 Justice Phillips and joined in part by Justice Hecht and Justice that, they argued, the districts had no meaningful discretion Jefferson, Justice Owen stated that there was no clear and in setting their tax rates, making the school-finance system convincing, legally sufficient evidence that material parts of an unconstitutional state property tax. the affidavit the father signed were disclosed to him and, thus, that he actually swore to and agreed to be bound by the The State filed special exceptions to the school districts’ plead- affidavit. Although the Court concluded that the trial court ings, and the trial court dismissed the lawsuit, ruling that could have surmised that he understood more English than the school districts failed to state a cognizable constitutional he and others said he could, Justice Owen pointed out that claim because they failed to allege in their pleadings that they surmise is no evidence at all, much less clear and convincing were taxing at or near the maximum rates allowed by state evidence. law in order to meet state-mandated accreditation require- ments. The trial court equated school accreditation with the In dissent, Justice Hecht, joined by Justice Jefferson, said that constitutional standard for providing a minimum public the father did enough to preserve his due process claim in the education—“general diffusion of knowledge.” The court also lower courts. According to Justice Hecht, the father’s appellate set a threshold that at least close to half the State’s school lawyer clearly called the termination of his parental rights districts must be taxing at the maximum rate to establish that a due-process violation. And although his trial lawyer did the state-financing system had become an unconstitutional, not use those same words, Justice Hecht said termination of statewide property tax. Because the court concluded that the parental rights, which are fundamental and constitutional in school districts could not show that a sufficient number of their magnitude, should not turn on trifling points regarding the state’s school districts were taxing at the maximum rate, the construction of appellate briefs. The father had clearly the court determined that the districts could not show an argued in the trial court and on appeal that he did not vol- unconstitutional tax and denied their request to replead their untarily relinquish his rights to his children because he did case. The court of appeals affirmed the trial court’s decision not understand the affidavit of relinquishment he signed and to dismiss the suit, but rejected the trial judge’s analysis that it was not translated into his native tongue. close to half the school districts taxing at the maximum rate would establish an unconstitutional statewide property tax. D. School Finance The court of appeals focused on the question of whether any 1. W. Orange-Cove Consol. I.S.D. v. Alanis, 107 S.W.3d 558 of the districts were forced to tax at the maximum rate just (Tex. May 29, 2003) [02-0427]. This case involves a con- to provide an accredited education. stitutional challenge to Texas’s school-finance system. The principal issues are (1) whether to present a legally cognizable The Supreme Court reversed and remanded, reaffirming the challenge to the system West Orange-Cove and three other “meaningful discretion” test from Carrollton-Farmers Branch school districts were required to plead that they, and half or Independent School District v. Edgewood Independent School close to half of all other school districts, were forced to tax at District, 826 S.W.2d 489 (Tex. 1992) (Edgewood III), to decide the highest allowable tax rate to provide an accredited educa- whether a state-imposed taxing scheme is an unconstitutional tion, and (2) whether the school districts should have been ad valorem tax, noting that the determining factor is the extent given an opportunity to amend their pleadings or conduct of the state’s control over the taxation process, and holding discovery after the trial court or the court of appeals decisions. that the school districts should be allowed to replead their The overriding issue in this case and two previous challenges case and offer proof that they are taxing at the maximum to Texas’s school finance system is whether the state has allowable rate either to satisfy accreditation standards or a imposed an unconstitutional statewide property tax. In the general diffusion of knowledge. The Court disagreed with last decision upholding the state’s school-financing scheme, the trial court on the number of districts that have to be Edgewood Independent School District v. Meno, 917 S.W.2d 717 taxing at or near the maximum rate to state a constitutional (Tex. 1995) (Edgewood IV), the Court noted that “some” school claim, holding that a single district can state a claim of an districts eventually “may be forced to tax at the maximum unconstitutional property tax if it alleges it is constrained by allowable rate just to provide a general diffusion of knowl- the state to tax at a particular rate. edge” and that “general diffusion of knowledge” establishes the constitutional requirement for the Sate’s support of its public In reviewing the trial court’s dismissal on the pleadings, the schools. In this case West Orange-Cove and the other districts Court said that to obtain dismissal the State must establish as alleged that they were taxing at or near the maximum tax a matter of law that the school districts are not forced to tax . rate to “educate their students,” citing Edgewood IV Because of at maximum rates either to meet accreditation standards or to ADVOCATE ✯ SPRING 2004 THE 16 provide a general diffusion of knowledge, but the State failed in Dallas. Grizzle asserted that her son’s trust lost value in the to meet its burden. In addition, the Court said that the State Dallas bank in part because proceeds from the former account was also not entitled to dismissal on its argument that the were not reinvested for forty-two days and because the son’s mere existence of local-option homestead exemptions shows trust was charged improper fees and expenses attributed to that the school districts are not forced to tax at maximum liquidating the investments in the former account. The trial rates unless the State establishes that fact as a matter of law, court granted summary judgment to the banks, and the court which it failed to do. The school districts were thus entitled of appeals reversed. to attempt to show that homestead exemptions do not afford them meaningful discretion in setting tax rates. The Court The Supreme Court reversed and rendered judgment in favor also said that the school districts need not actually be taxing of the banks, holding that section 113.059 of the Trust Code at maximum rates if they can show that they couldn’t meet applies to trusts created under Chapter 142 of the Property accreditation standards or provide a general diffusion of Code and the Trust Code allows an exculpatory clause to knowledge even if they were. relieve a corporate trustee from liability for self-dealing (defined as misapplying or mishandling trust funds), unless In a concurring opinion, Justice Enoch said the Legislature, those activities violate the prohibitions in sections 113.052 through the Texas Education Code, requires only that school and 113.053 of the Code. Realizing an investment tax loss districts provide an accredited education. Thus, on the and assessing fees in connection with the bank swap was narrow question in this case, Justice Enoch said the Court not evidence of gross negligence, fraud, or bad faith under was correct that the school districts should be afforded the the Grizzle Trust, which gave its trustee broad authority to opportunity to plead that they must tax at the tax rate set manage the trust, including the authority to sell assets and by the State to provide an accredited education. But Justice reinvest them. The Grizzle Trust also recognized that such Enoch argued that the school districts should not be allowed transactions may produce tax consequences and result in to raise a claim that the school finance system constitutes an fees being charged to the trust. unconstitutional state ad valorem property tax by asserting the need to tax at maximum rates to provide a general dif- B. Claim by Contractor on Subcontractor’s Behalf/ fusion of knowledge. Privity 1. Interstate Contracting Corp. v. City of Dallas, certified In dissent, Justice Smith argued that the Court lacked subject question accepted, 46 Tex. Sup. Ct. J. 486 (March 6, 2003) matter jurisdiction to decide the case and that the Court’s [03-0152]. In this certified question from the United States holding that school districts have a legal obligation to comply Court of Appeals for the Fifth Circuit, the Court must deter- with the general diffusion of knowledge standard contained mine whether under Texas law a contractor can assert a in article VII, section 1 of the Texas Constitution transforms a claim against an owner on a subcontractor’s behalf when putative taxpayer suit brought under article VIII, section 1-e there is no privity of contract between the subcontractor into an article VII, section 1 “adequacy” challenge. and the owner (called a “pass through” claim). Interstate (the general contractor) filed suit against the City of Dallas VI. CONTRACTS (the owner) on Mine Services’ (the subcontractor) behalf, A. Breach/Exculpatory Clauses/Self Dealing asserting claims for breach of contract, quantum meruit, 1. Tex. Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240 (Tex. breach of implied warranty, and fraudulent inducement. December 31, 2002) [01-0211]. The principal issues are: (1) Over the City’s objection, the federal district court permitted whether, as the result of a bank exchange, the banks can be Interstate to bring these claims. After an eleven-day trial, held liable when a trust in one bank allegedly lost money the jury found that the City breached its contract with because of asserted self-dealing when investments were sold Interstate and its implied warranty to provide accurate and pursuant to federal law to establish an investment account in suitable plans and specifications pertaining to the subsoil one of the newly acquired banks; and (2) whether a settle- conditions at the excavation site. On appeal to the Fifth ment offer established an absolute defense to a deceptive Circuit, the City argued, among other things, that Interstate trade practices claim. Grizzle brought a class action in part lacked standing to sue on Mine Services’ behalf and that for breach of contract and breach of fiduciary duty, as well Mine Services could not sue on its own because it was not as deceptive trade practices, against Texas Commerce Bank in privity with the City. The cause was argued before the and Frost Bank. These claims arose when Texas Commerce Supreme Court on April 23, 2003. traded a Corpus Christi bank to Frost in exchange for a bank ADVOCATE ✯ SPRING 2004 THE 17 C. Lease/Ambiguity/Implied Obligation And express contractual language requiring the landlord to 1. Universal Health Servs., Inc. v. Renaissance Women’s Ctr. acquire and maintain permits and insurance-provider agree- of Austin, L.P., S.W.3d , 47 Tex. Sup. Ct. J. 20 (September ments for a hospital during the lease term was also not an 30, 2003) [02-0193]. In this breach of contract and fraud obligation to operate the hospital for the entire term of the case, the Supreme Court decided whether a landlord was doctors’ lease. obligated to continue operating a hospital for the benefit of doctors who leased offices in the same building so they could VII. DAMAGES be close to the hospital even though there was no express A. Broad-Form Submissions provision for continuous operation in the parties’ agree- 1. Harris County v. Smith, 96 S.W.3d 230 (Tex. December ments. In 1995, Universal Health Services, Inc. (“Universal”) 19, 2002) [01-0531]. The issue is whether the presumptive invited Renaissance Women’s Group and other physicians harm rule of Crown Life Insurance Co. v. Casteel, 22 S.W.3d 378 (“Physicians”) to participate in the “Renaissance concept,” a (Tex. 2000), applies to errors in broad-form damages submis- new innovation in women’s health care. The concept involved sions. Deputy Sheriff Spurgeon and the Smiths were in a car creating the Renaissance Women’s Health Center of Austin, crash in 1994, causing injuries to the Smiths. The Smiths L.P., a two-story facility consisting of a women’s hospital sued the County, and a jury found that Spurgeon’s negligence on the first floor and obstetrician/gynecology offices on the caused the Smiths’ injuries. The County did not challenge the second floor. According to the joint business plan, Universal negligence finding but did object to the inclusion of certain would develop the facility and manage the first-floor hospital, damage elements in the broad-form submissions to the jury. and would lease the second-floor offices to the Physicians. The jury was asked to consider physical pain and mental The lease agreement provided that Universal would lease the anguish, loss of earning capacity, physical impairment, and office space to the Physicians for a ten-year term with the medical care in deciding the amount of Mr. Smith’s damages. option to renew for an additional five years. The County objected to including lost earning capacity, as there was no evidence of Mr. Smith’s income before or after Although initial losses were expected, the hospital suffered the accident. The jury awarded Mr. Smith $90,000 in dam- financially. In contrast, the Physicians’ practices thrived, ages. The jury was similarly asked to consider physical pain earning as much as the hospital lost. Because the hospital was and mental anguish, physical impairment, and medical care struggling financially, Universal decided to close the hospital in deciding the amount of Ms. Smith’s damages. The County after just two years. When Universal informed the Physicians objected to including physical impairment, as there was no of its decision to close, the Physicians sued Universal for evidence that her injury constituted a separate and substantial breach of contract and fraud, alleging that under the par- or extremely disabling loss beyond pain and suffering. The ties’ written agreements, Universal was obligated to run the jury awarded Ms. Smith $3,100. The court of appeals agreed hospital for the entire term of the lease. The jury returned a with the County that the trial court erred by including in verdict in favor of the Physicians, finding that Universal agreed its broad-form damages submission the elements of loss of to operate the women’s hospital for the entire lease term and earning capacity for Mr. Smith and physical impairment for awarding the Physicians actual damages of $5.6 million on Ms. Smith. But the court of appeals held that these errors their breach of contract claims, which included $4 million were harmless because the jury could have awarded damages in lost profits. The court of appeals affirmed, holding that, for the Smiths’ medical costs and physical pain and mental under an ambiguous contract theory, the evidence was legally anguish. It thus affirmed the trial court’s judgment. sufficient to support the trial court’s judgment. The Supreme Court held that the reasoning in Crown Life The Supreme Court held that language from the lease and Insurance Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000), applies subsequent letter agreements was unambiguous and neither equally to broad-form damage questions. Casteel held that expressly imposed an obligation to operate the hospital for commingling valid and invalid theories on liability could be the entire lease term nor could be reasonably read to do so. harmful error when the basis for the jury’s finding could not The Court said that a letter agreement containing statements be determined for appellate review. that the landlord and physicians were bound throughout the lease term did not impose an obligation to operate the Justice O’Neill dissented, arguing Harris County did not hospital for the entire lease term. Likewise, other language contend the evidence was legally insufficient to support describing the concept of doctors’ offices on one floor and a the jury’s award. Nevertheless, because one unsupported hospital on the other did not constitute a binding obligation. damage element was included in each plaintiff’s broad-form ADVOCATE ✯ SPRING 2004 THE 18 jury charge, the Court presumed reversible harm. To do The Supreme Court held that parents cannot recover for loss so, Justice O’Neill said, the Court assumed, contrary to of consortium for a child who suffered a non-fatal injury. In longstanding precedent, that the jury failed to follow the so holding, the Court distinguished Reagan v. Vaughn, 804 trial court’s instructions. According to Justice O’Neill, the S.W.2d 463, 468 (Tex. 1990), in which the Court had previ- Court’s decision will encourage granulated and confusing ously held that a child is entitled to seek damages for loss of jury charges, the very problem broad-form submission was consortium when a parent suffers a serious, permanent and designed to prevent. Justice O’Neill argued that a distinction disabling injury, because the child’s role in the parent-child between a broad-form submission unsupported by the sub- relationship, unlike the parent’s role, is vulnerable and depen- stantive law, as presented in Casteel, and one that presents dent and profound harm might befall a child who has been an element or theory lacking evidentiary support, as in this deprived of a parent’s love, care, companionship and guidance. case, has been recognized by the U.S. Supreme Court, legal The Court also noted that several other states—including the commentators, and Texas civil procedure rules. first two that recognized a child’s consortium rights—have held that the parent-child relationship is not reciprocal like B. Expert Calculations/Reliability/Gas Well husband and wife and that the child needs special protec- 1. Kerr-McGee Corp. v. Helton, 2002 WL 110433 (Tex. tion. Because the parent has a less dependent role than that App.—Amarillo 2002), pet. for review granted, 46 Tex. Sup. of the child in the relationship, extending consortium rights Ct. J. 49 (October 24, 2002) [02-0356]. This case involves here could logically lead to the recognition of such rights whether a damages expert’s calculations were reliable for a in other nondependent relatives or even in close friends, hypothetical gas well in a royalty owner’s gas drainage lawsuit. given appropriate facts. Texas and no other state have gone The expert calculated more than $2.4 million in royalties if so far. The Court also held that the trial court did not err in Kerr-McGee had drilled a third offset well after two such applying the settlement credits or calculating Dr. Roberts’s wells failed to produce in paying quantities. The trial court proportionate liability. rendered judgment in Helton’s favor and assessed damages totaling $1,432,618.11. The court of appeals affirmed. The In dissent, Justice Jefferson, joined by Justices O’Neill and Supreme Court granted Kerr-McGee’s petition for review and Schneider, said that the Court’s holding that parents may heard argument on January 22, 2003. not recover for loss of filial consortium is contrary to the Court’s longstanding precedent, counter to the majority of C. Loss of Consortium by Parents/Non-Deadly Injury jurisdictions that have considered the issue, and unduly tol- 1. Roberts v. Williamson [01-0766], consolidated with erant of the anomaly the Court’s decision creates in the law. Williamson v. Roberts [01-0765], 111 S.W.3d 113 (Tex. July Moreover, Justice Jefferson said, the theme underlying the 3, 2003). The principal issues in this medical malpractice Court’s decision—that a parent’s loss of consortium claim case are whether parents can recover damages for their own must be rejected because adults require less protection than loss of consortium with a child who has suffered a nonfatal children—makes little sense in light of the Court’s repeated injury and whether settlement credits must be deducted from declarations that parents may recover consortium damages the jury’s damages award before a nonsettling defendant’s for the death of their children, and its holding in Reagan that proportionate liability is calculated. When the Williamsons’ even adult children are entitled to consortium damages for daughter was born, she went into distress. During her treat- the death of, or serious injury to, their parents. ment, the parents claimed, the proper medicine was not used and the ventilator to help the child breathe did not work for D. Measurement/Breach of Oral Stock Option Contract several minutes. The child suffered brain damage, resulting 1. Miga v. Jensen, 96 S.W.3d 207 (Tex. October 31, 2002) in, among other things, seizures, a weak left side, walking [00-0932]. In this case, the Supreme Court determined (1) problems that require her to use braces and developmental how damages should be calculated for an option-contract problems. The Williamsons sued the hospital and several breach and (2) whether the defendant lost his right to appeal doctors, including Dr. Roberts. The hospital and two doctors by paying the judgment ostensibly to avoid interest charges. settled their cases before trial. At trial, a jury decided one Miga claimed Jensen refused to tender stock options Miga had doctor was not responsible and found Dr. Roberts’s liability been promised when he helped develop Jensen’s long-distance amounted to 15 percent. The trial court ordered Dr. Roberts telephone enterprises. The jury determined the stock-option to pay $451,500 out of the jury’s total award of just over $3 agreement had been breached and awarded slightly more million. The court of appeals affirmed. than $1 million in contract damages and $17.7 million in lost profits on the stock options (apparently based on the stock ADVOCATE ✯ SPRING 2004 THE 19 price at the time of trial). Jurors also awarded $17.7 million pocket books who cannot afford to play the interest game in on Miga’s fraud claim and $43 million in punitive damages. the financial market. The trial court’s judgment struck the fraud claim and punitive damages awards. The court of appeals affirmed. E. Measurement/Permanent Injury to Land 1. Coastal Transp., Inc. v. Crown Cent. Petroleum Corp., The Supreme Court held that the proper measure of dam- 38 S.W.3d 180 (Tex. App.—Houston [14th Dist.] 2001), pet. ages was the value of the stock on the date the stock option for review granted, 45 Tex. Sup. Ct. J. 1145 (August 29, 2002) agreement was breached, minus the exercise price. Although [01-0301]. The issues in this case include: (1) whether an the award was labeled lost profits, the jury awarded Miga the objection to the introduction of expert testimony is neces- 1997 market gain in the stock Jensen refused to sell him in sary to challenge the legal sufficiency of that testimony in a 1994. But, the Court said, the rule in Texas has long been directed verdict; (2) what evidence is necessary to support that contract damages are measured at the time of breach a jury finding of gross negligence; (3) what constitutes per- and not by the bargained-for goods’ market gain as of the manent injury to land; and (4) what the proper measure of time of trial. As for Jensen’s payment toward the judgment damages for permanent injury to land is. A gasoline truck voiding his right to appeal, the Court said the Texas rule is owned by Coastal Transport overflowed while being filled not, and never has been, that any payment toward satisfying a at a bulk loading facility owned by Crown Central. A fire judgment, including a voluntary one, moots the controversy. resulted, destroying Crown Central’s facility. Crown Central Whether a party wishes to avoid the accrual of post-judgment sued Coastal Transport and another company for negligence interest, particularly on a multi-million dollar judgment, is a and gross negligence. The trial court rendered judgment question that party should be able to decide without fear of a against Coastal Transport based on the jury’s findings, but Hobson’s choice—that is, that the party might presumptively rendered a directed verdict against Crown Central as to exem- waive its appellate prospects. Payment on a judgment will plary damages. Based on the jury’s finding that the loading not moot an appeal of that judgment if the judgment debtor facility’s damage was “temporary,” the trial court determined clearly expresses an intent to exercise his right of appeal, and that Crown Central’s prior settlement with another party was appellate relief is not futile. for a greater amount than its damages. And because Coastal Transport made a prior written settlement credit election, Justice O’Neill dissented, stating that the Court’s time-of- the trial court rendered a take-nothing judgment against breach damage measure was founded on an economic fiction Crown Central. The court of appeals affirmed the finding that woefully deprived Miga of the benefit of his bargain, and of “temporary” damages, but held that the directed verdict it would encourage promisors to breach stock-option agree- concerning Coastal Transport’s alleged gross negligence was ments in a rising market, allowing them to cap their liability improper and remanded the matter for further proceedings. while reaping the very profit potential that was promised in The Supreme Court granted Crown Central’s and Coastal exchange for the promisee’s performance. According to Justice Transport’s petitions for review and heard argument on O’Neill, the Court should have applied a damage measure December 4, 2002. that minimizes the potential to over- or under-compensate the injured party and more closely approximates the value F. Proportionate Responsibility Statute/Applicability of the benefit lost; that is, the stock’s highest intermediate 1. Southwest Bank v. Info. Support Concepts, Inc., 85 S.W.3d value between the date of breach and a reasonable period in 462 (Tex. App.—Fort Worth 2002), pet. for review granted, which the injured party could have entered the market and 46 Tex. Sup. Ct. J. 1058 (August 28, 2003) [02-0946]. The replaced the stock. issue in this case is whether the proportionate responsibility statute applies to an action for conversion against a bank Justice Schneider also dissented. According to Justice under section 3.420 of the Uniform Commercial Code. An Schneider, the Court wrongly concluded that Jensen’s pay- employee of Information Support Concepts (“ISC”) stole over ment did not moot the appeal. By accepting Jensen’s argu- $300,000 in checks made payable to ISC and deposited them ment as a legitimate basis for holding the appeal was not into her personal account at Southwest Bank. Although none moot—regardless of whether the federal or Texas approach of the stolen checks bore ISC’s endorsement and ISC did applies—the Court’s opinion, Justice Schneider said, allows not have an account with the Bank, the Bank accepted her judgment debtors facing significant damages awards to pay deposits and obtained payment on the checks. ISC sued the the judgment, avoid post-judgment interest, and still appeal Bank under the Uniform Commercial Code, TEX. BUSINESS simply because they have a “leg up” over parties with smaller & COMMERCE CODE § 3.420, for conversion, seeking actual ADVOCATE ✯ SPRING 2004 THE 20 and exemplary damages. The Bank raised several affirmative trial, holding that the trial court erred in excluding evidence defenses, including contributory negligence, assumption of of Hall’s actual damages, evidence essential to determine risk, and failure to mitigate damages, and sought to join the whether Hall was eligible for a larger damage award under employee, her husband, and the chief financial officer of ISC section 41.008’s statutory cap formula. as responsible third parties under the proportionate respon- sibility statute. The trial court granted partial summary judg- The Supreme Court granted Diamond Shamrock’s petition ment in favor of ISC on the Bank’s affirmative defenses and for review and heard argument on October 1, 2003. denied the Bank’s motion to join the employee, her husband, and the CFO under the proportionate responsibility statute. H. Punitive Damages/Legal Sufficiency The trial court also granted summary judgment in favor of 1. Southwestern Bell Tel. Co. v. Garza, 58 S.W.3d 214 (Tex. ISC on liability for conversion and actual damages claims but App.—Corpus Christi 2001), pet. for review granted, 46 Tex. refused to allow ISC to recover exemplary damages from the Sup. Ct. J. 779 (June 12, 2003) [01-1142]. The issues in this Bank. The court of appeals affirmed the trial court’s judgment. workers’ compensation retaliation case are (1) whether legally The Supreme Court granted the Bank’s petition for review sufficient evidence supported the award of punitive damages; and heard argument on November 5, 2003. (2) whether sufficient evidence existed to prove causation; (3) whether Southwestern Bell waived its complaint that the G. Punitive Damages/Applicability of Statutory Cap liability question was defective; and (4) whether the liability 1. Diamond Shamrock Ref. Co. v. Hall, 82 S.W.3d 5 (Tex. question was in fact defective. David Garza sued Southwestern App.—San Antonio 2001), pet. for review granted, 46 Tex. Sup. Bell Telephone Company for workers’ compensation retalia- Ct. J. 584 (April 17, 2003) [02-0566]. This case concerns tion. The trial court rendered judgment for Garza, awarding the legal sufficiency of evidence supporting a jury finding $1,034,108 in actual damages, $1,000,000 in punitive dam- of gross negligence, the applicability of the punitive damage ages, prejudgment interest, and costs. The court of appeals cap provisions of Chapter 41 of the Texas Civil Practices held that Southwestern Bell failed to timely and specifically and Remedies Code, and the propriety of the exclusion of object to the liability question and that, regardless of the evidence of actual damages in an employee-death case under waiver, the liability question was not improper. Furthermore, the Texas Workers’ Compensation Act. the court of appeals held that the trial court did not err in admitting evidence over Southwestern Bell’s objections and Charles Hall, a Diamond Shamrock Refining Co. employee, that legally and factually sufficient evidence supported the died from workplace injuries caused by an explosion at the finding that Southwestern Bell violated the anti-retaliation oil refinery’s compressor building. Diamond Shamrock used statute and the awards for mental anguish and punitive dam- a refinery design that presented a risk that liquids might ages. The court of appeals also refused to order remittitur of enter the compressor, despite its knowledge that the entrance the awards for mental anguish and punitive damages. of even a small amount of liquid would likely produce an explosion. Donna Hall, Charles Hall’s surviving spouse, sued The Supreme Court granted Southwestern Bell’s petition for Diamond Shamrock under the Texas Worker’s Compensation review heard argument on October 15, 2003. Act and Article 16, Section 26 of the Texas Constitution to recover punitive damages based on a gross negligence claim. VIII. DECEPTIVE TRADE PRACTICES ACT The trial court granted Diamond Shamrock’s motion to pro- A. Agent Liability/Scope of Employment/ Fraud hibit any evidence of Hall’s actual damages. 1. Miller v. Keyser, 90 S.W.3d 712 (Tex. November 5, 2002) [01-0541]. The issue is whether a home builder’s sales agent The jury found in favor of Hall and awarded her $42.5 million is exempt under the Deceptive Trade Practices Act (DTPA) in punitive damages based on her gross negligence claim. The from liability for alleged misrepresentations about lot sizes trial court granted Diamond Shamrock’s motion to limit the he sold in the course of his employment. The Millers and punitive damage award to $200,000 pursuant to the statutory others who paid a premium for deeper lots for larger back- cap provided in section 41.008 of the Texas Civil Practices yards in a subdivision claimed Keyser had misrepresented the and Remedies Code. The court of appeals found the evidence lot sizes. After fences were built, a drainage district claimed legally and factually sufficient to support the punitive damage the fences intruded on its easement and had to be moved at award based on the gross negligence claim and recognized the owners’ expense. The jury found that Keyser was liable the applicability of section 41.008 to limit Hall’s punitive for deceptive trade practices but that he did not commit damage award. But the court reversed and remanded for a new fraud and acted solely within the scope of his employment ADVOCATE ✯ SPRING 2004 THE 21 for the homebuilder. The court of appeals reversed. The jury found for JMB, and the trial court rendered judgment for JMB, awarding it treble damages under the 1973 version of The Supreme Court held that an agent may be personally liable the DTPA, for a total of over $14 million. The trial court also for misrepresentations he makes when acting within the scope awarded over $1.7 million in attorney’s fees and $412,400 in of his employment because the DTPA allows a consumer to appellate attorney’s fees. The court of appeals affirmed. The bring suit against “any person.” The DTPA broadly defines Supreme Court granted PPG’s petition for review and heard “person” as “an individual, partnership, corporation, associa- argument on November 20, 2002. tion, or other group, however organized” and, according to the Legislature, is to be construed liberally to promote its IX. DISCOVERY central purpose to protect consumers. The Court said that its A. Federal Privacy Statutes analysis on agent liability was not affected by the agent’s or 1. In re CI Host, Inc., 92 S.W.3d 514 (Tex. November the employee’s position in the company or whether the cor- 21, 2002) [00-1150]. This case involves the relationship porate agents were officers of the corporation. Rather, agents between the federal Electronic Communications Privacy are personally liable for their own torts, and the Court held Act and Texas’s discovery rules. CI Host is a web-hosting that there was no basis for concluding differently based on company. Several CI Host customers sued CI Host alleging DTPA claims. it violated several guarantees. Because some of the Plaintiffs’ complaints involved CI Host’s alleged failure to backup files B. Assignability of Claims/Consumer as guaranteed, the Plaintiffs requested copies of CI Host’s 1. PPG Indus., Inc. v. JMB/Houston Ctr. Partners Ltd. P’ship, backup tapes from March 1, 2000. The trial court ordered 41 S.W.3d 270 (Tex. App.—Houston [14th Dist.] 2001), pet. CI Host to produce the tapes. CI Host objected, claiming that for review granted, 45 Tex. Sup. Ct. J. 1107 (August 22, 2002) while some information on the tapes is discoverable, other [01-0346]. The issues in this case are: (1) whether a Deceptive information is protected from disclosure by the Electronic Trade Practices Act claim is assignable; (2) if so, whether the Communications Privacy Act. The court of appeals denied assignee has to qualify as a “consumer” in its own right; (3) CI Host’s petition for writ of mandamus. The Supreme Court whether the amendatory language of the DTPA that “[t]his granted CI Host’s petition for writ of mandamus to decide Act applies to all actions or claims commenced on or after whether the trial court abused its discretion by ordering CI the effective date of this Act” refers to the entire act, or only Host to produce the tapes. to those changes made by the amendment; (4) whether, as a matter of law, JMB’s lawsuit was barred by limitations; (5) The Supreme Court ultimately denied mandamus relief, ruling whether the trial court erred in finding the existence of a that CI Host failed to support its objection to the requested 20-year warranty as a matter of law; and (6) whether the discovery of the tapes as required by Texas Rule of Civil award of a $300,000 “bonus” to the prevailing party’s lawyer Procedure 193.4 because CI Host failed to produce evidence in was reasonable and necessary or an abuse of discretion by the trial court that only the type of information protected from the trial court. disclosure by section 2702 of the ECPA exists on the backup tapes. The trial court therefore did not abuse its discretion In 1976 and 1977, Houston Center Corporation purchased in ordering CI Host to produce the tapes. The Court further and had installed in their new office building over 12,000 concluded that because the parties acknowledged that the PPG Industries products known as “Twindows.” Twindows tapes contained both privileged and nonprivileged informa- were discontinued in the latter part of 1977 when the pro- tion, and that some of the information might be considered duction process was found to be flawed, but PPG continued confidential by CI Host’s customers, the trial court would to produce them for replacement purposes. Between 1983 have to take any third-party privacy concerns into account and 1985, PPG replaced approximately 3,000 units when in any further proceedings in the case. Houston Center complained that some of the seals on the Twindows were failing. In 1989, JMB, a business with assets B. Sanctions/Abuse of Discretion of over $25 million, purchased Houston’s building. A provi- 1. Cire v. Cummings, 74 S.W.3d 920 (Tex. App.—Amarillo sion in the Bill of Sale conveyed all “assignable warranties, 2002), pet. for review granted, 46 Tex. Sup. Ct. J. 584 (April guarantees, representations or covenants” to JMB. After the 17, 2003) [02-0670]. This case involves death penalty sanc- sale, many of the Twindows failed, and in 1994, JMB sued tions imposed on the plaintiff for discovery abuse. The court PPG, alleging breach of warranty under the five and twenty of appeals held that the trial court abused its discretion by year warranties and DTPA violations. striking the plaintiff’s pleadings without indicating that it had ADVOCATE ✯ SPRING 2004 THE 22 first considered lesser sanctions and without explaining why to determine composition of the rubber coating that holds such lesser sanctions would not suffice. The issues raised by Firestone’s tires’ steel belts together. They alleged insuffi- the parties are: (1) whether the imposition of lesser sanc- cient adhesion caused tire-tread separations in Ford Explorer tions is a prerequisite to the imposition of death penalty automobile accidents and argued that Firestone’s and Ford sanctions for discovery abuse; (2) whether the trial court Motor Company’s own investigations concluded that skim- abused its discretion in imposing death penalty sanctions; stock deficiencies could be partly to blame for the accidents. and (3) whether a trial court must conduct an oral hearing Firestone argued that the plaintiffs had not demonstrated in reviewing a motion to compel or a motion for sanctions. the need for the formula under the “necessity” standard set The Supreme Court heard oral argument in this case on out in In re Continental General Tire, 979 S.W.2d 609 (Tex. October 1, 2003. 1998), for discovery of trade-secret information because (1) in the high-heat manufacturing process the materials in the 2. Spohn Hosp. v. Mayer, 104 S.W.3d 878 (Tex. April 24, formula change composition; (2) the plaintiffs could test 2003) [02-0443]. This case involved the death of a patient in their defect theories on finished tires; and (3) the plaintiffs’ a restraint vest whose calls to nurses were allegedly ignored. experts’ testimony regarding need was only that the “best The issue on appeal was whether the trial court abused its way” to determine what’s supposed to be in the tires is to discretion by ordering, as a sanction for discovery abuse, know the formula. The trial court ordered disclosure under that the jury in a medical-negligence case take certain state- a protective order of the formula used in Firestone’s Decatur, ments as true. The hospital withheld certain statements by Ill., plant. The court of appeals affirmed. its patient-care staff based on the attorney work-product doctrine. Then, 31 days before trial, the hospital produced The Supreme Court conditionally granted mandamus relief, the statements, stating that recent case law persuaded it that holding that the evidence of unfairness in this case was essen- the statements were discoverable. As sanctions, the trial court tially no different from the evidence in Continental General Tire. ordered that the jury take as established that the patient’s The Court said the test in Continental General Tire cannot be four calls for assistance were ignored and that he was in the satisfied merely by general assertions of unfairness. Plaintiffs restraint without a physician’s order. The court of appeals had conceded that tests on a finished tire are more proba- affirmed. tive of a defect than an analysis of the skim-stock formula would be and acknowledge that they had no other skim- The Supreme Court held that the sanctions were excessive stock formulas to compare Firestone’s skim-stock formula and the error was prejudicial. The Court applied the two- to. Neither side could point to a single case in which a court prong analysis of TransAmerican Natural Gas Corp. v. Powell, had ordered the formula disclosed. In short, the plaintiffs 811 S.W.2d 913 (Tex. 1991), to conclude that sanctions that had not shown how knowledge of the formula was linked inhibit presentation of a case should be reserved for fla- to their allegations, let alone how it was necessary to a fair grant bad faith or counsel’s callous disregard for discovery adjudication of their claims. responsibilities and concluded that late production of witness statements did not justify the severe sanctions ordered in In concurrence, Justice O’Neill argued that determining this case. The error was harmful, the Court said, because by what evidence is necessary for a fair adjudication should instructing the jury to presume that nurses ignored the calls, be more than ad hoc. According to Justice O’Neill, the fol- it essentially proved the hospital breached its duty of care and lowing general principles could be distilled from decisions in effectively precluded the hospital from offering testimony by other jurisdictions: (1) trade-secret information is generally two nurses that would have contradicted the statement that discoverable when not allowing discovery would signifi- nurses ignored the patient’s calls. cantly impair a party’s ability to establish or rebut a mate- rial element of a claim or defense; and (2) a party’s ability is C. Trade Secrets significantly impaired when the information is unavailable 1. In re Bridgestone/Firestone, Inc., 106 S.W.3d 730 (Tex. May from any other source and no adequate alternative means of 22, 2003) [01-1165]. The issue in this products-liability case proof exist. Justice O’Neill also said that discovery of trade is whether the trial court abused its discretion by ordering secrets is necessary when the party seeking trade secret infor- disclosure of Firestone’s trade-secret tire-manufacturing mation could not knowledgeably cross-examine opposing formula on the grounds that it was necessary to the litiga- witnesses without it, or when the party’s experts would be tion. The plaintiffs in this case, alleging tire-tread separation unable to formulate opinions supported by an adequate factual defects, sought Firestone’s trade-secret “skim stock recipe” foundation. On the other hand, information that is merely ADVOCATE ✯ SPRING 2004 THE 23 cumulative would not be necessary for a fair adjudication. jury’s verdict. Canchola raised questions about the adequacy and fairness of Wal-Mart’s investigation as evidence that the 2. In re Bass, 113 S.W.3d 735 (Tex. July 3, 2003) [02-0071]. store was motivated to fire him because of his disability. But This case involves a discovery dispute in which the trial court the Court said that although that was some evidence assailing ordered Bass to disclose seismic data that he contended was a the quality of the store’s investigation, it did not, by itself, trade secret. A brother and sister sued Bass, alleging, among prove that Canchola’s heart condition was a motivating factor other things, that (1) they held “executive” and “bonus” min- in his termination. The relevant inquiry, the Court explained, eral rights in South Texas ranch land Bass acquired from is not whether the complaints made against Canchola were a their sister; (2) Bass misappropriated confidential and valuable . pretext, but what they were a pretext for Canchola offered no geophysical data and converted their executive mineral rights; evidence to show that Wal-Mart was motivated to fire him and (3) Bass breached duties he owed to them by preventing because of his heart condition. His allegations about Wal-Mart’s or discouraging reasonable exploration, development and pro- investigation, even if true, did not amount to extreme and duction of minerals on property in which they held royalty outrageous conduct as a matter of law. interests. When Bass refused to produce seismic data from a survey Exxon conducted of the subject property and an B. Drug Testing/Termination of At-Will Employee adjacent tract Bass owned, the trial court granted a motion 1. Mission Petroleum Carriers, Inc. v. Solomon, 106 S.W.3d to compel disclosure of the information under a protective 705 (Tex. May 15, 2003) [01-0292]. This case presents an order. Bass sought mandamus relief from the court of appeals, issue of first impression in Texas law: whether an employer but the court of appeals denied the petition. owes a duty to an at-will employee to exercise reasonable care in conducting a mandatory drug test that led to his The Supreme Court held that geological seismic data are dismissal. Mission selected Solomon, one of its drivers, for trade secrets and that the nonparticipating royalty interest a random drug test using one of its own employees to col- owners failed to establish the existence of a claim against lect a urine sample. When the drug test showed evidence the mineral estate owner justifying discovery of the trade of marijuana use, Mission fired Solomon and registered the secret data. The Court applied the Restatement of Torts’ test result in an industry-wide computer network the federal six-factor test for trade secrets (now incorporated into the government required. Solomon later alleged Mission did not Restatement [Third] of Unfair Competition) and concluded follow testing protocol established by the federal Department that Bass met his burden to show that geological seismic data of Transportation and offered a hair analysis to refute the are trade secrets. Therefore, under the Court’s holding in In alleged marijuana use. He sued Mission in part for negligently re Continental Tire, 979 S.W.2d 609 (Tex. 1998), the plaintiffs handling his urine sample. The jury awarded Solomon more had to show that discovery of that information was necessary than $900,000, including punitive damages. The court of for a fair adjudication of their claims. Because the record did appeals affirmed. not establish the existence of a duty to develop or that Bass breached a fiduciary duty, the royalty owners did not make The Supreme Court reversed and rendered judgment, the requisite showing of necessity. holding that a common-law duty should not be imposed on employers collecting urine samples themselves because X. EMPLOYMENT LAW federal Department of Transportation regulations adequately A. Disability Discrimination/Evidence of Pretext govern how samples are collected and processed and allow 1. Wal-Mart Stores, Inc. v. Canchola, S.W.3d , 46 Tex. employees to challenge false-positive test results. In testing Sup. Ct. J. 1116 (September 4, 2003) [02-0232]. The issue conducted under the federal Transportation protocols, is whether evidence supporting a disability discrimina- employees can contest urine-collection procedures that tion verdict was legally sufficient. In this case, Canchola, violate federal regulations and request an independent a department manager for Wal-Mart, complained that his medical review officer’s assessment of the collection proce- firing for alleged sexual harassment was a pretext for firing dures. Companies that do not adhere to collection procedures him because of a disabling heart condition. Canchola sued can be penalized. Solomon did not use these protections. for disability discrimination and for intentional infliction of Instead he signed a specimen chain-of-custody form and emotional distress. A jury found for Canchola, and the court did not raise Mission’s alleged protocol violations. Because of appeals affirmed the judgment. employees can protect themselves from harm, the incentive is less to create a duty of ordinary care on employers col- The Supreme Court held there was no evidence to support the lecting drug-test specimens. ADVOCATE ✯ SPRING 2004 THE 24 Justice Enoch concurred, arguing that the Court’s discus- question was in fact defective. David Garza sued Southwestern sion of the employment-at-will doctrine was unnecessary. Bell Telephone Company for workers’ compensation retalia- Justice Schneider, concurring separately, stated that, although tion. The trial court rendered judgment for Garza, awarding imposition of a common-law duty would not disrupt the bal- $1,034,108 in actual damages, $1,000,000 in punitive dam- ance in policies underlying the federal drug-test regulations, ages, prejudgment interest, and costs. The court of appeals Solomon’s negligence claim still failed because he did not held that Southwestern Bell failed to timely and specifically produce any evidence that the steps or procedures Mission object to the liability question and that, regardless of the Petroleum failed to follow in collecting the urine sample waiver, the liability question was not improper. Furthermore, caused the positive test result for marijuana use. the court of appeals held that the trial court did not err in admitting evidence over Southwestern Bell’s objections and C. Preemption/Texas Commission on Human Rights that legally and factually sufficient evidence supported the Act finding that Southwestern Bell violated the anti-retaliation 1. Hoffman-LaRoche, Inc. v. Zeltwanger, 69 S.W.3d 634 (Tex. statute and the awards for mental anguish and punitive dam- App.—Corpus Christi 2002), pet. for review granted, 46 Tex. ages. The court of appeals also refused to order remittitur of Sup. Ct. J. 68 (October 31, 2002) [02-0120]. The principal the awards for mental anguish and punitive damages. issue is whether the Texas Commission on Human Rights Act preempts a claim for intentional infliction of emotional The Supreme Court granted Southwestern Bell’s petition for distress in a sexual harassment and retaliatory discharge law- review and heard argument on October 15, 2003. suit. Based on favorable jury findings, the trial court awarded Zeltwanger damages against Hoffman-LaRoche as follows: XI.EVIDENCE (1) sexual harassment—$347,036 for back pay, $500,000 in A. Expert Testimony/Causation/Legal Malpractice front pay, plus prejudgment interest; (2) intentional inflic- 1. Alexander v. Turtur & Assocs., Inc., 86 S.W.3d 646 (Tex. tion of emotional distress—$1 million for mental anguish App.—Houston [1st Dist.] 2001), pet. for review granted, and $23,000 for past medical expenses, plus prejudgment 46 Tex. Sup. Ct. J. 1204 (September 25, 2003) [02-1009]. interest on both. The trial court also awarded $50,000 for The main issue in this case is whether expert testimony is future medical expenses, plus $8,000 in exemplary damages. required to prove causation in a trial malpractice case. Turtur The trial court also awarded Zeltwanger damages against & Associates, Inc. (T&A) sued Tom Alexander, individually, Webber, Zeltwanger’s supervisor at Hoffman-LaRoche, and his law firm, Alexander & McEvily, for malpractice and for intentional infliction of emotional distress as follows: DTPA violations related to Alexander’s representation of T&A $30,000 for mental anguish, plus prejudgment interest, and in a dispute with McKellar Ranch in bankruptcy court. T&A $7,500 exemplary damages. The trial court also rendered alleged that Alexander’s and his firm’s negligence resulted a take nothing judgment against Zeltwanger on her claim in an unfavorable outcome in the trial. The Turtur Family against Hoffman-LaRoche for retaliatory discharge, and Partnership was later added as a plaintiff and alleged that rendered a take nothing judgment as to all claims brought Alexander and his firm had also conducted an unauthor- by Hoffman-LaRoche and Webber. The court of appeals ized sale of the Partnership’s cattle. The sale had occurred affirmed, rejecting Hoffman-LaRoche’s arguments that it in connection with Alexander & McEvily’s representation of could not be held liable for intentional infliction of emotional the Partnership in a different case involving an ownership distress for Webber’s conduct. The Supreme Court granted dispute with McKellar over the cattle. The trial court granted Hoffman-LaRoche’s petition for review and heard argument partial summary judgment for Alexander on the Partnership’s on February 5, 2003. claims for unauthorized sale of cattle on statute of limita- tions grounds. During the trial on the remaining claims, D. Retaliation/Evidence/Causation T&A presented expert testimony on Alexander’s breach of 1. Southwestern Bell Tel. Co. v. Garza, 58 S.W.3d 214 (Tex. the ordinary standard of care, but not specifically on causa- App.—Corpus Christi 2001), pet. for review granted, 46 Tex. tion. The jury rendered a verdict favorable to T&A on the Sup. Ct. J. 779 (June 12, 2003) [01-1142]. The issues in this remaining claims and awarded damages far in excess of workers’ compensation retaliation case are (1) whether legally T&A’s underlying claim in the bankruptcy proceeding. The sufficient evidence supported the award of punitive damages; trial court denied T&A leave to file a trial amendment to (2) whether sufficient evidence existed to prove causation; conform the pleadings with the damages awarded, held that (3) whether Southwestern Bell waived its complaint that the no evidence supported the jury’s damages award, disregarded liability question was defective; and (4) whether the liability the jury’s findings on causation, and entered a take-nothing ADVOCATE ✯ SPRING 2004 THE 25 judgment in Alexander’s favor. The court of appeals reversed (3) whether the Texas probation statute restores a convicted in part, holding that expert testimony was not necessary to felon’s jury service eligibility; and (4) whether the trial court prove causation in this case and that there was legally and abused its discretion by admitting the testimony of the plain- factually sufficient evidence of causation. The court of appeals tiff’s accident-reconstruction expert. On November 26, 1996, also held that the trial court did not abuse its discretion in Haley Sperling was driving a 1996 Volkswagen Passat when denying T&A’s motion for leave to file the post-verdict trial she collided with a Camaro and crossed the median into amendment and remanded to the trial court to enter judg- opposing traffic. Ms. Sperling’s Passat collided head-on with ment awarding T&A damages in the amount of the under- a 1995 Ford Mustang driven by Diana Ramirez Guerra and lying bankruptcy claim. The court of appeals affirmed the occupied by her daughter, Jacquelyn Guerra. Ms. Sperling and trial court’s grant of summary judgment on the Partnership’s Diana Guerra died in the accident, and Jacquelyn Guerra was claims for unauthorized sale of cattle, holding that the claim seriously injured. The families sued Volkswagen of America, was barred by the statute of limitations. The Supreme Court Inc., the driver of the Camaro, and others for money damages, granted both parties’ petitions for review and heard argument alleging product defects and negligence. The Sperling family’s on December 3, 2003. claims were severed from the Ramirez family’s claims. This case involves only the Ramirez family’s claims. B. Outcry Testimony 1. In re Z.L.B., 102 S.W.3d 120 (Tex. March 13, 2003) Two trials were held in this case. In the first trial, the jury [01-1209]. In this child sexual-abuse case involving a juve- returned a unanimous verdict in favor of Volkswagen, but nile offender, the Supreme Court considered who bears the the trial court granted the Ramirez family’s motion for a new burden to produce evidence of an earlier statement from an trial “in the interest of justice” without providing further “outcry” witness when the defendant claims the prosecution’s explanation. After the second trial, ten of the twelve jurors proffered outcry witness was not the first person to hear a returned a verdict in favor of the family, awarding them $15.9 qualifying outcry statement. The prosecution had offered a million in actual damages. The court of appeals affirmed the day-care director’s testimony that the 5-year-old victim com- trial court’s judgment. plained that his 12-year-old brother had touched his “privates” and he wanted him to stop. The defense maintained that the The Supreme Court granted Volkswagen’s petition for review day-care director was not the appropriate out-cry witness and heard oral argument on April 23, 2003. because the victim had previously made similar statements to his mother. XII. HABEAS CORPUS A. Contempt Order The Court held that once the prosecution lays the initial 1. In re Sheshtawy, 2003 WL 1922869 (Tex. App.—Houston predicate, the burden shifts to the defendant to prove the [1st Dist.] 2003), argument granted on pet. for writ of habeas child made an earlier statement to another person, and in corpus, 46 Tex. Sup. Ct. J. 1124 (September 11, 2003) [03- this case, the defendant failed to introduce evidence of a 0766]. The issue in this case involving a contempt order is sufficient earlier statement to the mother. The Court noted whether the trial court or appellate court has enforcement that the Court of Criminal Appeals has held in adult criminal power over a spousal-maintenance order when an appeal of cases that the outcry statement must be one that “in some the decree is pending. The Supreme Court heard argument discernible manner describes the alleged offense,” more than in this case on November 19, 2003. a general allusion of child abuse. XIII. INTENTIONAL TORTS C. Videotaped Statement/Unidentified Witness A. Business Disparagement 1. Volkswagen of Am., Inc. v. Ramirez, 79 S.W.3d 113 (Tex. 1. Forbes Inc. v. Granada Biosciences Inc., S.W.3d , Tex. App.—Corpus Christi 2002), pet. for review granted, 46 Tex. Sup. Ct. J. (December 19, 2003) [01-0788]. In this business Sup. Ct. J. 489 (March 6, 2003) [02-0557]. The issues in this disparagement case, two publicly held companies sued Forbes personal injury case arising from an automobile accident are over an article on the parent company’s chairman and the (1) whether an order granting a new trial is reviewable on parent company’s troubled finances. The subsidiaries claimed appeal after the second trial; (2) whether the trial court abused that stock prices in both companies fell and that credit to its discretion by admitting a TV news crew’s videotaped wit- each evaporated after the article’s publication. They alleged ness statement when the witness refused to identify himself actual malice based in part on an error pointed out to the on the video and was not available for cross-examination; author, who assured the companies that the error could be ADVOCATE ✯ SPRING 2004 THE 26 corrected but who gave that assurance after the magazine employee, her husband, and the CFO under the proportionate had already been printed and distributed. The trial court responsibility statute. The trial court also granted summary granted summary judgment for the magazine, but the court of judgment in favor of ISC on liability for conversion and actual appeals reversed. The principal issue on appeal was whether damages claims but refused to allow ISC to recover exemplary the plaintiff companies offered evidence that Forbes acted damages from the Bank. The court of appeals affirmed the with actual malice by knowingly publishing false statements trial court’s judgment. The Supreme Court heard oral argu- about the companies. ment in this cause on November 5, 2003. The Supreme Court held that the companies did not offer C. Infliction of Emotional Injury sufficient evidence to show Forbes acted with actual malice. 1. Tiller v. McLure, S.W.3d , 46 Tex. Sup. Ct. J. 632 (May In so holding, the Court stated that the actual malice inquiry 8, 2003) [02-0136]. The issue is whether repeated complaints focuses on the defendant’s state of mind at the time of publica- by a customer to a contractor’s wife about work performance tion and observed that the article was printed and in distri- during a time when the contractor was dying is legally suf- bution before the writer assured the chairman that mistakes ficient evidence of intentional infliction of emotional distress. would be corrected. The Court further said that the court In this case Tiller, who contracted with Barbara McLure’s com- of appeals erred in applying the “single publication” rule’s pany for construction of self-storage units on Tiller’s property, definition of when a defamatory statement is published (on complained to McLure after she wrote Tiller to assure him the the last day of the mass distribution of copies of the printed project would be completed on time despite her husband’s matter) because that definition applies only for statute of limi- illness. When McLure, through her son, then informed Tiller tations purposes and does not bear on whether the publisher that the construction site would be closed for her husband’s acted with malice. The Court likewise held that Forbes’s use funeral, Tiller threatened to terminate the contracts, claiming of the name “Granada” as a generic reference for the parent the project was behind schedule. Tiller called McLure at home company at best established that the magazine was guilty as many as 60 times, often at night and weekends, from the of using imprecise language, but by itself, was not evidence time her husband became ill to the time the project ended that the magazine either entertained serious doubts as to and then refused to make a final $37,000 payment. On her the truth of statements in the article or had a high degree of emotional-distress claim, a jury found for McLure, but the awareness of their falsity. trial court rendered a judgment for Tiller notwithstanding the verdict. The court of appeals reversed. B. Conversion/Proportionate Responsibility Statute 1. Southwest Bank v. Info. Support Concepts, Inc., 85 S.W.3d The Supreme Court reversed the court of appeals’ judgment 462 (Tex. App.—Fort Worth 2002), pet. for review granted, and rendered judgment, holding that Tiller’s conduct, often 46 Tex. Sup. Ct. J. 1058 (August 28, 2003) [02-0946]. The callous and insensitive, never involved threats unrelated to issue in this case is whether the proportionate responsibility the contract (for which, as a corporate officer, McClure was a statute applies to an action for conversion against a bank under designated contact) or severe verbal abuse. Tiller’s persistent section 3.420 of the Uniform Commercial Code. In this case, calling was never excessive on any one day and his complaints an employee of Information Support Concepts (“ISC”) stole and threats were related to an ordinary, albeit contentious, over $300,000 in checks made payable to ISC and deposited commercial contract dispute. Thus, the conduct did not rise them into her personal account at Southwest Bank. Although to the level of extreme and outrageous conduct. none of the stolen checks bore ISC’s endorsement, and ISC did not have an account with the Bank, the Bank accepted 2. Hoffman-LaRoche, Inc. v. Zeltwanger, 69 S.W.3d 634, (Tex. her deposits and obtained payment on the checks. ISC sued App.—Corpus Christi 2002), pet. for review granted, 46 Tex. the Bank under the Uniform Commercial Code, TEX. BUSINESS Sup. Ct. J. 68 (October 31, 2002) [02-0120]. The principal & COMMERCE CODE § 3.420, for conversion. The Bank raised issue is whether the Texas Commission on Human Rights several affirmative defenses, including contributory negli- Act preempts a claim for intentional infliction of emotional gence, assumption of risk, and failure to mitigate damages, distress in a sexual harassment and retaliatory discharge law- and sought to join the employee, her husband, and the chief suit. Based on favorable jury findings, the trial court awarded financial officer of ISC as responsible third parties under the Zeltwanger damages against Hoffman-LaRoche as follows: proportionate responsibility statute. The trial court granted (1) sexual harassment-$347,036 for back pay, $500,000 in partial summary judgment in favor of ISC on the Bank’s front pay, plus prejudgment interest; (2) intentional inflic- affirmative defenses and denied the Bank’s motion to join the tion of emotional distress-$1 million for mental anguish and ADVOCATE ✯ SPRING 2004 THE 27 $23,000 for past medical expenses, plus prejudgment interest nuisance; and (3) whether the trial court abused its discre- on both. The trial court also awarded $50,000 for future tion in denying a motion for continuance of the underlying medical expenses, plus $8,000 in exemplary damages. The summary judgment hearing. Andrea Bates and seventy-eight trial court also awarded Zeltwanger damages against Webber, other individuals residing near the Houston Ship Channel Zeltwanger’s supervisor at Hoffman-LaRoche, for intentional sued Schneider National Carriers, Inc. and several other infliction of emotional distress as follows: $30,000 for mental operators of industrial facilities near the plaintiffs’ homes. anguish, plus prejudgment interest, and $7,500 exemplary The plaintiffs allege that they and their personal and real damages. The trial court also rendered a take nothing judg- property have been adversely affected by air contaminants, ment against Zeltwanger on her claim against Hoffman- light pollution, and noise from the defendants’ facilities. The LaRoche for retaliatory discharge, and rendered a take nothing plaintiffs filed various affidavits in support of their claims, judgment as to all claims brought by Hoffman-LaRoche and but the defendants argued in a partial motion for summary Webber. The court of appeals affirmed, rejecting Hoffman- judgment that the nuisance claim is time barred because the LaRoche’s arguments that it could not be held liable for inten- affidavits conclusively establish that the alleged nuisance is tional infliction of emotional distress for Webber’s conduct. permanent. The trial court granted the defendants’ partial The Supreme Court granted Hoffman-LaRoche’s petition for summary judgment on limitations, but the court of appeals review and heard argument on February 5, 2003. reversed and remanded, holding that fact issues exist as to whether the alleged nuisance is temporary or permanent. D. Nuisance 1. Holubec v. Brandenberger, 111 S.W.3d 32 (Tex. May 22, The Supreme Court will hear argument in this case on 2003) [01-1214]. The principal issue in this nuisance lawsuit January 28, 2004. against feedlot operators is whether the Holubecs established a defense based on when the feedlot began operation or when E. Tortious Interference with Contract/Damages the effects of it began to be known. Brandenberger, who lived 1. Tana Oil & Gas Corp. v. McCall, 104 S.W.3d 80 (Tex. on property adjacent to the Holubecs’ farm, sued over flies, February 13, 2003) [01-1181]. The issue in this case is whether odors, noise and night lighting after the Holubecs built an one who tortiously interferes with the relationship between an enclosed feedlot near the Brandenberger house. The Holubecs attorney and his client by suing them in the same action can had pastured sheep on their property for years before con- be liable to the attorney for the value of the attorney’s time structing an enclosed feedlot in March 1997. Brandenberger and the expenses he incurred in defending himself. Here, sued in July 1998. The Holubecs argued that Texas Agriculture the McCalls represented a client who sued Tana in Fayette Code section 251.004(a) (the Right to Farm Act) bars nuisance County in a mineral lease dispute. Several weeks later Tana suits filed more than a year after an agricultural operation sued the McCalls and their client in Nueces County, alleging begins, not when the effects are known. The trial court the Fayette County lawsuit was based on claims that were ruled against the Holubecs and ordered them to abandon previously settled. The McCalls then sued Tana in Travis the feedlot and remove fencing, pens and lights. The court County, alleging tortious interference with their attorney- of appeals affirmed. client relationship and seeking to recover for the value of the time and expenses they incurred in defending themselves in The Supreme Court reversed and remanded, holding that Nueces County. The Travis County trial court granted Tana a the one-year ban on nuisance actions is a statute of repose, directed verdict before the McCalls had presented their case. not a statute of limitations. According to the Court, section The court of appeals reversed. 251.004(a) was intended to bar a nuisance suit one year after commencement of the conditions or circumstances providing The Supreme Court reversed and rendered judgment in the basis for the suit. favor of Tana, holding that a causal relationship did not exist between the tortious interference the McCalls alleged and the 2. Schneider Nat’l Carriers, Inc. v. Bates, 95 S.W.3d 309 only damages they claimed—the value of the time they spent (Tex. App.—Houston [1st] 2002), pet. for review granted, 47 defending themselves in the Nueces County lawsuit. Such Tex. Sup. Ct. J. 105 (November 21, 2003) [03-0236]. The damages could not have been caused by Tana’s interference principal issues in this case are: (1) whether air and noise with their legal representation in the Fayette County suit pollution allegedly produced by Houston Ship Channel anymore than if they’d been sued by an unrelated party. The industrial facilities is a permanent or temporary nuisance; Court emphasized that the McCalls did not merely fail to plead (2) whether the continuing tort doctrine applies to the alleged a viable damage claim; rather they affirmatively limited their ADVOCATE ✯ SPRING 2004 THE 28 claim to damages they could not recover as a matter of law. B. Conflicts Jurisdiction/Dicta in Court of Appeals’ As a result, the trial court did not err in dismissing the case. Opinion Although the McCalls argued that Tana’s suit against them 1. State Farm Mut. Auto. Ins. Co. v. Lopez, S.W.3d , 46 was purely tactical and without merit, the Court said they Tex. Sup. Ct. J. 129 (October 31, 2002), pet. for review granted failed to explain why their remedies of sanctions under Rule on reh’g and prior opinion withdrawn, 46 Tex. Sup. Ct. J. 129 13 of the Texas Rules of Civil Procedure and chapter 10 of (May 8, 2003) [01-0540]. The threshold issue in this case the Texas Civil Practice and Remedies Code were inadequate is whether the court of appeals’ opinion reviewing a class or why they had not moved the court in Nueces County to certification order in the underlying lawsuit conflicts with sanction Tana. The Court observed that it was not that the Southwestern Refining Co. v. Bernal, 22 S.W.3d 425 (Tex. 2000). McCalls were without a remedy for the wrong they alleged; it State Farm asserts that Bernal requires rigorous analysis of all was that the remedy they pursued was not open to them. the prerequisites to class certification, but that the court of appeals held that rigorous analysis was limited to common- 2. Latch v. Gratty, Inc., 107 S.W.3d 543 (Tex. February 27, ality and predominance. State Farm also complains that the 2003) [01-0773]. The issue was whether a corporate presi- court of appeals’ statement that a “trial plan” is not required dent tortiously interfered with a contract with one company in all class certification orders conflicts with Bernal. by signing a second contract with another company to sell the same assets. The Supreme Court held that there was no The Supreme Court concluded that the court of appeals’ evidence of tortious interference because, as a matter of law, opinion was not so narrow in its analysis and the court of the corporate president was not a stranger to the contract. appeals’ statement about a trial plan that was dicta could The mere fact that the president signed the second agreement not support conflicts jurisdiction. This opinion, however, without indicating his agency was no evidence that he acted was withdrawn when State Farm’s petition was granted individually. Because no evidence existed in the record that on rehearing. The cause has not yet been set for oral argu- the president was not acting as an agent for the company ment. selling the franchise and assets, the company that originally agreed to buy the franchise and assets could not recover C. Conflicts Jurisdiction/Prior Supreme Court Opinions unless it could show that the president acted “so contrary to 1. Tex. Dep’t of Parks & Wildlife v. Miranda, 55 S.W.3d the corporation’s interests that his or her actions could only 648 (Tex. App.—San Antonio 2001), pet. for review granted have been motivated by personal interest.” The trial court did on reh’g, 45 Tex. Sup. Ct. J. 999 (July 3, 2002) [01-0619]. not find, and no evidence existed in the record that showed, The issue is whether the trial court should have considered that the president was acting against the principal’s interests. evidence beyond the pleadings before denying the State’s plea The complaining party also did not produce evidence that to the jurisdiction based on governmental immunity and the the president’s company complained of his conduct. Mirandas’ alleged failure to show the state’s gross negligence under the Recreational Use Statute. The Mirandas sued the XIV. JURISDICTION State after Maria Miranda suffered severe injuries when a A. Adequate Appellate Remedy/Interference with pecan branch fell on her head at a Garner State Park campsite. Jurisdiction They alleged the tree posed a danger that the department rec- 1. In re Houston Northwest Partners, Ltd. [03-0252], 98 ognized but failed to fix and about which it consciously and S.W.3d 777 (Tex. App.—Austin 2003), argument granted on deliberately failed to warn them. The State responded that the pet. for writ of mandamus, 46 Tex. Sup. Ct. J. 1124 (September Mirandas’ claim was controlled by the Recreational Use Statute 11, 2003), and consolidated for oral argument with Gonzalez because they raised a premises defect at a campground. The v. Reliant Energy, Inc. [03-0469 & 03-0470], 102 S.W.3d State argues that, under the statute, the Mirandas had to prove 868 (Tex. App.—Houston [1st Dist.] 2003). The principal the department was grossly negligent, but they could not do issue in these cases is whether a statutory probate court can so based on State park employees’ testimony that the tree was transfer to itself a wrongful death or personal injury case in good health and showed no indication that a branch was from a district court in another county where venue has been ready to drop. The court of appeals affirmed the trial court’s properly established. In the Gonzalez actions, the issue is Texas denial of the state’s jurisdictional plea. The court reasoned Probate Code section 5B (estate administration). In Houston that the trial court could not delve into the substance of the Northwest Partners the issue concerns Probate Code section Mirandas’ claims because the State did not specifically allege 608 (guardianship). The Supreme Court heard argument in the Mirandas’ pleadings were a sham to wrongfully obtain these cases on November 19, 2003. jurisdiction. The State argues that the Supreme Court has ADVOCATE ✯ SPRING 2004 THE 29 jurisdiction to hear this case because the court of appeals’ the requisite standard of care. Before the hearing on the defen- decision conflicts with prior Supreme Court decisions. The dants’ motion, the plaintiffs asked for a 30-day grace period Supreme Court granted the State’s petition for review and under the Medical Liability and Insurance Improvement Act, heard argument on October 30, 2002. TEX. R EV. CIV. STATS. ANN. art. 4590i, § 13.01(g), which allows a grace period if the failure to meet the deadline “was not XV. MEDICAL MALPRACTICE intentional or the result of conscious indifference but was A. Borrowed Employee/Joint Enterprise/Joint Venture/ the result of an accident or mistake.” The trial court denied Ratification and Mission the grace period request and dismissed the suit. The court 1. St. Joseph Hosp. v. Wolff, 94 S.W.3d 513 (Tex. November of appeals reversed. 5, 2002) [99-1192]. The principal issue in this case is whether St. Joseph Hospital in Houston could be held liable for medical The Supreme Court held that, when an expert report omits a malpractice allegedly committed in part by a resident doctor required element under the Medical Liability and Insurance working in one of its programs in Austin. The doctor was in Improvement Act, a purportedly mistaken belief that the training at Austin’s Brackenridge Hospital in a surgery resi- report complied with the statute does not negate a finding dency program sponsored by St. Joseph and conducted by the of intentional or conscious indifference. A denial of a grace Central Texas Medical Foundation. Wolff’s parents alleged period under section 13.01(g) is reviewed for abuse of discre- that the doctor’s negligence in treating their daughter after a tion. Some mistakes of law can negate intentional conduct or car accident led to her permanent brain damage. conscious indifference. But in this case, the Court said the expert reports failed to address the standard of care or the The Supreme Court held that no evidence supported the manner in which the standard was breached, both required by jury’s findings of joint enterprise, joint venture, “mission” or section 13.01(r)(6). Although the plaintiffs’ attorney testified non-employee respondeat superior, or ratification and that that he believed the reports complied with the statute, that undisputed evidence proved as a matter of law that when the testimony does not establish the “sufficient excuse” necessary resident treated the patient he was acting as the borrowed to find a mistake of law given the clear statutory requirements employee of the medical institution supervising him—the to the contrary. The Court also held that the plaintiffs’ due Foundation. process rights were not violated even though they were not given notice that the expert reports did not comply with In concurrence, Justice O’Neill, joined by Chief Justice the law. According to the Court, the Constitution does not Phillips, said the Court’s judgment was correct but that she require prior notice that the law is serious about a clearly did not agree with all of the plurality’s analysis stated consequence for failing to comply with its terms. Justice Enoch, joined by Justices Hankinson and Rodriguez, C. Expert Preliminary Report/Timely Filing/Waiver of dissented, arguing that the Court’s reasoning was “nonsense.” Right to Dismissal On the one hand, Justice Enoch observed, the plurality 1. Jernigan v. Langley, 111 S.W.3d 153 (Tex. July 3, 2003) acknowledged that St. Joseph controlled what medical ser- [02-0575]. The issue in this medical malpractice case is vices its residents could perform, but then concluded that St. whether the defendant physician waived the right to move Joseph didn’t control those very same medical services. Justice for a dismissal with prejudice under the Medical Liability Enoch asserted that the jury could find from the extensive and Insurance Improvement Act (TEX. R EV. CIV. STATS. record that the resident worked for both St. Joseph and the ANN. art. 4590i, § 13.01(e)) when he did not object to the Foundation. plaintiff’s expert reports as inadequate for over 600 days after they were filed, engaged in discovery, filed a motion B. Expert Preliminary Report/Timely Filing/Extension for summary judgment on other grounds and amended his 1. Walker v. Gutierrez, 111 S.W.3d 56 (Tex. June 19, 2003) answer to delete references to the plaintiff’s failure to follow [01-0841]. In this case, the Supreme Court considered statutory prerequisites to suit. The trial court granted the whether the trial court abused its discretion by refusing to defendant physician’s motion to dismiss. A divided court of grant medical-malpractice plaintiffs a 30-day grace period appeals reversed, concluding that the physician had waived to file an expert report when a first expert report was filed his statutory right to dismissal. on time but was defective. Although the plaintiffs filed their expert report within the statutory time limit, the defendants The Supreme Court held that the physician did not waive his moved to dismiss the suit because the report failed to address right to move for dismissal. Section 13.01 imposed a deadline ADVOCATE ✯ SPRING 2004 THE 30 on the claimant to file an expert report, but it did not, at that [02-0405]. The first issue in this case is whether Donna time, impose a deadline for a health care provider to file a Jacobo’s claim should be reviewed as an “informed consent” motion to dismiss. The Court said that the mere fact that the claim or as an allegation of misdiagnosis and negligent defendant waited to move for a section 13.01(e) dismissal was treatment. The second issue is whether the court of appeals insufficient to establish waiver unless the defendant’s silence properly reviewed Dr. Binur’s no-evidence motion for sum- or inaction showed an intent to yield the right to dismissal mary judgment under the traditional summary judgment based on the report’s insufficiency. To establish an intent standard. The final issue is whether Dr. Binur acted as Dr. to waive the right to dismissal under section 13.01(e), the Schmidt’s co-surgeon or assistant surgeon for Jacobo’s mas- defendant’s silence or inaction must have been inconsistent tectomy procedure. with the intent to rely upon the right to dismissal. Donna Jacobo sought medical attention because of her D. “Good Samaritan” Statute growing concerns that she could develop breast cancer based 1. McIntyre v. Ramirez, 109 S.W.3d 741 (Tex. June 26, 2003) on a family history of breast cancer. Dr. Schmidt examined [01-1203]. The principal issue is whether a doctor seeking Jacobo’s mammogram and determined it showed no presence summary judgment on the affirmative defense that he acted of cancer, but he recommended that Jacobo undergo a “pro- as a “Good Samaritan” during an emergency childbirth must phylactic mastectomy,” a process designed to remove breasts establish both (1) that he did not intend to charge for his as a preventative measure. Dr. Schmidt referred Jacobo to Dr. services and (2) that he was not legally entitled to payment Binur, a plastic surgeon, to discuss the possibility of plastic for his services. In this case, Ramirez sued Dr. McIntyre over surgery to reconstruct the breast if she had the mastectomy. neurological injuries her son allegedly sustained as a result of After signing a consent form, Jacobo had the prophylactic the doctor’s manipulation of the newborn during a compli- mastectomy and later underwent seven more surgeries to cated birth. Dr. McIntyre was not Ramirez’s attending physi- correct the unsuccessful reconstructive procedures Dr. Binur cian, but he answered an emergency call when complications performed. developed during her labor and her attending physician had left the labor-and-delivery area. In support of his motion for Jacobo sued both Dr. Schmidt and Dr. Binur, alleging they summary judgment, Dr. McIntyre submitted evidence that he failed to obtain her informed consent for the mastectomy. did not intend to charge for his services when he responded With respect to Dr. Binur, Jacobo alleged that he informed to the emergency call and that it was not customary to do her that she would without question develop cancer in her so. The trial court granted summary judgment in his favor, breasts and that her decision to have the procedure was based but the court of appeals reversed, holding that McIntyre had on Dr. Binur’s alleged comments. The trial court granted Dr. not established that he was not “legally” entitled to payment Schmidt’s motion for summary judgment, but Jacobo’s claim for his services. against Dr. Binur went to trial, resulting in a hung jury and a mistrial. After the mistrial, Dr. Binur asserted both traditional The Supreme Court reversed, holding that a person claiming and no-evidence summary judgment motions. The trial court the Good Samaritan defense need not establish that he or granted Dr. Binur’s motion for summary judgment, but the she is not “legally” entitled to remuneration. Rather, the court of appeals reversed. defendant must prove only that he or she would not ordi- narily receive or ordinarily be entitled to receive payment The Supreme Court granted Dr. Binur’s petition for review under the circumstances. Because the summary judgment and heard oral argument on April 23, 2003. evidence conclusively established that Dr. McIntyre satisfied these statutory requirements, the Court reversed the court F. Medical Liability and Insurance Improvement Act/ of appeals’ judgment, but remanded the case to that court to “Health Care Liability Claims” consider Ramirez’s argument that Dr. McIntyre’s rendition 1. Garland Cmty. Hosp. v. Rose, 87 S.W.3d 188 (Tex. of services came within a specific statutory exception to the App.—Dallas 2002), pet. for review granted, 46 Tex. Sup. Ct. Good Samaritan defense. J. 1058 (August 28, 2003) [02-0902]. The issue in this case is whether negligent credentialing claims against a hospital E. Informed Consent or Misdiagnosis and Negligent are “health care liability claims” under article 4590i of the Treatment Medical Liability and Insurance Improvement Act. The plain- 1. Binur v. Jacobo, 70 S.W.3d 330 (Tex. App.—Waco 2002), tiff underwent various cosmetic surgery procedures performed pet. for review granted, 46 Tex. Sup. Ct. J. 488 (March 6, 2003) at Garland Community Hospital. She sued the doctor, alleging ADVOCATE ✯ SPRING 2004 THE 31 that his negligence in performing the procedures caused her the trial court properly calculated prejudgment interest before damages. She also sued the hospital, claiming it was vicari- applying the settlement credits; and (3) whether the profes- ously liable for the doctor’s negligence as well as directly sional associations are jointly and severally liable for the liable for its own negligence in granting, renewing, and con- judgment or vicariously liable for each others’ negligence tinuing the doctor’s staff privileges. The plaintiff timely filed under a joint-venture theory. an expert report and supplemental expert report pursuant to the Medical Liability and Insurance Improvement Act, TEX. In this case, Mark Alexander was injured and ultimately died R EV. CIV. STAT. art. 4590i, § 13.01, but the hospital moved to after receiving anesthesia during a routine out-patient surgery. dismiss the negligent credentialing claims on the ground that His family sued TOPS Surgical Specialty Hospital, Drs. Carl the expert reports were insufficient. The trial court granted Battaglia and Tommy Polk and their respective professional the motion to dismiss and severed the claims against the associations, a nurse, and Dr. Laverna Jane Crowder. Before doctor and the vicarious liability claims against the hospital trial, the hospital and the nurse settled with the Alexanders. into a separate action. The court of appeals reversed and The trial court granted a directed verdict in favor of Dr. Polk. remanded, holding that the negligent credentialing claims The jury found Dr. Battaglia was not negligent and allocated were not “health care liability claims” governed by article liability between the nurse, Dr. Crowder, and the two profes- 4590i and that Rose therefore was not required to file an sional associations. The court of appeals affirmed, holding that expert report. The Supreme Court granted the hospital’s peti- (1) the evidence was sufficient to support the jury’s finding tion for review and heard argument on November 5, 2003. that the professional associations were negligent; (2) the pro- fessional associations were jointly and severally liable under G. Negligence/Legal Cause proportionate liability statute; and (3) prejudgment interest 1. IHS Cedars Treatment Ctr. of Desoto v. Mason, 2001 WL should be calculated on the amount of past damages. 915215 (Tex. App.—Dallas 2001), pet. for review granted, 46 Tex. Sup. Ct. J. 69 (October 31, 2002) [01-0926]. The prin- The Supreme Court granted Battaglia’s petition for review cipal issues are whether a mental health care facility and and heard argument on October 15, 2003. its nurse and doctors were negligent in discharging Mason and another patient together, at their request, and whether XVI. NEGLIGENCE such negligence was a legal cause of Mason’s injuries in a car A. Duty of Care accident involving both patients two days after they left the 1. Tex. Home Mgmt., Inc. v. Peavy, 89 S.W.3d 30 (Tex. October hospital. The trial court granted summary judgment in favor 31, 2002) [00-0889]. The Supreme Court considered in this of the health care providers. The court of appeals reversed in case whether the operator of a home for the mentally retarded part, affirmed in part, and remanded the case for trial. The owed a duty of care to a murder victim killed by one of its court of appeals held that the summary judgment evidence residents. Dixon, living at a care home under a court order, raised fact issues about whether the health care providers killed the Peavys’ daughter when he tried to steal her car on had breached duties of care to Mason. The court of appeals a weekend pass to his mother’s home in Houston. The Peavys further held that Mason had alleged sufficient facts to show claimed that Texas Home Management, the home operator, probable cause and that Mason’s testimony regarding the was negligent and grossly negligent when it allowed Dixon’s mental state of the other patient at the time of the accident unsupervised Houston visit because of his criminal history. was admissible. The Supreme Court granted Cedar Treatment The trial court granted summary judgment for Texas Home Center’s petition for review and heard oral argument on Management. The court of appeals reversed. September 3, 2003. The Supreme Court held that Texas Home Management did H. Professional Association Liability not establish as a matter of law that it had no duty. The home 1. Battaglia v. Alexander, 93 S.W.3d 132 (Tex. App.—Houston operator argued that the State retained legal custody of Dixon [14th Dist.] 2002), pet. for review granted, 46 Tex. Sup. Ct. J. and both federal and state regulations encouraged frequent 781 (June 12, 2003) [02-0701]. The issues are (1) whether visits to his mother’s home in Houston. But those regulations legally sufficient evidence supported a negligence finding did not mandate such visits, which required authorization against two anesthesiologists’ professional associations by a mental retardation professional and a physician. The despite a failure to find either doctor negligent; (2) how to Court said this case differs from Van Horn v. Chambers, 970 allocate settlement credits between past and future damages S.W.2d 542 (Tex. 1998), in which the Court found no special absent an allocation in the settlement agreement and whether relationship to establish a right to control a patient to protect ADVOCATE ✯ SPRING 2004 THE 32 others. In this case, a right to control arose from Texas Home resulted, destroying Crown Central’s facility. Crown Central Management’s contract with the State. Dixon’s danger could sued Coastal Transport and another company for negligence be foreseen, based on his history of assaults, which were and gross negligence. The trial court rendered judgment greater in previous visits to Houston than at the home. The against Coastal Transport based on the jury’s findings, but State could have retained sufficient control over the details rendered a directed verdict against Crown Central as to exem- of the home’s operation to excuse the home’s duty, but the plary damages. Based on the jury’s finding that the loading operator’s summary-judgment evidence did not establish such facility’s damage was “temporary,” the trial court determined authority by either the State’s mental health agency or by the that Crown Central’s prior settlement with another party was court that ordered his placement. for a greater amount than its damages. And because Coastal Transport made a prior written settlement credit election, Justice Owen concurred in the judgment but argued that the trial court rendered a take-nothing judgment against the Court should have held that the duty Texas Home Crown Central. The court of appeals affirmed the finding Management owed to third parties such as the murder victim of “temporary” damages, but held that the directed verdict in this case was to report promptly to the State’s mental concerning Coastal Transport’s alleged gross negligence was health agency and appropriate law enforcement authorities improper. The court of appeals accordingly affirmed in part, all pertinent facts about Dixon’s violations of the law and reversed in part, and remanded the matter for further pro- any serious aggressive acts. If the Peavys could demonstrate ceedings. The Supreme Court granted Crown Central’s and that State actors would have taken actions that would have Coastal Transport’s petitions for review and heard argument prevented their daughter’s murder, then the Peavys would on December 4, 2002. have established a cause of action. But to the extent that their claims rested on the failure of Texas Home Management or C. Legal Cause its agents to diagnose and treat Anthony Dixon’s violent pro- 1. IHS Cedars Treatment Ctr. of Desoto v. Mason, 2001 WL clivities properly, Justice Owen said, those claims could not 915215 (Tex. App.—Houston [14th Dist.] 2002), pet. for review survive based on the Court’s decisions in Thapar v. Zezulka, granted, 46 Tex. Sup. Ct. J. 69 (October 31, 2002) [01-0926]. 994 S.W.2d 635 (Tex. 1999), Van Horn v. Chambers, and Bird The principal issues are whether a mental health care facility v. W.C.W., 868 S.W.2d 767 (Tex. 1994). and its nurse and doctors were negligent in discharging Mason and another patient together, at their request, and whether Justice Hecht dissented, arguing that the Court had never such negligence was a legal cause of Mason’s injuries in a car before called something like Texas Home Management’s accident involving both patients two days after they left the authority over Dixon “control.” Close to the facts of this case, hospital. The trial court granted summary judgment in favor Justice Hecht observed, the Court has held that a physician of the health care providers. The court of appeals reversed in does not exercise such control over a patient’s treatment as part, affirmed in part, and remanded the case for trial. The to render him liable to hospital employees for the patient’s court of appeals held that the summary judgment evidence violence, nor does a psychiatrist exercise such control over raised fact issues about whether the health care providers had a patient as to render him liable for the patient’s murder of breached duties of care to Mason. The court of appeals further his stepfather. held that Mason had alleged sufficient facts to show probable cause and that Mason’s testimony regarding the mental state B. Gross Negligence/Legal Sufficiency of Evidence of the other patient at the time of the accident was admissible. 1. Coastal Transp., Inc. v. Crown Cent. Petroleum Corp., The Supreme Court granted Cedar Treatment Center’s petition 38 S.W.3d 180 (Tex. App.—Houston [14th Dist.] 2001), pet. for review and heard argument on September 3, 2003. for review granted, 45 Tex. Sup. Ct. J. 1145 (August 29, 2002) [01-0301]. The issues in this case include: (1) whether an D. Liability/Resuscitating Premature Infant/Parental objection to the introduction of expert testimony is neces- Consent sary to challenge the legal sufficiency of that testimony in a 1. Miller v. HCA, Inc., 118 S.W.3d 758 (Tex. September 30, directed verdict; (2) what evidence is necessary to support 2003) [01-0079]. The narrow question presented in this case a jury finding of gross negligence; (3) what constitutes per- of first impression is whether Texas law recognizes a claim manent injury to land; and (4) what the proper measure of by parents for either battery or negligence against a hospital damages for permanent injury to land is. A gasoline truck because the hospital allowed physicians to provide resuscita- owned by Coastal Transport overflowed while being filled tive medical treatment to their premature infant without their at a bulk loading facility owned by Crown Central. A fire consent. In this case, approximately eleven hours before the ADVOCATE ✯ SPRING 2004 THE 33 parents’ child was born four months prematurely, the parents for summary judgment on the sexual-abuse claim, holding had given oral instructions that “heroic” measures should not that it was a health-care liability claim under TEX. R EV. CIV. be performed on their daughter. When the child was born STAT. art. 4590i, § 1.03(a)(4) and was time-barred. The court alive but in distress, the treating physician provided life-sus- of appeals reversed, holding that the claim was for ordinary taining medical treatment. The child survived, but suffered negligence, not a health care-liability claim, so the statute of from serious disabilities, and the parents sued the hospital limitations was tolled for the plaintiff’s legal disability. for battery and negligence. The parents’ negligence claim was premised on the hospital’s policies regarding treatment of The Supreme Court granted Diversicare’s petition for review an infant without parental consent, not on any physician’s to determine whether Rubio’s sexual-abuse claim is a health- negligence in treating the child. A jury found for the parents, care liability claim. The Court heard argument on September but the court of appeals reversed, concluding that parents 24, 2003. cannot refuse life-sustaining treatment for an infant whose condition is not certifiably terminal. F. Premises Liability/Independent Contractor’s Negligence The Supreme Court affirmed the court of appeals’ judgment, 1. Dow Chem. Co. v. Bright, 89 S.W.3d 602 (Tex. October but for different reasons. The Court noted that there was no 17, 2002) [99-0929]. The issue is whether Dow retained dispute that the infant could not be fully evaluated for medical sufficient control over a subcontractor’s work to impose a treatment until her birth. Thus, the Court said, any decisions duty on the company (the premises owner) to protect an concerning the infant’s treatment could not be fully informed independent contractor’s employee from the contractor’s neg- decisions until that time, and the evidence established that ligence. Bright sued Dow after a pipe secured by a co-worker when the infant was born, the physician attending the birth for the independent contractor fell on him. Dow required its was faced with emergent circumstances—i.e., the child might contractors to comply with its safety regulations and hired a survive with treatment but would likely die if treatment was supervisor to oversee compliance. The supervisor had Dow’s not provided before either parental consent or a court order authority to stop the contractor’s work for safety reasons and overriding the withholding of such consent could be obtained. had responsibility for issuing safe work permits each morning The Court therefore held that the emergent circumstances in before work began. The trial court granted summary judgment this case provided an exception to the general rule imposing for Dow, but the court of appeals reversed, concluding that liability on a physician for treating a child without parental a fact issue existed about the extent of Dow’s “supervisory consent. The Court made it clear, however, that a doctor control.” cannot create emergent circumstances from his or her own delay or inaction. The Supreme Court held that Dow did not owe a duty to Bright either because of a contractual right to control or actual E. Nursing Home Assault/Limitations/Health-Care control over the contractor’s work. By contract, the right of Liability Claim control must be (1) over the means, methods or details of the 1. Diversicare Gen. Partner, Inc. v. Rubio, 82 S.W.3d 778 independent contractor’s work, (2) must relate to the injury (Tex. App.—Corpus Christi 2002), pet. for review granted, the negligence causes and (3) must grant the contractor at 46 Tex. Sup. Ct. J. 528 (March 27, 2003) [02-0849]. The least the power to direct the order in which the work is to issue is whether a nursing-home resident’s claim against the be done. Dow’s contract with the independent contractor nursing home based on a sexual assault by another resident required it to comply with Dow’s safety rules and regula- is a claim against a health-care provider under TEX. R EV. tions in a safety manual, but the agreement did not delegate CIV. STAT. art. 4590i § 1.03(a)(4). Maria Rubio, an 82-year- to Dow the right to control means, methods or details of the old Alzheimer’s patient, allegedly suffered sexual abuse from contractor’s work nor did it grant Dow the power to direct a co-resident of her nursing home in 1995. Rubio and her the order in which work should be done. Dow’s actual con- daughter (as next friend) brought suit against the nursing trol of the contractor’s work may subject Dow to negligence home in 1999. Diversicare asserted that the sexual-abuse liability, the Court said, but the control must be more than a claim was a health-care liability claim. Because the statute general right to recommend a safe manner of work and must of limitations for a health-care liability claim is not tolled by be control relating to the injury the negligence causes. By the plaintiff’s legal disability, Diversicare asserted that the requiring the contractor to comply with safety regulations, claim was time-barred and moved for summary judgment Dow owed the contractor’s employees a narrow duty that its on that claim. The trial court granted Diversicare’s motion safety requirements and procedures not unreasonably increase ADVOCATE ✯ SPRING 2004 THE 34 the probability and severity of injury. The summary-judgment 46 Tex. Sup. Ct. J. 245 (December 12, 2002) [02-0381]. evidence showed the contractor assigned Bright his duties The principal issues are: (1) whether Texas Civil Practice & and Dow did not instruct him how to perform his job and Remedies Code chapter 33’s apportionment of responsibility was not involved in how or when to secure the pipe that fell in tort cases applies to third-party claims brought under the on him. Dow’s safe-work permit system did not unreason- Dram Shop Act (Texas Alcoholic Beverage Code section 2.02) ably increase the probability and severity of Bright’s injury without an allegation that the plaintiff was negligent; and (2) and was not evidence that the contractor and Bright were whether the trial court abused its discretion by severing the not free to do work in their own way or that Dow controlled convenience store’s contribution claim against the drunken the work. Dow’s safety representative did not approve how driver. the pipe was secured or instruct Bright to perform his work knowing of the dangerous condition. Dow was, therefore, Several members of a family suffered injuries after being entitled to summary judgment. hit by a drunken driver. The family brought suit under the Dram Shop Act against the convenience store that sold alcohol G. Premises Liability/Knowledge of Danger to the intoxicated driver. The convenience store brought a 1. Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706 (Tex. contribution claim against the driver. The trial court sev- March 27, 2003) [01-1148]. The issue in this premises liability ered the contribution claim and granted a partial summary case is whether there was some evidence to support the jury’s judgment to the plaintiffs, holding that the proportionate finding that an injured plumber lacked actual knowledge of responsibility act should not apply in dram-shop cases. The the dangerous condition that caused his injuries. In this case, court of appeals affirmed, holding that the Dram Shop Act a plumber sued after he fell on wet stairs stacked with boxes. imposed vicarious liability on the alcohol seller and that the The plumber alleged that Wal-Mart failed to warn him about proportionate responsibility act is inapplicable to third-party the stairs’ dangerous condition. The trial court granted Wal- dram shop actions in the absence of any allegation that the Mart’s motion for a judgment notwithstanding the verdict. plaintiffs themselves were negligent. The Supreme Court The court of appeals, in a divided decision en banc, reversed granted F.F.P.’s petition for review and heard argument on the trial court, holding that there was some evidence that the March 5, 2003. plumber lacked knowledge of the dangerous condition. I. Proximate Cause/Cause in Fact/Legal Sufficiency The Supreme Court held that Wal-Mart did not have a duty 1. Marathon Corp. v. Pitzner, 106 S.W.3d 724 (Tex. May to warn the plumber of the danger or to make conditions 22, 2003) [01-0870]. The issue in this personal injury case safe because no evidence supported a finding that he lacked is whether there was legally sufficient evidence that alleged actual knowledge of the dangerous condition. Wal-Mart owed premises defects proximately caused the plaintiff’s injuries. no duty to a licensee so long as the evidence conclusively Pitzner, an air-conditioning repairman, alleged he sustained established the licensee perceived the alleged dangerous severe injuries after falling off the roof of a building Marathon condition. The court of appeals relied on the plumber’s tes- occupied as a tenant when he came into contact with elec- timony that he did not notice the stairway was slippery until trical lines while servicing Marathon’s air conditioning units, he was halfway up the stairs and did not notice the boxes which Marathon conceded did not comply with building code blocked the handrail until he was on his way down. But the requirements. There were no witnesses to the incident, and plumber’s undisputed testimony was that he noticed, before Pitzner had no recollection of how he sustained his injuries. he went up, that there were boxes along the sides of the stairs The evidence showed that Pitzner was found lying uncon- and that some stairs were slippery, and he also noticed, as he scious on the ground beside Marathon’s building with a burnt- headed down the stairs, that boxes obstructed his handrail tipped screwdriver beside him and his ladder missing. He access. The plumber’s co-worker’s corroborating testimony had not yet completed the repair job on the air conditioning supported that conclusion. Because the evidence conclusively units. Marathon argued, among other things, that there was established that the plumber had knowledge of the stairs’ no evidence that the alleged code violations caused Pitzner dangerous condition, the trial court correctly rendered judg- to sustain an electrical shock and fall from the building. ment notwithstanding the verdict. Marathon argued that the evidence was equally consistent with Pitzner having become dizzy or fainting from working H. Providing Alcohol on an asphalt roof in 90-plus-degree heat without water or 1. F.F.P. Operating Partners L.P. v. Dueñez, 69 S.W.3d 800 having been the victim of a criminal assault. Jurors found (Tex. App.—Corpus Christi 2002), pet. for review granted, for Pitzner, and the court of appeals affirmed. ADVOCATE ✯ SPRING 2004 THE 35 The Supreme Court reversed and rendered judgment, holding on land and instead circumscribed the limitation on liability that the evidence was legally insufficient to show proximate by, among other things, defining “recreation” with a detailed cause. The experts’ opinions that Pitzner sustained an elec- list of activities. Justice Hankinson argued that although that trical shock and fell off the roof because of premises defects list is not exhaustive, it must have some meaning. piled speculation on speculation and inference on inference and, thus, did not constitute any evidence of causation. XVII. PROCEDURE—PRETRIAL Based on the evidence presented at trial, the jury could A. Correcting Pleading/Supplemental or Amended only speculate as to (1) whether Pitzner actually fell from Petition the roof; (2) whether he actually came into contact with a 1. Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46 (Tex. high-voltage wire on Marathon’s roof; and (3) whether and May 22, 2003) [02-0179]. This case involving a limited part- how the alleged code violations were a substantial factor in nership that sued under a wrong name raises three issues: causing Pitzner’s injuries. (1) whether legally sufficient evidence exists that Sixth RMA Partners used “RMA Partners, L.P.” as an assumed name so that J. Recreational Use Statute the original petition filed under the name RMA Partners was 1. City of Bellmead v. Torres, 89 S.W.3d 611 (Tex. effective to sue on behalf of Sixth RMA Partners; (2) whether November 5, 2002) [01-0299]. The issue is whether using Sixth RMA Partners’ second supplemental pleadings were playground equipment is “recreation” within the meaning effective to substitute its correct legal name; and (3) whether of the Recreational Use Statute, which limits a landowner’s Sixth RMA Partners is prohibited from prosecuting its claims liability in certain circumstances. In this case, Torres, who in Texas courts because it has never filed an assumed name had played in a softball tournament at a City-owned complex certificate. In this case, Sibley defaulted on two notes owned in 1996, sued the City after she was injured when a swing by Sixth RMA Partners, a separate legal entity among 16 in which she was sitting broke as she watched the subse- limited partnerships operating under the general name RMA quent championship game. The City moved for summary Partners. After Sibley sued “RMA Partners” to declare he did judgment, contending that it was not liable for negligence not owe anything on the notes, “RMA Partners” sued to collect under the Recreational Use Statute. The statute at that time on the notes. Four years after the suit began, “RMA Partners defined recreation as “an activity such as hunting, fishing, a/k/a Sixth RMA Partners” filed the supplemental petition swimming, boating, camping, picnicking, hiking, pleasure designating Sixth RMA Partners as the proper party name. In driving, nature study, cave exploration, and waterskiing and response to Sibley’s summary-judgment motion, Sixth RMA other water sports.” The Legislature in 1997 added “any other Partners answered for the first time using its name as the activity associated with enjoying nature or the outdoors” to party name. Sibley argued that use of a supplemental peti- the list. The trial court granted summary judgment for the tion was improper to change the party name and Sixth RMA City. The court of appeals reversed. Partners was an improper plaintiff, so the statute of limitations expired on the suit to collect on the notes. The trial court The Supreme Court held that sitting on a swing is an activity ruled against Sibley. The court of appeals reversed, holding the Legislature intended to include as “recreation” when it the statute of limitations barred the collection claim because enacted the Recreational Use Statute. The City, however, owed Sixth RMA Partners never entered the lawsuit properly by Torres the duty not to injure her through willful, wanton, or an amended petition. grossly negligent conduct, and because Torres did not plead any willful, wanton, or grossly negligent conduct, she could The Supreme Court reversed and remanded, holding (1) that not recover from the City as a matter of law. some evidence supported the trial court’s implied finding that Sixth RMA Partners used the name RMA Partners as Justice Hankinson dissented, arguing that the Court’s inter- an assumed name; (2) that Sixth RMA Partners’ second pretation of “recreation” essentially wrote out of the statute supplemental pleadings were effective to substitute its the definition of recreation and the policy choices represented correct legal name; and (3) that Sibley waived any claim that by that definition. Under the Court’s interpretation of the Sixth RMA Partners’ failure to file the required assumed name Recreational Use Statute, Justice Hankinson said, the fact that certificate precluded its suit because the claim was not prop- someone is outside when he or she is injured is the sole fact erly raised in the trial court. triggering that statute’s limitation of liability on the part of the landowner. The Legislature did not, however, draft such a B. Enforcement of a Forum-Selection Clause broad exception to the traditional duties of care owed entrants 1. In re AIU Ins. Co., argument granted on pet. for writ of mandamus, ADVOCATE ✯ SPRING 2004 THE 36 46 Tex. Sup. Ct. J. 478 (March 6, 2003) [02-0648]. This that, they argued, the districts had no meaningful discretion mandamus proceeding involves a trial court order denying in setting their tax rates, making the school-finance system enforcement of a forum-selection clause. AIU Insurance Co. an unconstitutional state property tax. contracted with Louis Dreyfus Natural Gas Corp. to provide insurance coverage. The insurance contract provided that The State filed special exceptions to the school districts’ plead- all litigation, arbitration, or other form of dispute resolution ings, and the trial court dismissed the lawsuit, ruling that would take place in New York. Louis Dreyfus Natural Gas the school districts failed to state a cognizable constitutional sought a defense under the insurance contract. AIU denied claim because they failed to allege in their pleadings that they coverage. Louis Dreyfus sued AIU in Texas state court. AIU were taxing at or near the maximum rates allowed by state requested a jury trial, answered discovery and waited five law in order to meet state-mandated accreditation require- months before moving to dismiss. Louis Dreyfus responded ments. The trial court equated school accreditation with the to the motion to dismiss by asserting AIU waived its right to constitutional standard for providing a minimum public rely on the forum-selection clause and that the public interest education—“general diffusion of knowledge.” The court also of Texas precluded enforcement of the clause. The trial court set a threshold that at least close to half the State’s school denied the motion to dismiss without stating its reasons. The districts must be taxing at the maximum rate to establish that court of appeals denied mandamus relief. the state-financing system had become an unconstitutional, statewide property tax. Because the court concluded that the In its petition for review to the Supreme Court, the parties school districts could not show that a sufficient number of have raised the following issues: (1) whether AIU’s actions the state’s school districts were taxing at the maximum rate, waived its right to rely on the forum-selection clause; (2) the court determined that the districts could not show an whether the public interest of Texas precludes enforcement unconstitutional tax and denied their request to replead their of the forum-selection clause; and (3) whether there is an case. The court of appeals affirmed the trial court’s decision adequate remedy by appeal. The Supreme Court heard oral to dismiss the suit, but rejected the trial judge’s analysis that argument on September 3, 2003. close to half the school districts taxing at the maximum rate would establish an unconstitutional statewide property tax. C. Special Exceptions The court of appeals focused on the question of whether any 1. W. Orange-Cove Consol. I.S.D. v. Alanis, 107 S.W.3d 558 of the districts were forced to tax at the maximum rate just (Tex. May 29, 2003) [02-0427]. This case involves a con- to provide an accredited education. stitutional challenge to Texas’s school-finance system. The principal issues are (1) whether to present a legally cognizable The Supreme Court reversed and remanded, reaffirming the challenge to the system West Orange-Cove and three other “meaningful discretion” test from Carrollton-Farmers Branch school districts were required to plead that they, and half or Independent School District v. Edgewood Independent School close to half of all other school districts, were forced to tax at District, 826 S.W.2d 489 (Tex. 1992) (Edgewood III), to decide the highest allowable tax rate to provide an accredited educa- whether a state-imposed taxing scheme is an unconstitutional tion, and (2) whether the school districts should have been ad valorem tax, noting that the determining factor is the extent given an opportunity to amend their pleadings or conduct of the state’s control over the taxation process, and holding discovery after the trial court or the court of appeals decisions. that the school districts should be allowed to replead their The overriding issue in this case and two previous challenges case and offer proof that they are taxing at the maximum to Texas’s school finance system is whether the state has allowable rate either to satisfy accreditation standards or a imposed an unconstitutional statewide property tax. In the general diffusion of knowledge. The Court disagreed with last decision upholding the state’s school-financing scheme, the trial court on the number of districts that have to be Edgewood Independent School District v. Meno, 917 S.W.2d 717 taxing at or near the maximum rate to state a constitutional (Tex. 1995) (Edgewood IV), the Court noted that “some” school claim, holding that a single district can state a claim of an districts eventually “may be forced to tax at the maximum unconstitutional property tax if it alleges it is constrained by allowable rate just to provide a general diffusion of knowl- the state to tax at a particular rate. edge” and that “general diffusion of knowledge” establishes the constitutional requirement for the Sate’s support of its public In reviewing the trial court’s dismissal on the pleadings, the schools. In this case West Orange-Cove and the other districts Court said that to obtain dismissal the State must establish as alleged that they were taxing at or near the maximum tax a matter of law that the school districts are not forced to tax . rate to “educate their students,” citing Edgewood IV Because of at maximum rates either to meet accreditation standards or to ADVOCATE ✯ SPRING 2004 THE 37 provide a general diffusion of knowledge, but the State failed working on the case. When Cimarron refused to take the to meet its burden. In addition, the Court said that the State late response and rejected a continuance request, Carpenter was also not entitled to dismissal on its argument that the asked the court to accept the late response and attached it mere existence of local-option homestead exemptions shows to the motion. The trial court rejected the motion, granted that the school districts are not forced to tax at maximum Cimarron’s traditional and no-evidence summary judgment rates unless the State establishes that fact as a matter of law, motions and denied Carpenter’s motion for a new trial. The which it failed to do. The school districts were thus entitled court of appeals reversed, holding that a “default” summary to attempt to show that homestead exemptions do not afford judgment occurs when the trial court refuses to accept a them meaningful discretion in setting tax rates. The Court late response and that Craddock applies to default summary also said that the school districts need not actually be taxing judgments. at maximum rates if they can show that they couldn’t meet accreditation standards or provide a general diffusion of The Supreme Court held that the Craddock rule does not knowledge even if they were. apply to a motion for new trial filed after summary judg- ment is granted when the other side failed to respond in In a concurring opinion, Justice Enoch said the Legislature, time despite its notice of the hearing and its opportunity to through the Texas Education Code, requires only that school use court rules to alter the deadlines that Texas Rule of Civil districts provide an accredited education. Thus, on the Procedure 166a imposes. The rules provided Cimarron an narrow question in this case, Justice Enoch said the Court opportunity to get the trial court’s permission to file a late was correct that the school districts should be afforded the response to the summary judgment motion. The equitable opportunity to plead that they must tax at the tax rate set Craddock standard should not apply. The Court further held by the State to provide an accredited education. But Justice that leave to file a late summary judgment response should Enoch argued that the school districts should not be allowed be granted when the responding party establishes good cause to raise a claim that the school finance system constitutes an by showing that the failure to respond on time (1) was not unconstitutional state ad valorem property tax by asserting intentional or the result of conscious indifference, but the the need to tax at maximum rates to provide a general dif- result of an accident or mistake, and (2) that allowing the late fusion of knowledge. response will not result in undue delay or otherwise injure the party seeking summary judgment. Because Cimarron In dissent, Justice Smith argued that the Court lacked subject did not establish good cause, the trial court did not abuse matter jurisdiction to decide the case and that the Court’s its discretion in denying its motion to file the response late. holding that school districts have a legal obligation to comply Nor did the trial court err in denying Cimarron’s motion for with the general diffusion of knowledge standard contained new trial on this basis. The Court remanded the case to the in article VII, section 1 of the Texas Constitution transforms a court of appeals for consideration of issues Cimarron raised putative taxpayer suit brought under article VIII, section 1-e that the court did not address. into an article VII, section 1 “adequacy” challenge. Justice Hecht, concurring, stated that the Craddock standards D. Summary Judgment/Craddock Standard should not apply because the failure to timely answer a peti- 1. Carpenter v. Cimarron Hydrocarbons Corp., 98 S.W.3d tion and the failure to timely respond to a motion for summary 682 (Tex. December 31, 2002) [01-0002]. In this case, the judgment are very different situations. Supreme Court determined whether the equitable rule in Craddock v. Sunshine Bus Lines Inc., 133 S.W.2d 124 (Tex. E. Venue/Motion to Transfer 1939), regarding granting a new trial after a “default” judg- 1. Garza v. Garcia, 70 S.W.3d 362 (Tex. App.—Corpus ment should extend to overturning a summary judgment Christi 2002), pet. for review granted, 46 Tex. Sup. Ct. J. 16 when the summary-judgment response was rejected for late (October 10, 2002) [02-0300]. The principal issue is whether filing. Cimarron sued Carpenter and his companies after a the court of appeals properly reversed the trial court’s venue- well-casing leak developed. An initial summary judgment transfer order brought under sections 15.002(a) and (b) of hearing was continued because Carpenter hired a new the Texas Civil Practice and Remedies Code when the order attorney. Carpenter’s new attorney then missed the dead- did not specify the grounds for transferring venue. Garcia line for filing a response to the summary judgment motion. was injured in an automobile accident occurring in Hidalgo In an affidavit, his attorney explained that by mistake, a County. She brought suit against Garza and his employer, notice of the hearing had never been given to an associate J&R Valley Oilfield Services, in Starr County. Garza at ADVOCATE ✯ SPRING 2004 THE 38 various times stated that he resided in Starr County and in retaliation. The trial court rendered judgment for Garza, Hidalgo County. Before trial, Garza and J&R filed a motion awarding $1,034,108 in actual damages, $1,000,000 in to transfer venue to Hidalgo County. The Starr County trial punitive damages, prejudgment interest, and costs. The court court granted the motion over Garcia’s objections. A trial was of appeals held that Southwestern Bell failed to timely and held in Hidalgo County, and Garcia was awarded $120,000. specifically object to the liability question and that, regard- Garcia appealed, asserting venue error or venue fraud. The less of the waiver, the liability question was not improper. court of appeals reversed and remanded the case, ordering the Furthermore, the court of appeals held that the trial court case to be transferred to Starr County. The court of appeals did not err in admitting evidence over Southwestern Bell’s held that a person may have more than one residence for objections and that legally and factually sufficient evidence venue purposes. The court concluded that because Garcia supported the finding that Southwestern Bell violated the had filed suit in a county of proper venue, it was reversible anti-retaliation statute and the awards for mental anguish error to transfer venue, even if the county of transfer would and punitive damages. The court of appeals also refused to also have been proper if originally chosen by Garcia. order remittitur of the awards for mental anguish and puni- tive damages. The Supreme Court granted Garza’s petition for review and heard argument on January 22, 2003. The Supreme Court granted Southwestern Bell’s petition for review and heard argument on October 15, 2003. XVIII. PROCEDURE—TRIAL AND POST-TRIAL A. Procedure-Trial and Post-Trial/Batson Challenge C. Jury Instruction/Spoliation 1. Gen. Motors Corp. v. Iracheta, 90 S.W.3d 725 (Tex. 1. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718 (Tex. App.—San Antonio 2002), pet. for review granted, 46 Tex. May 22, 2003) [01-0441]. The principal issue is whether the Sup. Ct. J. 1204 (September 25, 2003) [02-0932]. The main trial court abused its discretion by submitting an instruction issue in this products liability case is whether there was legally against Wal-Mart on missing evidence. Johnson, a customer, sufficient evidence that an alleged design defect caused the sued the retailer after he was cut when a decorative reindeer death of two children in an automobile accident. The chil- fell from an upper shelf as an employee repositioned mer- dren’s grandmother sued General Motors Corporation (GM), chandise. Just after Johnson was hit, he told store employees alleging the car they were riding in had a defectively designed that he was not hurt, then later developed neck pain that fuel system that caused the post-collision fire that killed the led to surgery. Johnson and Wal-Mart disputed the com- children. A jury found the design defect caused one child’s position, weight and size of the reindeer. Wal-Mart failed death, awarded the estate $10,004,500 for pain and suffering, to produce the reindeer and its witnesses testified that the found that GM acted with malice, and awarded $750,000 in reindeer were either sold or thrown away. A store manager exemplary damages. The court of appeals affirmed the trial took notes from the employee and photographs, including court’s judgment. GM’s petition for review also raises an one of the scene that did not show much about the reindeer. issue about whether the trial court erred in overruling GM’s At trial Wal-Mart offered employee testimony on the size, Batson challenge after Iracheta used two peremptory strikes composition and weight of the reindeer. Over Wal-Mart’s to eliminate two white venire members, resulting in an all- objection, the trial court instructed the jury that it could Hispanic jury. The Supreme Court granted GM’s petition for presume the missing evidence would have been unfavorable review and heard argument on December 3, 2003. to Wal-Mart if the retailer knew or should have known it would be trial evidence. The jury decided for Johnson. The B. Jury Instruction/Liability/Waiver court of appeals affirmed. 1. Southwestern Bell Tel. Co. v. Garza, 58 S.W.3d 214 (Tex. App.—Corpus Christi 2001), pet. for review granted, 46 Tex. The Supreme Court reversed and remanded, holding that Sup. Ct. J. 779 (June 12, 2003) [01-1142]. The issues in this the trial court abused its discretion by giving the jury the workers’ compensation retaliation case are (1) whether legally spoliation instruction. The beginning and end of the Court’s sufficient evidence supported the award of punitive damages; analysis concerned the duty to preserve evidence. The Court (2) whether sufficient evidence existed to prove causation; said such a duty arises only when a party knows or reason- (3) whether Southwestern Bell waived its complaint that the ably should know that a substantial chance exists that a claim liability question was defective; and (4) whether the liability will be filed and that evidence in its possession or control question was in fact defective. David Garza sued Southwestern will be material and relevant to that claim. Under an objec- Bell Telephone Company for workers’ compensation tive test, nothing about the investigation or circumstances ADVOCATE ✯ SPRING 2004 THE 39 surrounding the accident would have put Wal-Mart on notice XIX. PRODUCTS LIABILITY of a substantial chance that Johnson would pursue a claim. A. Evidence of Causation And because an unnecessary spoliation instruction by its 1. Gen. Motors Corp. v. Iracheta, 90 S.W.3d 725 (Tex. nature “nudges’ or “tilts” the jury, the Court found that such App.—San Antonio 2002), pet. for review granted, 46 Tex. an instruction when erroneously given is particularly likely Sup. Ct. J. 1204 (September 25, 2003) [02-0932]. The main to cause harm. issue in this products liability case is whether there was legally sufficient evidence that an alleged design defect caused the D. Motion for New Trial/Timeliness death of two children in an automobile accident. The chil- 1. Williams v. Flores, 88 S.W.3d 631 (Tex. October 10, 2002) dren’s grandmother sued General Motors Corporation (GM), [02-0035]. The issue is whether the court of appeals properly alleging the car they were riding in had a defectively designed dismissed the appeal by holding that Williams’ motion for fuel system that caused the post-collision fire that killed the a new trial was late. children. A jury found the design defect caused one child’s death, awarded the estate $10,004,500 for pain and suffering, The Supreme Court concluded that Williams’ new-trial found that GM acted with malice, and awarded $750,000 in motion, filed May 29, 2001, from a judgment dated April 27, exemplary damages. The court of appeals affirmed the trial 2001, was timely because the 30th day after the judgment fell court’s judgment. GM’s petition for review also raises an on a Sunday and the following Monday was a legal holiday. issue about whether the trial court erred in overruling GM’s The Court also determined that Williams filed within time Batson challenge after Iracheta used two peremptory strikes limits a motion for extension of time on his notice of appeal, to eliminate two white venire members, resulting in an all- which he filed 12 days after the 90-day deadline. Hispanic jury. The Supreme Court granted GM’s petition for review and heard argument on December 3, 2003. 2. Moritz v. Preiss, S.W.3d , 46 Tex. Sup. Ct. J. 784 (June 12, 2003) [01-1270]. The principal issue is whether B. Learned Intermediary Doctrine/Sophisticated User a judgment that disposed of all issues in an action, but did Doctrine not name all defendants, was final. In this case the court 1. Humble Sand & Gravel, Inc. v. Gomez, 48 S.W.3d 487 of appeals reversed the trial court’s denial of an amended (Tex. App.—Texarkana 2001), pet. for review granted, 45 Tex. motion for new trial raising a juror-disqualification issue Sup. Ct. J. 712 (May 30, 2002) [01-0652]. The principal issues and remanded. The amended motion was filed more than are: (1) whether the learned intermediary and sophisticated 30 days after the trial court issued the original judgment. user doctrines rendered Humble’s warning about the haz- The motion was denied, then was denied again on a motion ards of high-silica abrasive blasting adequate as a matter of to reconsider when the trial court revised its judgment to law; and (2) whether the trial court prevented Humble from include the omitted defendant. adequately presenting its causation defenses by excluding from evidence a portion of Gomez’s fifth amended petition and The Supreme Court reversed and rendered judgment, answers to requests for admissions. Humble supplied silica holding that the original judgment was final for purposes sand to Spincote who used it for abrasive blasting. The sand of establishing a deadline for a new-trial motion and that was supplied in bags that had a warning printed on them. the untimely amended new-trial motion did not preserve Gomez worked for Spincote from 1984 to 1987. Part of his job issues for appellate review. Finality, the Court said, will be involved sand blasting with silica sand. Although Gomez read presumed for judgments following a full trial on the merits of the warnings on the bag and inquired into proper safety mea- the case when there is no indication that the trial court did sures, the safety measures Spincote supplied were allegedly not intend to dispose of the entire case. As for the amended in violation of Occupational Safety & Heath Administration new-trial motion filed after the deadline, the Court said that standards. Gomez was diagnosed with silicosis, and he sued the trial court’s granting leave to file the untimely motion Humble. At trial, Humble attempted to assert the “sophis- and hearing argument did not permit appellate review of ticated user” defense. But the trial court denied Humble’s the trial court’s denial of the untimely motion (citing Texas request for a “sophisticated user” jury instruction. The jury Rules of Civil Procedure 5 and 329(b) and overruling Jackson found that Humble’s warning on the bags was insufficient, and v. Winkle, 660 S.W.2d 807 (Tex. 1983) to the extent that it that Humble’s negligence was the cause of Gomez’s silicosis. allows appellate review of a trial court’s denial of an untimely The trial court rendered judgment accordingly. The court of new-trial motion). appeals affirmed. The Supreme Court granted Humble’s peti- tion for review and heard argument on October 30, 2002. ADVOCATE ✯ SPRING 2004 THE 40 C. Physical Impairment of appeals clearly applied the so-called “zero damages rule,” 1. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757 that doing so was inconsistent with Pool, and that the Court (Tex. September 11, 2003) [01-0007]. The issue in this case should have expressly disavowed the zero-damages rule. involving facial and eye injuries is whether the court of appeals used a proper factual sufficiency standard of review to reverse D. Stream of Commerce/Release of Product to Third-Party a jury’s zero damages award for physical impairment other Contractor than for vision loss. Jackson suffered an eye injury, facial 1. FFE Transp. Servs., Inc. v. Fulgham, 2002 WL 1801596 fractures and a broken nose when his hand slipped while he (Tex. App.—Dallas), pet. for review granted, 46 Tex. Sup. Ct. demonstrated a new sport-hunting bow. Jackson spent 12 days J. 838 (June 26, 2003) [02-1097]. The issues in this case are: in the hospital and suffered vision problems and headaches (1) whether an entity that leases or relinquishes possession after the accident. In a lawsuit alleging products liability and of a product to a third party to further its own purposes has negligence, his medical expert testified that surgery repaired released a product into the stream of commerce such that the broken bones and corrected a double-vision problem, it can be subject to a products liability claim; (2) whether but permanent problems left Jackson with trouble doing the court of appeals applied the correct standard of review close-up or detailed work. The jury found Golden Eagle and in determining the necessity of expert testimony; and Jackson both negligent and awarded Jackson damages for (3) whether expert testimony is necessary to establish the medical expenses, pain and suffering, and vision loss, but applicable standard of care and breach of the standard of not for other physical impairment. Jackson argued that his care. fracture injuries required the jury to find he suffered physical impairment and to award some damages for that impair- Larry Fulgham and FFE Transportation Services (FFE) ment. The court of appeals reversed the jury’s zero damages had a long-haul trucking agreement. On March 7, 1998, award, reasoning that Jackson’s many facial injuries were as Fulgham was hauling a load for FFE, the upper-coupler “demonstrative of impairment beyond pain and suffering, assembly broke from his trailer, causing the trailer to detach loss of earning capacity and loss of vision.” from the tractor. Fulgham was injured when he lost control of the tractor and it overturned. Fulgham alleged that the The Supreme Court held that the court of appeals did not bolts holding the upper-coupler assembly to the base of the properly apply the factual sufficiency standard of review set rail of the trailer were rusted and weakened. The Fulghams forth in Pool v. Ford Motor Co., 715 S.W.2d 629 (Tex. 1986). sued for negligence and products liability against FFE. The The Court also established a factual sufficiency standard of trial court granted FFE’s motion for directed verdict, holding review when evidence pertains to more than one element there was no evidence of breach of duty or causation and that of damages. This review standard differs from the standard no evidence showed that FFE put the trailer into the stream applied when the jury is asked to award a single amount of of commerce. The court of appeals reversed and remanded, damages, but is told that it may consider various elements holding that: (1) expert testimony was not necessary to in arriving at that amount. The Court said that, when only establish the applicable standard of care; (2) there was at one category of damages is challenged on the basis that the least some evidence that FFE breached its duty to inspect award in that category was zero or was too low, an appellate the trailer; and (3) the agreement between Fulgham and FFE court should consider only whether the evidence unique to constituted a lease in which FFE introduced its trailer into that category is so against the great weight and preponder- the stream of commerce such that FFE could be held strictly ance of the evidence as to be manifestly unjust, shock the liable for the defect. conscience, or clearly demonstrate bias. When, as in this case, the jury’s failure to find greater damages in more than The Supreme Court granted FFE’s petition for review and one overlapping category is challenged, the court of appeals heard argument on October 29, 2003. should first determine if the evidence unique to each category is factually sufficient. If it is not, the court of appeals should XX. REAL PROPERTY then consider all the overlapping evidence along with the A. Boundary Dispute/Declaratory Action/Attorney’s Fees evidence unique to each category to determine if the total amount awarded in the overlapping categories is factually 1. Martin v. Amerman, 83 S.W.3d 858 (Tex. App.—Texarkana sufficient. 2002), pet. for review granted, 46 Tex. Sup. Ct. J. 616 (May 1, 2003) [02-0731]. This case concerns the proper action to In a concurring opinion Justice O’Neill said that the court resolve a boundary line dispute between adjacent private ADVOCATE ✯ SPRING 2004 THE 41 properties. The Supreme Court will also consider whether and that it could use the easement for its cable under TEXAS attorney’s fees are recoverable in such an action. The Martins UTILITY CODE § 181.102, which allows a cable provider in and Amermans own adjacent residential lots in Beaumont, an unincorporated area to install and maintain a cable line Texas. The Amermans removed the Martins’ fence, claiming it “through, under, along, across, or over” utility easements, encroached onto their property thirty-feet beyond the correct public roads, alleys or public water. The Krohns countered property line. Originally, the Martins filed a trespass to try that the trend in the law of other states did not apply in this title action, a request for declaratory judgment to declare the case because of the specific language of the easement and the correct boundary line, a request for injunctive relief, and a fact that the Utility Code section applies only to public, not declaratory judgment action to quiet title, but they nonsuited private, property. The trial court granted summary judgment their trespass to try title action during trial. The Amermans for Marcus. The court of appeals reversed. filed a cross action for trespass to try title and injunctive relief. The jury found that the Martins’ survey represented the cor- The Supreme Court held that the easement in this case, by rect boundary line and that the Amermans’ survey cast a cloud its terms, permitted transmission facilities for electricity. The on the Martins’ title, and awarded the Martins attorney’s fees. issue was not whether the proposed use resulted in a material The trial court entered judgment for the Martins, granted a burden. While cable television may utilize electrical impulses permanent injunction enjoining the Amermans from entering to transmit communications, as Marcus claimed, television the Martins’ property as described by the Martins’ survey and transmission is not a more technologically advanced method awarded $25,000 in attorney’s fees. of delivering electricity. To construe Utility Code § 181.102 to cover private property, as Marcus proposed, was not supported The court of appeals affirmed the trial court’s judgment but by legislative intent and could have significant implications modified the judgment to delete the attorney’s fees award. as a constitutional taking. The court of appeals determined that attorney’s fees are not available in a suit to quiet title. Further, the court of appeals Justice Hecht dissented and would have held that the ease- refused to follow the Supreme Court’s comments in Brainard ment in this case could be shared with a cable television v. State, 12 S.W.3d 6, 29 (Tex. 1999), in which the Court said provider if the servient estate was not additionally burdened. that a declaratory judgment action is available to resolve a Since the easement in the present case did not expressly boundary dispute and may result in an attorney’s fee, asserting allow for telephone lines, the Court concluded that it did not that the Court’s statements were dicta. permit any use for purposes of communication. But electric power is used for communication in the sense that neither a The Supreme Court granted Martin’s petition to decide television nor a telephone will operate without it. According whether a declaratory judgment action is a proper means to Justice Hecht, it is not true that an easement for telephone to resolve a dispute over the correct boundary line between wires contemplates the use of communication devices and adjacent properties, and whether attorney’s fees are avail- an easement for electric current does not. able in such a suit. The Court heard argument on October 1, 2003. 2. Hubenak v. San Jacinto Gas Transmission Co., 65 S.W.3d 791 (Tex. App.—Houston [1st Dist.] 2001) [02-0213], pet. B. Condemnation/Easements for review granted and consolidated for oral argument with 1. Marcus Cable Assocs. L.P. v. Krohn, 90 S.W.3d 697 (Tex. Hubenak v. San Jacinto Gas Transmission Co., 65 S.W.3d 791 November 11, 2002) [01-0291]. The principal issue is whether (Tex. App.—Houston [1st Dist.] 2001) [02-0214], Wenzel a power-line easement granted to an electricity cooperative v. San Jacinto Gas Transmission Co., 65 S.W.3d 791 (Tex. can be shared with a cable-television company for cable lines. App.—Houston [1st Dist.] 2001) [02-0215], Kutach Family The Krohns, who own close to 12 acres with a power-line Trust v. San Jacinto Gas Transmission Co., 65 S.W.3d 791 easement through it, sued Marcus after Marcus strung cable (Tex. App.—Houston [1st Dist.] 2001) [02-0216], Cusack on the co-op’s utility poles without the Krohns’ permission. Ranch Corp. v. MidTexas Pipeline Co., 71 S.W.3d 395 (Tex. The easement permitted an “electric transmission or distribu- App.—Corpus Christi 2001) [02-0217], MidTexas Pipeline tion line or system” and its maintenance and provided that Co. v. Dernehl, 71 S.W.3d 852 (Tex. App.—Texarkana 2002) “whenever necessary, words used in this instrument in the [02-0320], MidTexas Pipeline Co. v. Wright, 2002 WL 264833 singular shall be construed to read in the plural.” Marcus (Tex. App.—Texarkana 2002) [02-0321], MidTexas Pipeline argued that the trend in the law from other states is to allow Co. v. Wright, 2001 WL 1636640 (Tex. App.—Texarkana easements to be apportioned for cable-television providers 2001) [02-0326], and Cusack v. MidTexas Pipeline Co., 2002 ADVOCATE ✯ SPRING 2004 THE 42 WL 368639 (Tex. App.—Corpus Christi 2002) [02-0359], 1998, when the City downzoned Sheffield’s property from pets. for review granted, 46 Tex. Sup. Ct. J. 237 (December 6,500 to 12,000 square foot lots. 12, 2002). These consolidated pipeline-condemnation cases involve the construction of Texas Property Code § 21.012(b), Sheffield sued Glenn Heights, asserting that the moratorium which requires a party seeking condemnation to file a peti- and subsequent downzoning of the property were takings tion that includes, among other things, a statement that the requiring adequate compensation from the city. In a bifurcated condemning entity and the landowner are “unable to agree” trial, the trial court held that the city’s downzoning, but not on damages. The issues raised are: (1) whether the “unable the moratorium, was a taking of Sheffield’s property without to agree” requirement is a jurisdictional prerequisite to suit compensation, for which the jury later awarded damages of or a statutory prerequisite; (2) whether pre-suit negotiations $485,000. The court of appeals held that the downzoning must have been conducted “in good faith” and be accom- substantially advanced a legitimate governmental interest, panied by a “bona fide” offer to comply with the “unable to but it held that the downzoning nevertheless constituted agree” requirement; and (3) whether the condemning entity a taking under the “unreasonable interference” test articu- can satisfy the “unable to agree” requirement by negotiating lated in Mayhew v. Town of Sunnyvale, 964 S.W.2d 922 (Tex. to purchase only those rights the entity is legally entitled to 1998). The court reasoned that the downzoning interfered condemn and ultimately seeks to condemn. The Supreme with Sheffield’s distinct investment-backed expectations, Court granted the parties’ petitions for review and heard and that a 38% diminution in the property’s value satisfied argument on February 19, 2003. the economic impact prong of Mayhew’s test. The court of appeals held that the moratorium was a taking as well. The C. Condemnation/Taking court rendered judgment that the City compensate Sheffield 1. Sheffield Dev. Co., Inc. v. City of Glenn Heights, 61 S.W.3d for this temporary taking and remanded the issue of damages 634 (Tex. App.—Waco 2001), pet. for review granted, 45 Tex. to the trial court. Sup. Ct. J. 996 (July 3, 2002) [02-0033]. The issue is whether the City of Glenn Heights’ moratorium on development and Glenn Heights filed a petition for review in the Supreme subsequent downzoning of Sheffield Development Company’s Court, arguing that the downzoning and moratorium were not property constituted a taking requiring compensation under takings under Mayhew, and Sheffield filed a petition arguing the Texas Constitution. In 1996, Sheffield purchased approx- that the court of appeals was wrong to hold that the City’s imately 194 acres of undeveloped land in Glenn Heights. downzoning substantially advanced a legitimate governmental This property is part of a 240-acre tract known as Planned interest. The Supreme Court granted both parties’ petitions Development District 10 (“PD 10”). The property was zoned for review and heard argument on October 30, 2002. in 1986 for high density, single-family residential uses of primarily 6,500 square feet. 2. Town of Flower Mound v. Stafford Estates Ltd. P’ship, 71 S.W.3d 18 (Tex. App.—Fort Worth 2002), pet. for review In 1995, the City adopted a “unified development code” granted, 46 Tex. Sup. Ct. J. 244 (December 12, 2002) (“the code”) and rezoned all properties in the city, except [02-0369]. The principal issues are: (1) whether the rough the fourteen PDs, to lot sizes of primarily 20,000 square proportionality standard in Dolan v. City of Tigard, 512 U.S. feet. PD 10 was one of the fourteen districts not rezoned. The 374 (1994), applies to all development conditions or only code stated that the PDs’ zoning would be carried forth in to conditions requiring the property’s dedication to public full force and effect. In 1996, the City began the process of use; (2) whether Dolan’s standard applies to all development rezoning the PDs to lower development density and achieve determinations or only to adjudicative decisions; (3) whether a greater consistency between the PDs and the code. During Flower Mound’s requirement that the developer reconstruct that summer, Sheffield entered into a contract to purchase and improve an abutting street constituted a taking under the property at issue. Prior to closing, Sheffield conducted a the Dolan standard; and (4) whether the developer was the due diligence investigation and explored with city officials the prevailing party to recover attorney’s fees and expert-witness possibility that the property would be rezoned. In November fees under 42 U.S.C. § 1983 and 1988. 1996, Sheffield closed on the property. On January 6, 1997, the City Council enacted a thirty-day development morato- Flower Mound approved Stafford’s plat application for a resi- rium which prohibited the filing and acceptance of plats while dential subdivision on the condition that Stafford upgrade an the City completed the PD rezonings. The moratorium was existing abutting road, owned by the town, from asphalt to extended a number of times, finally terminating on April 27, concrete. The upgrade was completed at Stafford’s expense. ADVOCATE ✯ SPRING 2004 THE 43 Flower Mound’s Land Development Code requires all devel- As part of an expansion of Highway 290, TxDOT occupied opers to upgrade abutting streets when those streets do not and destroyed a portion of Jones Road in Sunset Valley, a meet Flower Mound’s minimum standards. Flower Mound small general-law municipality. Sunset Valley brought various denied Stafford’s request for a variance. Stafford filed suit, claims against TxDOT including nuisance and inverse con- claiming that the plat approval condition was an uncon- demnation under the Transportation Code, common law, and stitutional taking under both the Texas and United States Texas Constitution, seeking the cost of a substitute road. Constitutions. The trial court agreed with Stafford and TxDOT filed a plea to the jurisdiction based on sovereign awarded 87.8% of the total cost of improvements, as well as immunity. The trial court denied the plea and the court attorney’s fees. The court of appeals held that the plat con- of appeals affirmed. On remand, the city’s mayor and one dition was unconstitutional under the Texas Constitution, council member intervened against TxDOT, alleging equal but it reversed the award of attorney’s fees because Stafford protection violations. recovered under the Texas Constitution rather than the United States Constitution, thereby rendering 42 U.S.C. § The trial court rendered judgment against TxDOT, awarding 1988(b) inapplicable. The Supreme Court granted both Flower damages to the city for inverse condemnation and violations Mound’s and Stafford’s petitions for review and heard oral of the Transportation Code and granting declaratory relief argument on March 5, 2003. based on violations of various environmental regulations. The trial court also granted injunctive relief to the city and the D. Inverse Condemnation intervenors on their nuisance claims and awarded attorney’s 1. Tarrant Reg’l Water Dist. v. Gragg, 43 S.W.3d 609 (Tex. fees, prejudgment interest, and costs. Without addressing the App.—Waco 2001), pet. for review granted, 45 Tex. Sup. Ct. common law or constitutional grounds, the court of appeals J. 813 (June 13, 2002) [01-0362]. The principal issues in affirmed the trial court’s judgment that Sunset Valley was this inverse condemnation case are: (1) whether plaintiffs’ entitled to compensation for the taking of Jones Road under evidence was legally sufficient to support the trial court’s con- the Transportation Code. The Court of Appeals reversed the clusion that the Tarrant Regional Water District’s releases from trial court’s grant of declaratory relief regarding TxDOT’s a reservoir during heavy rainfall and flooding caused flood violations of the administrative code, reversed the damage damage that occurred 8 to 25 miles downstream at plaintiffs’ award, and remanded the case for a determination of com- ranch; (2) whether the trial court erred by not bifurcating the pensation by the Texas General Land Office as provided in trial of this case; and (3) whether plaintiffs failed to prove an the Transportation Code. intentional taking for public use. In 1991, plaintiffs brought this action against the District claiming that the District, by its The Supreme Court will hear argument in this case on intentional actions, caused their properties to be subjected to February 4, 2004 increased flooding. The District objected to scientific evidence plaintiffs offered and asserted that any claims alleged were E Landlord-Tenant/Duties Owed By Landlord actually negligence claims rather than inverse condemna- 1. Shell Oil Co. v. Khan, 71 S.W.3d 890 (Tex. App.—Texarkana tion claims. The trial court overruled the District’s objections 2002), pet. for review granted, 46 Tex. Sup. Ct. J. 246 (December and, based on the jury’s findings, awarded a “permanent and 12, 2002) [02-0401]. The issue in this personal injury case perpetual flowage easement,” plus $10,214,422 in damages. is what legal duties a lessor owes when the lessor retains The court of appeals affirmed. The Supreme Court granted some right to control the security on leased property. Shell Tarrant Regional Water District’s petition for review and heard Oil Company owned a service station that it leased to L.A. argument on October 16, 2002. Sani, Inc. Saleem Syed owned L.A. Sani, Inc. and managed the station. Mohamed Khan was employed by L.A. Sani, Inc. 2. Tex. Dept. of Transp. v. City of Sunset Valley, 92 S.W.3d to operate the station. Khan alleged that he was shot at the 540 (Tex. App.—Austin 2002), pets. for review granted, 47 station by an armed robber who emerged from an unlighted Tex. Sup. Ct. J. 127 (Dec. 12, 2003) [03-0041]. The prin- area of the station while Khan was outside. Khan and Jamila cipal issues presented are whether a municipality can assert Williams sued Shell, seeking damages for Khan’s injuries an inverse condemnation claim against the State under and claiming improper security precautions. The trial court either the Transportation Code or the Texas Constitution granted summary judgment for Shell. The court of appeals and whether residents of that municipality can raise equal reversed and remanded, concluding that there was some protection challenges against the State based on the Texas evidence of facts that may have imposed a duty on Shell Department of Transportation’s construction of a highway. based on the contract between Shell and L.A. Sani, Inc. The ADVOCATE ✯ SPRING 2004 THE 44 Supreme Court granted Shell’s petition for review and heard municipal utility district, had a contractual right to reim- oral argument on March 5, 2003. bursement for the facilities. The interest Turboff attempted to enforce against N.P. was simply an interest in a contract that F. Maintenance Fees Turboff could not now honor. Because Turboff had no right 1. Brooks v. NorthGlen Ass’n, 76 S.W.3d 162 (Tex. App.— to reimbursement, he had no claim to force N.P. to transfer Texarkana 2002), pet. for review granted, 46 Tex. Sup. Ct. title for the facilities to the district. J. 426 (February 13, 2003) [02-0492]. The issue of first impression in this case is the statutory interpretation and H. Wrongful Condemnation/Damages constitutionality of Chapter 204 of the Property Code as it 1. Pinnacle Gas Treating, Inc. v. Read, 104 S.W.3d 544 applies to certain deed restrictions for a subdivision in Harris (Tex. April 17, 2003) [02-0169]. This case involved two County. Homeowners sued their homeowners association for suits for wrongful condemnation and possession of utility a declaratory judgment to determine the application Chapter and construction easements. The condemnor had obtain a 204 of the Property Code to maintenance fees designated in writ of possession for the easements, but the writ was sub- the homeowners agreement. sequently dissolved and a trial was had on the condemnee’s claims for wrongful condemnation and possession under The Supreme Court granted the homeowners’ petition for the dissolved writ. Shortly before the trial, the condemnor review and heard argument on September 3, 2003. instituted a second condemnation proceeding and obtained a second writ of possession for the easements. After a final G. Subsequent Purchasers/Prior Contractual Obligation judgment was entered on the condemnee’s damages in the 1. N.P., Inc. v. Turboff, 111 S.W.3d 40 (Tex. May 22, 2003) first condemnation proceeding, the condemnor appealed, [01-1167]. The principal issue is whether a developer who lost arguing among other things that the original writ of posses- property after defaulting on his loan or the company that later sion was wrongfully vacated. The court of appeals declined bought the property is entitled to a municipal utility district’s to consider the merits of the condemnor’s claim on mootness payment for utility improvements on the property. In this and equity grounds. case, Turboff sued to declare his right to be reimbursed for the improvements, claiming it came from the settlement of a The Supreme Court held that the court of appeals should dispute with the lender over the loan default just before the have addressed the issue because the court’s disposition of lender went into receivership. In that settlement, the lender the matter would affect the parties’ interest in the judgment retained title to the development property and utility facili- on the condemnee’s claims for wrongful condemnation and ties but gave up any claim to reimbursement costs by the possession. utility district. N.P., which later acquired title to the property, claimed it had rights to the utility district’s payment under The Honorable Priscilla R. Owen was elected to the Supreme a later agreement with the utility district. The trial court Court of Texas in 1994 and reelected in 2000. Julie Buchanan & determined that Turboff was entitled to the reimbursement. Osler McCarthy are Staff Attorneys for the Supreme Court of The court of appeals affirmed. Texas. Casey Low & Michel Walter are Law Clerks for the Supreme Court of Texas. The authors extend special thanks to all the Staff The Supreme Court reversed and rendered judgment, holding Attorneys and Law Clerks at the Court for their substantial that N.P., the subsequent purchaser, held a property right contributions. ✯ in the utility facilities and, by virtue of its contract with the ADVOCATE ✯ SPRING 2004 THE 45 THE COURT ’S CHARGE: THE STATE OF PAYNE AND THE PROGENY OF C ASTEEL BY NINA CORTELL, KAREN S. PRECELLA AND HEATHER D. BAILEY A S THE LAW CONTINUES TO DEVELOP under Payne and to trial courts requiring them to submit requested questions Casteel, preservation of charge error may grow easier to the jury if the pleadings and any evidence support them.” in certain circumstances but strategy calls may grow Elbaor v. Smith, 845 S.W.2d 240, 243 (Tex. 1992); see Interstate more difficult as theories and form options increase. This Northborough P’ship v. State, 66 S.W.3d 213 (Tex. 2001) (trial paper outlines the basic principles and most recent cases court did not err in refusing instruction when no evidence in preserving charge error, identifying charge error, and , supported request); Mandlbauer 34 S.W.3d at 911 (proper applying the harmless error rule. An additional section is instruction must find support in evidence and pleadings); included that lists recent charge error holdings on specific Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 663 (Tex. claims and issues. The principles outlined in the paper are 1999) (court must submit questions, instructions and defi- designed to aid in making the difficult strategy calls neces- nitions raised by the pleadings and evidence); Knighten, 976 sary in deciding if and when to preserve charge error in the S.W.2d at 676 (sudden emergency instruction proper when unique circumstances of your case. found support in evidence); Aquila Southwest Pipeline, Inc. v. Harmony Expl., Inc., 48 S.W.3d 225 (Tex. App.—San Antonio I. General categories of charge error 2001, pet. denied) (trial court did not err in including “best A trial court has broad discretion to formulate questions, efforts” question when pleadings supported submission); instructions and definitions that will enable the jury to render Guerra v. Wal-Mart Stores, Inc., 943 S.W.2d 56, 61-62 (Tex. a verdict and resolve the controlling disputed fact issues. See, App.—San Antonio 1997, writ denied); Varme, 881 S.W.2d at e.g., Louisiana-Pacific Corp. v. Knighten, 976 S.W.2d 674, 676 881 (error to deny fraud submission by improper conditioning (Tex. 1998) (instruction is proper if it will aid the jury in when theory found support in pleadings and evidence); Texas answering the issues presented to the jury); Green Tree Fin. Dept. of Transp. v. Ramming, 861 S.W.2d 460, 463 (Tex. App.— Corp. v. Garcia, 988 S.W.2d 776, 783-84 (Tex. App.—San Houston [14th Dist.] 1993, writ denied) (a court’s “discretion Antonio 1999, no pet.) (refusal to submit instruction erro- is subject to the requirement that the questions submitted neous only if it was “reasonably necessary to enable the jury must control the disposition of the case, be raised by the to render a proper verdict”); Jobe v. Penske Truck Leasing Corp., pleadings and evidence, and properly submit the disputed 882 S.W.2d 447, 451 (Tex. App.—Dallas 1994, no writ) (trial issues for the jury’s deliberation”); Soto v. Southern Life & Health court has broad discretion in formulating charge); Varme v. Ins. Co., 776 S.W.2d 752, 754 (Tex. App.—Corpus Christi Gordon, 881 S.W.2d 877, 881 (Tex. App.—Houston [14th 1989, no writ) (all controlling issues supported by pleadings Dist.] 1994, writ denied) (same); Weitzul Constr., Inc. v. and some evidence must be submitted to jury).1 Outdoor Environs, 849 S.W.2d 359, 364 (Tex. App.—Dallas 1993, writ denied) (same); Bernal v. Garrison, 818 S.W.2d 79, B. Uses inaccurate statement of the law. 83 (Tex. App.—Corpus Christi 1991, writ denied) (same). See Timberwalk Apts., Partners, Inc. v. Cain, 972 S.W.2d 749, That discretion, however, is not without limitation. Plainsman 755 (Tex. 1998) (inapplicable statutory provision erroneously Trading Co. v. Crews, 898 S.W.2d 786, 790 (Tex. 1995). This included in charge);2 State v. Williams, 940 S.W.2d 583, 584-85 section lists the most common categories that constitute an (Tex. 1996) (trial court erred in submitting issue that mis- abuse of discretion in formulating and submitting the court’s stated premises defect law); City of San Antonio v. Rodriguez, 931 charge. S.W.2d 535, 536 (Tex. 1996) (same). But not every accurate statement of the law belongs in the charge. See, e.g., Kansas A. Omits a controlling issue raised by the pleadings and the City S. Ry. v. Stokes, 20 S.W.3d 45, 48 (Tex. App.—Texarkana evidence, or submits an issue not raised by the pleadings 2000) (“Mere fact that an instruction is a correct statement and evidence. of law does not mean that a trial court should include it in Rule 278 “provides a substantive, non-discretionary directive the charge”).3 ADVOCATE ✯ SPRING 2004 THE 46 C. Fails to submit all elements of a claim or defense. 346 (Tex. App.—Corpus Christi 2003, pet. denied) (failure See Torrington v. Stutzman, 46 S.W.3d 829, 838-39 (Tex. 2000) to object or request damage submission waived any error on (charge error occurred when broad-form negligence ques- legal theory of recovery); Housing Auth. of City of El Paso v. tion omitted elements necessary to establish undertaking Guerra, 936 S.W.2d 946, 952 (Tex. App.—El Paso 1998, pet. , claim); Keetch v. Kroger 845 S.W.2d 262, 265 (Tex. 1992) denied) (any error on improper measure of damage waived (broad-form question proper if accompanied by instruc- by failure to object); St. Gelais v. Jackson, 769 S.W.2d 249, 259 tions on all elements of claim); Vecellio Ins. Agency, Inc. v. (Tex. App.—Houston [14th Dist.] 1988, no writ) (improper Vanguard Underwriters Ins. Co., 2003 WL 22382553, *3-4 refusal to instruct on proper measure of damage waived by (Tex. App.—Houston [1st Dist] 2003) (charge erroneously failure to object); see also State Farm Life Ins. Co. v. Beaston, 907 omitted a predicate question establishing the commission of S.W.2d 430, 440 (Tex. 1995) (Gammage, J., concurring). a tort by an agent to support vicarious liability in an action for indemnity). H Inquires into questions of law or undisputed issues of fact. D. Improperly conditions one question on another (and See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 223 denies claim or defense). (Tex. 1992) (court should submit only disputed fact issues); See Varme v. Gordon, 881 S.W.2d 877, 881 (Tex. App.—Houston Doe v. Mobile Video Tapes, Inc., 43 S.W.3d 40, 50 (Tex. App.— [14th Dist.] 1994, writ denied) (improper predication that Corpus Christi 2001, no pet.) (court must submit controlling precludes the jury from answering a question on a ground of issues of fact); Park v. Larison, 28 S.W.3d 106, 112-113 (Tex. recovery or defense constitutes reversible error); see also Byrne App.—Texarkana 2000, no pet.) (duty is a question of law v. Harris Adacom Network Servs., Inc., 11 S.W.3d 244, 247-48 for the court and instruction on duty unnecessary for jury (Tex. App.—Texarkana 1999, pet. denied) (refusing to find to render a verdict); C&C Partners v. Sun Expl. & Prod., 783 conditional submission harmful when error not preserved S.W.2d 707, 715 (Tex. App.—Dallas 1987, writ denied) (court and evidence did not support claim purportedly eliminated should not submit questions of law). But cf. Union Pacific R.R. by conditioning). Co. v. Williams, 85 S.W.3d 162, 169-70 (Tex. 2002) (8th Circuit patterns on foreseeability aspect of FELA duty requirement E. Fails to track applicable statutory language. correct form); Stokes, 20 S.W.3d at 50 (instructions of duty See Borneman v. Steak & Ale of Texas, Inc., 22 S.W.3d 411, 413 under FELA cases improper only because of failure to relate (Tex. 2000) (“when a statutory cause of action is submitted, the to reasonable care standard). charge should ‘track the language of the provision as closely as possible’”); Spencer v. Eagle Star Ins. Co. of Am., 876 S.W.2d I. Assumes the truth of a controverted fact. 154, 157 (Tex. 1994) (same); Brown v. American Transfer & See Placencio v. Allied Indus. Int’l, Inc., 724 S.W.2d 20, 21 (Tex. Storage Co., 601 S.W.2d 931 (Tex. 1980) (same); Texas Workers’ 1987) (assuming controverted fact constitutes comment on Comp. Ins. Fund v. Bridewell, 2003 WL 22510858, *3 (Tex. weight of the evidence). App.—Houston [14th Dist.] 2003, n.p.h.) (failure to define “course and scope” using all three sentences of the statutory J. Submits inferential rebuttal issues. definition in TEXAS L ABOR CODE § 401.001(12). A trial court has no discretion to submit inferential rebuttal issues as questions; those issues can go to the jury only by F. Fails to properly place the burden of proof. instruction. TEX. R. CIV. P. 277; see Lemos v. Montez, 680 See Wiggins v. Cameron, 763 S.W.2d 434, 436 (Tex. App.— S.W.2d 798, 801 (Tex. 1984); Scott v. Atchison, Topeka, & Sante Houston [14th Dist.] 1988, writ denied); Greenstein, Logan & Fe Ry. Co., 572 S.W.2d 273, 278-79 (Tex. 1978); Yarborough v. Co. v. Burgess Mktg., Inc., 744 S.W.2d 170, 182 (Tex. App.— Berner, 467 S.W.2d 188, 192-93 (Tex. 1971); Weitzul Constr., Waco 1987, writ denied). Inc. v. Outdoor Environs, 849 S.W.2d 359, 365 (Tex. App.— Dallas 1993, writ denied); Soto v. Southern Life & Health Ins. G. Fails to submit a proper measure of damage. Co., 776 S.W.2d 752, 754 (Tex. App.—Corpus Christi 1989, See Wilgus v. Bond, 730 S.W.2d 670, 672 (Tex. 1987) (failure to no writ). Specifically, “[a]n inferential rebuttal issue is one relate damage measure to theories of recovery represents error, that seeks to disprove the existence of an essential element if preserved); Fraser v. Baybrook Bldg. Co., 2003 WL 21357316 submitted in another issue.” Weitzul, 849 S.W.2d at 365 (Tex. App.—Houston [1st Dist.] 2003, pet. filed) (memo opin.) (material breach is inferential rebuttal issue). (party must object and request if proper measure of damage not included in charge); Morales v. Morales, 98 S.W.3d 343, ADVOCATE ✯ SPRING 2004 THE 47 K. Comments on the weight of the evidence. the risk the jury will become confused and answer questions TEX. R. CIV. P. 277; In re VLK, 24 S.W.3d 338, 343 (Tex. inconsistently”); Cropper v. Caterpillar Tractor Co., 754 S.W.2d 2000) (a trial court’s instruction that no parental custody 646, 651 (Tex. 1988) (“Under the current practice of issue presumption applied could be error, even though a correct submission, defensive issues may be submitted by instruc- statement of the law, if it commented on the weight of the tion or be otherwise combined with non-defensive issues, evidence); Maddox v. Denka Chem. Corp., 930 S.W.2d 668, provided that the burden of proof is properly placed.”); see 670-72 (Tex. App.—Houston [1st Dist.] 1996, no writ) (state- also Missouri Pac. R.R. Co. v. Lemon, 861 S.W.2d 501, 509 ment regarding general rule of duty was correct statement (Tex. App.—Houston [14th Dist.] 1993, writ dism’d by agr.). of law but constituted harmful comment on the weight of (“The fact that a jury question contains more than one factual the evidence). “To be a direct comment on the weight of the predicate to support an affirmative answer to a controlling evidence, the issue submitted must suggest to the jury the question, or more than one element of a cause of action, does trial court’s opinion on the matter.” H.E. Butt Grocery Co. v. not render it defective.”). Bilotto, 985 S.W.2d 22, 23 (Tex. 1998). Several recent decisions from the supreme court suggest that L. Informs the jury of the legal effect of their answers. those propositions may no longer hold true in all circum- TEX. R. CIV. P. 277. “[T]o directly advise the jury of the legal stances, particularly when a legal or evidentiary complaint effect of its answers, the issue submitted must instruct the about a sub-part has been properly preserved. See Harris jury how to answer each question in order for the plaintiff County v. Smith, 96 S.W.3d 230 (Tex. 2002); Crown Life Ins. or defendant to prevail.” Bilotto, 985 S.W.2d at 24. Co. v. Casteel, 22 S.W.3d 378, 389 (Tex. 2000) (“[I]t may not be feasible to submit a single broad-form question that M. Unfairly submits the case or otherwise confuses or incorporates wholly separate theories of liability.”). misleads the jury. While a somewhat elusive concept, courts of appeals do assess B. Clearly erroneous combinations the “fair submission” of a case. See Clayton Williams, Jr., Inc. v. 1. Failure to limit jury’s consideration to the conduct and Olivo, 912 S.W.2d 319, 325-27 (Tex. App.—San Antonio 1995), theories at issue rev’d in part, 952 S.W.2d 523 (Tex. 1997); Varme v. Gordon, Particularly in broad-form submissions, instructions must 881 S.W.2d 877, 881 (Tex. App.—Houston [14th Dist.] 1994, properly limit the jury’s consideration to the theories at issue writ denied). Likewise, courts look to whether the charge and secure the proper findings for each theory of recovery or confused or mislead the jury. See, e.g., Plainsman Trading Co. defense. As the supreme court noted in Spencer v. Eagle Star v. Crews, 898 S.W.2d 786, 790 (Tex. 1995). Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994), “[l]iability cannot be imposed on any of the claims asserted . . . on so II. Errors in Multi-Theory Submissions broad and ill-defined a finding.” Thus, what instructions the Errors in multi-theory submissions can range from those trial court includes with an issue will often determine the arising from mistakes in the form of the charge to errors in viability of the broad-form submission. See Adams v. Valley law to failure in the proof. Courts of appeals have consis- Federal Credit Union, 848 S.W.2d 182, 185 (Tex. App.-Corpus tently reversed over time some types of broad-form errors, Christi 1992, writ denied) (“With the use of broad form particularly those errors that deny a party a claim for relief submission, instructions become even more important than or defense. In the last several years based on Casteel and , under the old rules.”); Rampel v. Wascher 845 S.W.2d 918, Harris County, however, several additional types of broad- 924 (Tex. App.—San Antonio 1992, writ denied) (“A proper form errors have emerged—some of which are difficult for a broad form jury question asks an ultimate issue and instructs party or the trial court to predict in advance. Finally, there the jury about the elements of the ground of recovery or are several types of error that are still “percolating” through defense that the jury must find before giving a ‘yes’ answer the system to the supreme court. This section describes those to the issue.”). categories of error. The omission of instructions can render an issue too broad to A. Acceptable combinations stand. Indeed, the supreme court has recognized on several The supreme court in the past has suggested that a single occasions that the failure to confine the jury’s consideration question suffices for multiple legal or factual theories. See to the conduct at issue represents error. See Galveston County Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664 (Tex. , Fair & Rodeo v. Glover 940 S.W.2d 585, 586 (Tex. 1996) 1999) (such a submission might even be “necessary to avoid (“While the trial court had the discretion to submit ques- ADVOCATE ✯ SPRING 2004 THE 48 tions separately . . . or to submit an instruction . . . limiting negligence issue and entered a take-nothing judgment against the jury’s consideration of that single broad issue, it did not the plaintiffs. Id. In short, the broad question without adequate have discretion to refuse to make any correction.”); Spencer , instruction eliminated an entire theory from the case. 876 S.W.2d at 157 (Insurance Code “by its express terms does not refer to every such practice imaginable but only 3. Instructions eliminate a theory of recovery or defense to those specified by certain other statutes and regulations. Like questions, instructions can also improperly remove Without an instruction specifying the actions for which [the a theory from the jury’s consideration.4 For example, in insurer] could be liable, [the question] was improper.”); see also Harry v. University of Texas Sys., 878 S.W.2d 342, 345 (Tex. Green Tree Fin. Corp. v. Garcia, 988 S.W.2d 776, 783-84 (Tex. App.—Austin 1994, no writ), the court of appeals found that App.—San Antonio 1999, no pet.) (failure to properly instruct it was not feasible, under the facts of that case, to submit on Hammerly Oaks bases allowed jury to award punitive dam- multiple theories of recovery in a single question. In that ages against corporation based on a broad range of conduct worker’s compensation case, the plaintiff sought both lifetime including acts that could not satisfy Hammerly Oaks as a matter medical benefits and compensation benefits. The trial court of law). But cf. Texas A&M Univ. v. Bishop, 105 S.W.3d 646 (Tex. submitted an issue that combined an inquiry on course and App.—Houston [14th Dist.] 2003, Rule 53.7(f) motion filed) scope with the incapacity issue. The plaintiff complained (holding no abuse in refusing instruction excluding certain of the trial court’s refusal of a separate issue on course and allegations when other allegations supported negligence claim scope. The court of appeals agreed that the plaintiff could excepted from sovereign immunity defense). recover medical benefits based upon an affirmative course and scope finding—even without findings to support a recovery 2. Question eliminates theories of recovery or defense of compensation benefits. The opposite—but equally problematic—of the “too inclusive” instructions is a question so broad with such inadequate The jury in Harry could have answered “no” to the broad- instruction that it eliminates a theory of recovery or defense. form question based on the incapacity inquiry alone. Without See Clayton Williams, Jr., Inc. v. Olivo, 912 S.W.2d 319, 325-27 a separate finding on course and scope, the court could not (Tex. App.—San Antonio 1995), rev’d in part, 952 S.W.2d 523 determine whether the plaintiff was entitled to the future , (Tex. 1997); Matthiessen v. Schaefer 27 S.W.3d 25, 32 (Tex. medical benefits (but not the compensation benefits). Id. The App.—San Antonio 2000, pet. denied) (wording of statute court found the broad-form submission erroneous because it of limitations discovery question rendered it impossible to denied the plaintiff a submission on one of her grounds for determine whether jury’s answer represented date of discovery relief. Id. Because the court found res judicata principles would or date the plaintiff should have discovered a defect and bar the plaintiff from later seeking the medical benefits, the left court unable to determine whether statute of limitations court found the erroneous submission harmful. Id. had run); Kajima Int’l, Inc. v. Formosa Plastics Corp., USA, 15 S.W.3d 289, 291-94 (Tex. App.—Corpus Christi 2000, pet. In making its holdings despite recognizing the broad-from denied) (trial court erred in refusing requested instruction mandate, the court noted that whether the broad-form sub- when court’s limitation of fraud question to fraudulent induce- mission “was ‘feasible’ under the pleadings and the evidence ment denied plaintiff a fraud theory supported by pleadings of this case depends in part on whether the issue of injury and evidence). Cf. Wells v. Lewis, 2002 WL 1933228 (Tex. could be raised” in a subsequent lawsuit. Id. In other words, App.—Dallas 2002, pet. denied) (n.d.p.) (no error in instruc- the court recognized that the pleadings and evidence in any tion that did not preclude jury from finding that owner held given case would determine whether a broad-form submis- legal title but allowed jury to find another could hold title sion was feasible—even if the broad-form issue submitted for owner). conformed to a pattern jury charge. An example of the elimination of a theory can be found in 4. Predication eliminates theory of recovery or defense Olivo. In that premises defect case, the trial court submitted Predication can eliminate a theory of recovery (but even if a single broad negligence question without an instruction preserved can result in harmless error when other theories on the premises defect elements. 952 S.W.2d at 529. The establish a claim or defense). Floating Bulk Terminal, LLC v. plaintiffs had requested an issue that included the premises Coal Logistics Corp., 2002 WL 1733670 (Tex. App.—Houston defect elements but failed to complain of the refusal of that [14th Dist.] 2002, pet. denied) (n.d.p.) (predication error not issue on appeal. The supreme court held that the omitted preserved and thus resulted in loss of right to recover under premises defect elements were not necessarily referable to the alternate theory). ADVOCATE ✯ SPRING 2004 THE 49 5. Single damage question tied to liability theories having example, in Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, different measures of damage 389 (Tex. 2000), the charge included a single question with Instructions should tie the theory of recovery to proper a single answer that could have been based on any one of measure of damage; if not, a properly preserved complaint thirteen independent grounds. Of the five DTPA laundry list will result in reversal. See Wilgus v. Bond, 730 S.W.2d 670, grounds included, the plaintiff did not satisfy the required 672 (Tex. 1987). consumer status on four of those grounds. The jury could have based its affirmative answer solely on one or more 6. Secures improper predicate for punitive damages of the erroneously submitted theories. Id. at 387-88. As a If the charge does not clearly establish liability based on result, the court held that “when a trial court submits a conduct that could support punitive damages against the single broad-form liability question incorporating multiple party from whom they are sought, error can result. See, e.g., theories of liability, the error is harmful and a new trial is Green Tree Fin. Corp. v. Garcia, 988 S.W.2d 776, 783-84 (Tex. required when the appellate court cannot determine whether App.—San Antonio 1999, no pet.) (failure to properly instruct the jury based its verdict on an improperly submitted invalid on Hammerly Oaks factors allowed jury to award punitive theory.” Id. at 388. damages against corporation based on a broad range of con- duct including acts that could not satisfy Hammerly Oaks as Most courts of appeals apply Casteel only when the error leaves a matter of law). the court unsure whether the jury based its finding on a valid legal theory of liability. See North Am. Van Lines, Inc. v. Emmons, 7. Question cannot support different types of relief 50 S.W.3d 103, 122-24 (Tex. App.—Beaumont 2001, pet. sought denied) (no error in combining multiple grounds when each To adequately form a judgment based on the relief sought, theory valid); Samedan Oil Corp. v. Intrastate Gas Gathering, Inc., a party may need to secure separate findings on the various 78 S.W.3d 425, 452-53 (Tex. App.—Tyler 2001, pet. dism’d by factual bases at issue. See, e.g., Chromalloy Gas Turbine Corp. agr.) (no error when issue submitted valid theories and were v. United Tech. Corp., 9 S.W.3d 324, 329 (Tex. App.—San supported by evidence); Excel Corp. v. Apodaca, 51 S.W.3d Antonio 1999, pet. denied) (finding that jury finding estab- 686 (Tex. App.—Amarillo 2001) (holding Casteel inapplicable lished conduct occurring at some indeterminate time in the when (1) no alternative theories of liability were involved, past [which might have supported actual damages] did not (2) no unsettled law was involved, and (3) no theories of establish continuing illegal activity [as necessary to require which the trial court was unsure whether to submit), rev’d on injunctive relief]). In Pine v. State, 921 S.W.2d 866, 875 (Tex. other grounds, 81 S.W.3d 817 (Tex. 2002); Ramex Constr. Co. v. App.—Houston [14th Dist.] 1996, writ dism’d w.o.j.), the state Tamcon Servs., Inc., 29 S.W.3d 135, 140 (Tex. App.—Houston instituted forfeiture proceedings against an individual. The [14th Dist.] 2001, no pet.) (concurring opinion on rehearing) state sought divestment of ownership of 14 animals based (when one party failed to plead waiver and other party pleaded upon a conviction for cruelty to the animals. The individual waiver but charge failed to limit waiver instruction to proper claimed on appeal that the trial court erred in inquiring party, concurring judge reasoned that court could not be collectively whether the animals had been cruelly treated, satisfied that “properly submitted theories constituted the rather than resolving whether each animal had been cruelly basis of the jury’s verdict”); In re Stevenson, 27 S.W.3d 195, treated. The court of appeals rejected the complaint because 202 (Tex. App.—San Antonio 2000, pet. denied) (although the evidence failed to show that any of the animals were not citing Casteel, holding that instructing jury that it could treated any differently than any of the others. Id. Implicitly, terminate parental rights under either of two grounds, one however, the court’s analysis suggests that if the animals of which was improperly submitted, caused harmful error had been treated differently, separate factfindings as to each when court could not determine whether jury relied on proper animal would have been required to resolve the forfeiture theory); Kansas City S. Ry. v. Stokes, 20 S.W.3d 45, 51 (Tex. issue on each animal. App.—Texarkana 2000) (when trial court submitted various duty instructions throughout charge, some of which were C. Potentially erroneous combinations improper, court held reversal required under Casteel when 1. Commingled valid and invalid legal theories of court unable to determine whether jury relied on proper or liability improper instructions). Commingling valid and invalid theories of liability represents reversible error—although the trial court may not know of One court held that Casteel should apply to affirmative or agree with the invalidity at the time of submission. For defenses as well. Pantaze v. Welton, 1999 WL 673448 (Tex. ADVOCATE ✯ SPRING 2004 THE 50 App.—Dallas 1999, no pet.) (n.d.p.). As a result, when In addition to the failure of evidence, refusal to segregate one broad-form excuse question with a single answer damages over objection could cause error in the context of allowed the jury improperly to base its answer on waiver or legal theories as well. See TEX. CIV. PRAC. & R EM. CODE § properly to base its answer on equitable estoppel, the court 41.008 (calculating cap with economic and noneconomic held reversible charge error occurred. Id. But cf. El Paso damages); TEX. FIN. CODE § 304.1045 (applies to final judg- Refining, Inc. v. Scurlock Permian Corp., 77 S.W.3d 374, 386-87 ments signed or subject to appeal on or after Sept. 1, 2003, and (Tex. App.—El Paso 2002, pet. filed) (noting applying Casteel precludes prejudgment interest on future damages); Roberts to affirmative defenses troublesome when many defenses must v. Williamson, 111 S.W.3d 113 (Tex. 2003) (holding Texas be submitted as inferential rebuttal instructions). does not recognize action for parent’s loss of consortium for non-fatal injury to child). Thus, as noted in the next two subsections, the combining of legal theories—whether claims or defense—when a question However, while the no-evidence problem of Harris County as the validity of a theory exists opens the door to potential argues for separate damages blanks, the new factual suffi- reversible error. ciency standard of review announced in Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757 (Tex. 2003), seems to argue 2. Unsettled law on an alternative theory of liability for broadform submission of damages elements. “[S]ubmitting alternative liability standards when the gov- erning law is unsettled might very well be a situation where Golden Eagle is a products liability case in which the jury broad-form submission is not feasible.” Westgate, Ltd. v. State, found liability and awarded damages in five separate cat- 843 S.W.2d 448, 455 n.6 (Tex. 1992). egories, including (1) medical care, (2) physical pain and mental anguish, (3) physical impairment of loss of vision, 3. Uncertainty as to applicability of a particular theory (4) disfigurement, and (5) loss of earnings in the past. Id. of liability at 760. In answer to a sixth category—physical impairment “[W]hen the trial court is unsure whether it should submit other than the loss of vision—the jury awarded $0 damages. a particular theory of liability, separating liability theories Id. The trial court did not define physical impairment. And, best serves the policy of judicial economy underlying Rule instead of defining the six damage categories such that they 277 by avoiding the need for a new trial when the basis for did not overlap, the court, following PJC 8.2, instructed the liability cannot be determined.” Crown Life Ins. Co. v. Casteel, jury to “[c]onsider the elements of damages listed below 22 S.W.3d 378, 390 (Tex. 2000). and none other. Consider each element separately. Do not include damages for one element in any other element.” 4. Commingled valid and invalid elements of damages Id. at 770. Prior to Casteel, courts regularly upheld damage questions with a lump-sum answer, if the evidence supported that The court of appeals agreed with plaintiff’s argument on amount for any sub-part (or element) of the damages. 5 Citing appeal that the $0 finding on physical impairment other than to its rationale in Casteel, however, the supreme court recently the loss of vision was against the great weight of the evidence. clarified that a broad-form (or lump-sum or unsegregated) The supreme court reversed and announced a new standard damage finding may cause reversible error. Harris County for conducting a factual sufficiency review when some of the v. Smith, 96 S.W.3d 230 (Tex. 2002). Specifically, the court categories of damages are not defined and are not cleanly and held: “[T]he trial court erred in overruling [the defendant’s] clearly segregated. Id. at 770-73. timely and specific objection to the charge, which mixed valid and invalid elements of damage in a single broad-form The court ruled that when only one category of damages is submission, and that such error was harmful because it pre- challenged on the basis that the award in that category was vented the appellate court from determining ‘whether the zero or was too low, a court should consider only whether jury based its verdict on an improperly submitted invalid’ the evidence unique to that category is so against the great element of damage.” Id. at 234; see also City of Garland v. Dallas weight and preponderance of the evidence as to be manifestly Morning News, 2002 WL 31662724 (Tex. App.—Dallas 2002, unjust, shock the conscience, or clearly demonstrate bias. no pet.) (n.d.p.) (although prior to Harris County, reversing When the jury’s failure to find greater damages in more than when trial court submitted unsegregated fee finding over one overlapping category is challenged, the court of appeals objection when a portion of fees were not recoverable and should first determine if the evidence unique to each cat- could be segregated). egory is factually sufficient. If it is not, the court of appeals ADVOCATE ✯ SPRING 2004 THE 51 should then consider all the overlapping evidence, together Int’l, Inc. v. National Union Fire Ins. Co., 77 S.W.3d 253, 273) with the evidence unique to each category, to determine if (Tex. 2002) (Baker, J., dissenting) (using traditional harmless the total amount awarded in the overlapping categories is error analysis to assess objection to charge that one of several factually sufficient. Id. at 773. theories submitted did not have support in the evidence).6 But, because Harris County involved failure of sub-parts of a With regard to the charge, the Court suggested that the damage question on legal sufficiency of the evidence grounds, limiting instruction of PJC 8.2 (and the similar instruction that case may foretell the result when the supreme court in PJC 110.27) may need to be refined to comport with the reaches the issue, which it may have the opportunity to do “clearer” instruction from French v. Grigsby: with several pending cases. In answering this special issue you shall not award any sum a. Employment law: discrimination or discharge of money on any element if you have otherwise, under some The PJC recommends submitting discharge and discrimina- other element, awarded a sum of money for the same loss, tion on the basis of disability in a single question. The Corpus that is do not compensate twice for the same loss, if any. Christi court agreed that both theories are valid and can be submitted in a single question. See Haggar Apparel Co. v. Leal, 567 S.W.2d 604, 608 (Tex. Civ. App.—Beaumont, writ ref’d 100 S.W.3d 303, 312 (Tex. App.—Corpus Christi 2002, pet. n.r.e., approved, 571 S.W.2d 867 (Tex. 1978). filed) (also holding a lack of preservation by failing to object to the broad-form submission precluded reversal in any event).7 The supreme court also rejected Golden Eagle’s argument that The court held legally sufficient evidence supported the jury’s the splitting of physical impairment into two separate ele- finding that “disability discrimination was a motivating factor ments (“physical impairment of loss of vision” and “physical in [the] decision to terminate” and that “disability was a impairment other than loss of vision”) violated the broad-form motivating factor in [the] decision to discharge” the plaintiff.” mandate of Rule 277. The court stated that “[a]lthough the If both are legally valid theories and both are supported by trial court granulated physical impairment into two separate pleadings and evidence, then a Casteel issue would not come categories, Golden Eagle did not explain how it was harmed into play as currently formulated. by the submission, particularly in light of the jury’s award of ‘$0’ for physical impairment other than loss of vision.” The Corpus Christi court had previously upheld a ques- Id. at 776. tion that submitted disqualification and discrimination in a single question. S.W. Bell Tel. Co. v. Garza, 58 S.W.3d 214 D. Unanswered issues on combinations (Tex. App.—Corpus Christi 2001, pet. granted) (any error Several issues remain for resolution after Casteel and Harris as to commingling discrimination and discharge theories County. Those issues center primarily upon (1) evidentiary waived when not brought to trial court’s attention). The failures in multi-theory questions and (2) failure of theories supreme court recently granted the petition in Garza (and tried together in the charge by conditioning. is holding the petition in Leal) in which the defendants argue that “disqualification” is not a statutory ground for 1. Evidentiary grounds of broad-form liability question recovery, not pleaded as a ground for recovery, and not caus- The supreme court has yet to agree if the holding of Casteel ally related to the damages recovered. (See Briefing on the applies to the failure of part of a broad-form question on Merits.) As a result, if the defendant prevails on any one of evidentiary grounds. See City of Fort Worth v. Zimlich, 29 those grounds, the disjunctive submission could fall under S.W.3d 62, 69 n.1 (Tex. 2000) (“The City has not argued the Casteel rationale. that it would be entitled to a new trial if the evidence was legally insufficient to support one or more of these theories b. Family law: grounds for termination of parental of liability. Therefore, whether our decision in Crown Life rights Ins. Co. v. Casteel, 22 S.W.3d 378, 389 (Tex. 2000), should Numerous cases assert a Casteel argument arising from an be extended to cases in which there is no evidence to sup- ” “E.B. submission of two or more statutory grounds in the port one or more theories of liability within a broad form disjunctive in termination of parental rights cases. Although submission is not a question before us.”). But see In re A.V., holding such an error was not preserved in B.L.D., the supreme 113 S.W.3d 355, 358 (Tex. 2003), (refusing to review com- court noted: “While the court of appeals in this case states plaint on broad-form submission without objection to form that E.B. does not control the resolution of this case, see 56 or to evidentiary support of any theory submitted); Rocor S.W.3d at 216 n. 15 (referring to the relevant discussion in ADVOCATE ✯ SPRING 2004 THE 52 E.B. as “dictum”), we observe that our courts of appeals are For now, the scope in question appears limited to legal suf- now divided on this issue.” In re B.L.D., 113 S.W.3d 340, 349 ficiency, and several pending cases may give the supreme n.8 (Tex. 2003) 8 The supreme court also reviewed several court an opportunity to clarify the application of Casteel and other cases on the same or similar issue but found the error Harris County to evidentiary failures in multi-theory liability unpreserved in those cases as well. See In re A.V., 113 S.W.3d questions. 355, 358 (Tex. 2003); In re K.N.R., 113 S.W.3d 365 (Tex. 2003); In re A.F., 113 S.W.3d 363 (Tex. 2003). As a result, that issue 2. Multiple liability questions tied to single damage remains open for resolution. question Prior to Casteel, courts also upheld a single damage finding c. Fraud theories: misrepresentations, nondisclosure, even if one or more of the multiple liability findings on which constructive it was predicated failed.9 But, since Casteel, courts have dis- Mixing fraud theories, such as fraud by nondisclosure with agreed on whether such tying can result in error. affirmative fraud when a duty to disclose is unclear, may be another circumstance in which problems arise after the Some courts hold Casteel does not apply and no error results verdict comes in. See Baribeau v. Gustafson, 107 S.W.3d 52 from the failure of one of the tied theories of liability. See (Tex. App.—San Antonio 2003, Rule 53.7(f) motion filed) Durban v. Guajardo, 2002 WL 1042161 (Tex. App.—Dallas (finding error not preserved on improper mixing of actual 2002, no pet.) (n.d.p.) (judgment can rest on damage finding if and constructive fraud in a single question). either of underlying liability findings find support in law and evidence); Z.A.O., Inc. v. Yarbrough Drive Center Joint Venture, 50 d. Other theories: negligence, DTPA, defamation S.W.3d 531 (Tex. App.--El Paso 2001, no pet.) (even though Other theories of liability can likewise raise broad-form several of questions on different theories of liability failed, issues. See, e.g., City of Fort Worth v. Zimlich, 29 S.W.3d 62, remaining question also tied to same damage question did 69 n.1 (Tex. 2000) (negligence); Mars, Inc. v. Gonzalez, 71 not leave the court wondering whether jury based its award S.W.3d 434, 442 (Tex. App.—Waco 2002, pet. denied) (no on valid theory); Colonial County Mut. Ins. Co. v. Valdez, 30 evidence of publication but dissent arguing that failure to S.W.3d 514, 518-19 (Tex. App.—Corpus Christi 2000, no remove exhibited materials should support publication ele- pet.) (Casteel error in one question to which single damage ment of defamation claim under broad-form submission). question tied rendered harmless in light of survival of other Harris County used Casteel’s logic to reach its conclusion of liability question tied to same damage question); see also commingling an element or theory without evidentiary sup- Samedan Oil Corp. v. Intrastate Gas Gathering, Inc., 78 S.W.3d port resulted in harmful error. But, notably, in Casteel and 425, 452-53 (Tex. App.—Tyler 2001, pet. dism’d by agr.) (any Harris County (as do Garza and the parental rights termination error from multiple liability/single damage submission waived cases), the questions listed the theories of DTPA practices and when no objection made to damage question for predication the elements of damage, respectively. on multiple theories). Thus, those cases leave unclear how the review would apply Other courts find harm arises from the tying damages to mul- in cases in which the broad-form submission does not list tiple theories, one of which fails. See San Antonio Credit Union such elements (such as negligence)—by looking to all pleaded , v. O’Connor 115 S.W.3d 82, 102 (Tex. App.—San Antonio practices? Would a broad “no evidence of any theory” suffice 2003, pet. filed) (linking intentional infliction, malicious to preserve the complaint? Would a party meet such an objec- prosecution, and defamation to single damage question tion with a granulated checklist of practices? Where would reversible error when intentional infliction claim failed as a that result leave broad-form submissions? matter of law); KPH Consol., Inc. v. Romero, 102 S.W.3d 135, 159-60 (Tex. App.—Houston [14th Dist.] 2003, Rule 53.7(f) e. Factual sufficiency: multiple theories motion filed) (not relying on Casteel but holding that linking of In Harris County, the majority indicated that its segregation erroneously submitted malicious credentialing question along holding did not encompass “potential errors, such as factual with negligence question to single actual damage question insufficiency.” 96 S.W.3d at 235. But, could an objection to left court unable to tell which damages caused by what con- a broad-form submission combined with a later factual suf- duct); Custom Residential Paint Contracting, Inc. v. Klein, 2001 ficiency complaint preserve error as the dissent suggests? Id. WL 1318420/2002 WL 660200 (Tex. App.—Dallas 2001) at 239. That is, would review of the factual sufficiency error (n.d.p.), (holding jury’s DTPA finding defective and initially be denied under the reasoning of Casteel and Harris County? ordering remand for new trial even though contract ques- ADVOCATE ✯ SPRING 2004 THE 53 tion predicated on same damage finding left in tact but later If faced with an objection that falls in the “clear error” accepting remittitur rather than remand), judgment vacated category above, modifications to the charge may represent the based on finding of no harm in light of voluntary remittitur, best strategic choice. But, if faced with objections on potential 2002 WL 660200 (Tex. App.—Dallas 2002). or unknown errors, the choices become more difficult. An accurate assessment of the record, the law, and the jury’s 3. Multiple liability questions tied to single apportionment possible answers becomes critical to making the strategic question choices raised in that context. Similar to the actual damage context, at least one court has determined that linking a flawed theory of liability to an For example, ignoring a pure omission of a theory of liability apportionment question results in error. See KPH Consol., Inc. or defense, the risk of reversal (or harmful error) most often v. Romero, 102 S.W.3d 135, 159-60 (Tex. App.—Houston [14th arises with a question that submits multiple liability and Dist.] 2003, Rule 53.7(f) motion filed) (not relying on Casteel defensive theories in a single question. With an affirmative but holding that linking of erroneously submitted malicious finding in that context, when one of the multiple theories of credentialing question along with negligence question to liability in a single question fails, a reviewing court cannot single apportionment question left court unable to tell how determine on what part of the question the jury relied to allow jury apportioned responsibility on what conduct). recovery. With a negative finding, when one of the multiple theories in a single question fails, the reviewing court cannot 4. Multiple liability theories tied to a single penalty determine whether the jury answered “no” on liability or “yes” damage question on a proper or improper defensive theory. Without knowing Similar to the actual damage context, linking multiple theories on what basis the jury answered in the negative, it may be of liability (and thus conduct) to a single penalty question difficult to hold that the question can stand after the failure may also cause a potential error if one theory fails on appeal. of a defensive issue. On the other hand, a “no” to a pure , San Antonio Credit Union v. O’Connor 115 S.W.3d 82, 102 (Tex. liability question (with no defensive theories included) does App.—San Antonio 2003, pet. filed) (malice finding linked not carry the same risk—the jury relied upon none of the to reversed intentional infliction claim required reversal of theories and no risk exists of an improper recovery based on punitive damages); Atrium Cos. v. Bethke, 2002 WL 31892204 an invalid liability theory or a denial of recovery based on (Tex. App.—Dallas 2002, no pet.) (n.d.p.) (finding of waiver an invalid defensive theory. of any Casteel error in linking single knowingly issue to mul- tiple DTPA findings). Assuming the combination presents potential error, how serious the risk of reversal is should be assessed. Is there 5. A “general” charge some evidence of every theory subsumed in the questions and Rule 290 defines a jury verdict as “general or special.” Tex. instructions? How clear and strong is the law for or against the R. Civ. P. 290. At least one court, however, has held that a submission you seek? As the volume of evidence and strength jury charge that asks a jury whether it finds in favor of the of the law increases, the risk of reversal may decrease. plaintiff or the defendant cannot meet the requirements of Casteel. Commercial Bank of Texas v. Luce, 92 S.W.3d 636, 639- As a further example, in the context of segregated damages, 40 (Tex. App.—Beaumont 2002, no pet.) (breach of employ- submission of multiple damage blanks may make a defendant ment contract action). Noting that both parties objected to queasy—are separate blanks the best choice? Instead, as a the form of the charge, the court of appeals held that the jury defendant, do you want to allow an unsegregated damage question did not instruct the jury on the law or submit the finding without objection: What challenge do you face to gain controlling fact issues for the jury’s determination. Id. review and reversal on the sufficiency of the evidence of any one or more damage element? Is that one of the main issues E. Strategy decisions in the case or a lesser issue? The answers to those questions Whether the form of the broad-form question or conditioning will help balance the need to win at trial with the risks of of questions creates a risk of reversal depends upon how many reversal on appeal. theories of liability and defense a single question combines, how the jury answered the question(s), how the questions Thus, practical considerations or matters of strategy may are tied together, and what fails on what grounds on appeal. dictate the requested form of submission. The variations for Thus, strategic options will play an important role in deciding a multi-theory case are too numerous to outline. Indeed, how to proceed. the combinations will vary depending upon, among other ADVOCATE ✯ SPRING 2004 THE 54 things, (1) how many plaintiffs and defendants the charge will 2003 WL 22495756 (Tex. Oct. 31, 2003). Any veil-piercing submit,10 (2) how many theories of liability and/or defense the theory under article 2.21 should track the language of the charge will submit,11 (3) the strengths and weaknesses of a statute. Id. at *12. case—on evidentiary, legal and jury appeal grounds, (4) what relief or combinations of relief a party will seek in formation C. Spoliation of the judgment,12 and (5) the risk of reversal that a party Submission of a spoliation instruction when it should not can tolerate to achieve a “winning” verdict. These various be given (such as in the absence of a duty to preserve the influences will affect the ultimate submission choices. evidence destroyed) is harmful error. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718, 723-24 (Tex. 2003) (the “very III. Recent opinions on specific claims or issues purpose” of a spoliation instruction is to “nudge” or “tilt” the The following subsections summarize recent opinions from jury and “the likelihood of harm from the erroneous instruc- courts on charge issues in various types of cases over the tion is substantial, particularly in a closely contested case”). past year. But the supreme court has yet to determine what standard would control in determining whether a trial court should A. Physical impairment submit a spoliation instruction and what such instruction In defining physical impairment, the jury should be instructed should say. Cf. Cresthaven Nursing Residence v. Freeman, 2003 that (1) loss of enjoyment of life is a factor to be considered WL 253283 (Tex. App.—Amarillo 2003, Rule 53.7(f) motion in assessing damages for physical impairment; (2) the effect filed) (involving instruction similar to Wal-Mart instruction of any physical impairment must be substantial and extend but holding no abuse of discretion when a scintilla of evidence beyond pain, suffering, mental anguish, lost wages, or supported theory of spoliation); Morgan v. Verlander, 2003 diminished earning capacity; and (3) plaintiff should not be WL 22360942, *8 (Tex. App.—El Paso, Oct. 16, 2003) (evi- compensated more than once for the same elements of loss dence supported submission of instruction that “the failure or injury. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d to produce evidence within a party’s control and/or falsifi- 757, 772 (Tex. 2003). cation or alteration of evidence raises a presumption that if the true evidence were produced it would operate against Moreover, when it is not feasible to define damage categories him”); Dunn v. Bank-Tec South, 2003 WL 22438710, *6 (Tex. in such a way that they do not overlap, a limiting instruc- App.—Amarillo Oct. 28, 2003, n.p.h.) (no error in refusing to tion such as PJC 8.2 and PJC 110.27 can be submitted to submit instruction on “intentional spoliation or destruction” avoid double awards of damages, particularly when physical because no evidence to support submission). impairment is submitted. Id. at 770. However, PJC 8.2 and PJC 110.27 may need to be refined to comport with the fol- D. Facts taken as true lowing instruction from French v. Grigsby that the court says Discovery sanctions in the form of instructing the jury to is “clearer”: take witness’s statements as true on dispositive issues (when sanction was excessive under TransAmerican and inaccurate In answering this special issue you shall not award any according to the statements) causes harmful error that denies sum of money on any element if you have otherwise, , defendant presentation of its case. Spohn Hosp. v. Mayer 104 under some other element, awarded a sum of money S.W.3d 878 (Tex. 2003). for the same loss, that is do not compensate twice for the same loss, if any. E. Joint enterprise liability Joint enterprise instruction’s third element should require a Id. (citing French v. Grigsby, 567 S.W.2d 604, 608 (Tex. Civ. “‘common business or pecuniary interest,’ not a ‘community App.—Beaumont, writ ref’d n.r.e., approved, 571 S.W.2d of pecuniary interest in [the] common purpose, among the 867 (Tex. 1978). members [of the group].’” St. Joseph Hosp. v. Wolff, 94 S.W.3d 513, 530 (Tex. 2002) (holding PJC 7.11  erroneously B. Single business enterprise stated third element). The court found it unnecessary to decide whether a theory of “single business enterprise” is a necessary addition to F. Higher standard of care Texas law regarding the theory of alter ego for disregarding Failure to instruct on the proper standard of care results in corporate structure where article 2.21 of the Texas Business reversible error. Elmer v. Speed Boat Leasing, Inc., 89 S.W.3d Corporation Act controls. Southern Union Co. v. City of Edinburg, 633, 639 (Tex. App.—Corpus Christi 2002, pet. filed) (car- ADVOCATE ✯ SPRING 2004 THE 55 riers and amusement operators held to higher standard of K. Agricultural operator’s repose defense care and failure to instruct on elevated standard represents Agriculture Code’s one-year bar of nuisance claims against reversible error). agricultural operators did not require plaintiff’s discovery, only existence of conditions or circumstances for more than a G. Mutually dependent leasehold duties year. Holubec v. Brandenberger, 111 S.W.3d 32, 39 (Tex. 2003) The mutually dependent nature of lessee’s duty to pay and (construing Tex. Agric. Code § 25.004(a), and reversing based lessor’s warranty of suitability for commercial purpose means on erroneous submission repose defense). that refusal of an instruction on “correlative” duties of parties is not error. Parts Indus. Corp. v. AVA Servs., Inc., 104 S.W.3d L. Worker’s compensation issue of “no ability to work” 671, 682 (Tex. App.—Corpus Christi 2003, no pet. h.). Issue under Labor Code § 408.143 is not whether employee can engage in substantial or gainful employment but whether H. Sole proximate cause employee can not engage in any work at all. Humphrey v. The omission of a defense that finds support in the evidence American Motorists Ins. Co., 102 S.W.3d 811, 815-16 (Tex. generally results in reversible error. For example, denial of App.—Eastland 2003, pet. denied) (instructing on Labor an instruction on a sole proximate cause defense is reversible Code § 408.143). error when some evidence supports its submission. Texas Elec. Coop. v. Dillard, 2003 WL 1884296 (Tex. App.—Tyler 2003, M. Condemnation “unable to agree” requirement pet. filed) (jury not allowed to consider potential ramifica- Phrase “if it is a bona fide offer” rather than “it must be a tions of unidentified rancher’s conduct in allowing cows to bona fide offer” sufficiently submitted the “unable to agree” wander on highway when sole proximate cause instruction element of a condemnor’s claim. Pitts v. Sabine River Auth. omitted). Cf. Luck v. Baylor Med. Ctr., 2002 WL 31750168 (Tex. of Texas, 107 S.W.3d 811 (Tex. App.—Texarkana 2003, pet. App.—Dallas 2002, pet. denied) (n.d.p.) (testimony of treat- filed) (instructing on Property Code § 21.012). ment rendered by nonparty physician sufficient to support sole proximate cause instruction). N. Insurance Code’s action for unfair claim settlement practices I. Unavoidable accident The supreme court reconciled the statutory cause of action for Just as with exclusion, the inclusion of a defense such as unfair claim settlement practices with a common law Stowers unavoidable accident can result in reversible error when claim and listed the elements of such a claim. Rocor Int’l, Inc. no evidence supports the submission. Urista v. Bed, Bath, v. Nat’l Union Fire Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002). & Beyond, Inc., 2003 WL 21357307 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (unavoidable accident instruc- O. Texas Securities Act aider and abetter action tion reversible error when no evidence supported theory “The language of the [Texas Securities Act] does not require that nonhuman event caused trash cans to fall and jury proof that an aider is generally aware of its role in the securities returned negative finding to negligence issue in closely violation to be liable as an aider. . . . [T]the trial court [thus] contested case). Cf. Evans v. Allwhite, 2003 WL 21659344 did not abuse its discretion by failing to give [the defendant’s] (Tex. App.—Texarkana 2003, no pet. h.) (evidence of loss of requested jury instruction on general awareness.” See Sterling consciousness immediately before auto accident supported Trust Co. v. Adderley, 2003 WL 21770799 (Tex. App.—Fort unavoidable accident and sudden emergency instructions); Worth 2003, pet. filed). Luck v. Baylor Med. Ctr., 111 S.W.3d 282 (Tex. App.—Dallas 2002, pet. denied) (n.d.p.) (testimony regarding poor phys- P. Common law indemnity from agent ical condition sufficient to support unavoidable accident Question seeking common law indemnity based on respon- instruction). deat superior which only asks about undefined “misconduct” is erroneous. The charge should have included (1) a predicate J. DTPA statute of limitations establishing the commission of a tort by an agent, and (2) PJC 102.23 suggests submission of DTPA statute of limitations a question establishing that the Vanguard was vicariously to determine date “all” false, misleading, or deceptive acts liable for Vecellio’s tort under the theory of respondeat should have been discovered. Atrium Cos. v. Bethke, 2002 WL superior. Vecellio Ins. Agency, Inc. v. Vanguard Underwriters 31892204 (Tex. App.—Dallas 2002, no pet.) (n.d.p.) (agreeing Ins. Co., 2003 WL 22382553, *3-4 (Tex. App.—Houston with comment to PJC that plaintiff need only prove that one [1st Dist] 2003). act not time-barred). ADVOCATE ✯ SPRING 2004 THE 56 Q. Chance of survival/proximate cause See Gallagher v. Fire Ins. Exch., 980 S.W.2d 833, 838 (Tex. Even if “chance of survival” finds support in the evidence App.—San Antonio 1998, pet. denied) (plaintiff could not and disregarding the finding is improper, remand may still complain that court refused instruction defensive in nature, result when chance of survival was improperly treated as an particularly when defendant abandoned defense prior to affirmative defense rather than as part of proximate cause. trial). See Vigil v. Montero, 2002 WL 1988173 (Tex. App.—El Paso 2002, pet. filed) (n.d.p.). 3. Refusal to submit issues not controlling to outcome. See, e.g., Smith v. Outdoor Sys., Inc., 2002 WL 370200 (Tex. R. Age discrimination App.—Houston [14th Dist.] 2002, pet. denied) (n.d.p.) (even The use of phrase “age was one of the reasons,” rather than if preserved, question on lease default irrelevant when lease “motivating factor” as suggested by PJC 107.6, is not error in terminated during point at issue). federal age discrimination case. Dallas County Sheriff’s Dept. v. Gilley, 114 S.W.3d 689 (Tex. App.—Dallas 2003, no pet. 4. Refusal to submit instructions merely because it h.). aids requesting party. See Akin v. Santa Clara Land Co., 34 S.W.3d 334, 346 (Tex. App.—San Antonio 2001, pet. denied) S. Out-of-State Conduct/Punitive Damages (additional requested instructions, while correct statements The United States Supreme Court held as follows: “A state of law and beneficial to requesting party, not necessary to cannot punish a defendant for conduct that may have been enable jury to render verdict). lawful where it occurred.” State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513, 1522 (2003). “Nor, as a general rule, 5. Refusal to submit instructions, definitions, or questions does a State have a legitimate concern in imposing punitive not supported by the evidence (or pleadings). See Excel Corp. damages to punish a defendant for unlawful acts committed v. Apodaca, 51 S.W.3d 686 (Tex. App.—Amarillo 2001) (trial outside of the State’s jurisdiction.” Id. However, “[l]awful out- court did not err in refusing “sole proximate cause” and “new of-state conduct may be probative when it demonstrates the and independent cause” instructions when record contained deliberateness and culpability of the defendant’s action in the no evidence to support submission), rev’d on other grounds, 81 State where it is tortious, but that conduct must have a nexus S.W.3d 817 (Tex. 2002); Turnbull v. McIntosh, 2001 WL 493169 to the specific harm suffered by the plaintiff. A jury must be (Tex. App.—Houston [1st Dist.] 2001, pet. denied) (n.d.p.) instructed . . . that it may not use evidence of out-of-state (trial court did not err in refusing “unavoidable accident” and conduct to punish a defendant for action that was lawful in “sudden emergency” instructions when no evidence supported the jurisdiction where it occurred.” Id. at 1522-23. either theory). IV. Complaint not error or not reversible 6. Refusal to submit surplus instructions. Surplus instruc- A trial court’s broad discretion generally protects from review tions increase the risk of improper comments on the evidence its decisions in areas outside of the general and broad-form and confusing or misleading the jury. See Accord v. General categories of error listed above. But, even if error occurs, no Motors Corp., 669 S.W.2d 111 (Tex. 1984) (disapproving of reversal on appeal occurs in the absence of harm. This section appendage of surplus instruction to PJC); Humble Sand & lists the general categories of decisions either considered not Gravel, Inc. v. Gomez, 48 S.W.3d 487 (Tex. App.—Texarkana erroneous or not harmful. 2001, pet. granted) (disapproving of surplus instructions but petition for review complains of omitted instruction as denial A. No error of defense); Brookshire Bros., Inc. v. Lewis, 997 S.W.2d 908, 921 1. Refusal to define terms not used in the charge. See (Tex. App.—Beaumont 1999, pet. denied) (same). , Texas Workers’ Comp. Ins. Fund v. Mandlbauer 34 S.W.3d 909, 911 (Tex. 2000) (trial court did not err in refusing to define 7. Refusal to submit shades and phases of questions, “producing cause” when charge submitted “resulting from” instructions, and definitions. See Excel Corp. v. Apodaca, 51 causation language); Lakey v. Cauley, 2000 WL 33354703 (Tex. S.W.3d 686 (Tex. App.—Amarillo 2001) (court not required to App.—Houston [14th Dist.] 2000, pet. denied) (n.d.p.) (trial submit mere shades or variations of the questions submitted), court did not err in refusing instruction that did not refer to rev’d on other grounds, 81 S.W.3d 817 (Tex. 2002); Krishnan v. a particular term or issue in the charge). Ramirez, 42 S.W.3d 205, 220 (Tex. App.—Corpus Christi 2001, pet. denied) (same); Riddick v. Quail Harbor Condominium Ass’n, 2. Refusal to submit defenses abandoned during trial. 7 S.W.3d 663, 674 (Tex. App.—Houston [14th Dist.] 1999, ADVOCATE ✯ SPRING 2004 THE 57 , no pet.) (same); Bayliner Marine Corp. v. Elder 994 S.W.2d the other); Vasquez v. Hyundai Motor Co., 2002 WL 1905203 439, 447 (Tex. App.—Beaumont 1999, pet. denied) (same). (Tex. App.—San Antonio 2002, no pet.) (any error in asking jury to assign percentage of responsibility to driver of car 8. Refusal to de-personalize instructions and defini- as responsible third party not properly joined immaterial tions. See Aboud v. Schlichtemeier 6 S.W.3d 742, 750 (Tex. , when jury found no design defect and did not apportion App.—Corpus Christi 1999, pet. denied) (personalized any responsibility to defendant), opinion withdrawn on en banc definition of malice proper). reconsideration on other grounds, 2003 WL 22023175 (Tex. App.—San Antonio 2003) (en banc); Balusik v. Kollatschny, B. Invited error 2002 WL 1822360 (Tex. App.—Houston [1st Dist.] 2002, no “Parties may not invite error by requesting an issue and then pet.) (n.d.p.) (to extent fiduciary duty instruction erroneous, objecting to its submission.” General Chem. Corp. v. De la finding immaterial because no damages awarded based on Lastra, 852 S.W.2d 916, 920 (Tex. 1993) (party waived any breach of fiduciary duty); Doe v. Mobile Video Tapes, Inc., 43 error when it requested the very issues sought to be avoided S.W.3d 40, 50 (Tex. App.—Corpus Christi 2001, no pet.) on appeal); Dico Tire, Inc. v. Cisneros, 953 S.W.2d 776, 795 (holding that trial court erred in omitting negligent standard (Tex. App.—Corpus Christi 1997, pet. denied) (although of liability for defamation or libel but finding no harm when party objected to omission of third party in comparative jury answered predicate question in the negative). responsibility question, party invited error by requesting comparative responsibility question without including third Similarly, even if broad-form or granulation is improper for party); Casteel-Diebolt v. Diebolt, 912 S.W.2d 302, 304 (Tex. some theories or issues, reversal will result only if error is App.—Houston [14th Dist.] 1995, no writ); (party may not preserved and harm is shown. See Galveston County Fair & agree to charge and then attack it on appeal). But cf. Holland , Rodeo v. Glover 940 S.W.2d 585, 586 (Tex. 1996) (holding v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94-95 (Tex. 1999) trial court had discretion to submit one question with an (requesting instruction to issue did not invite error when instruction or separate questions but finding no harm from post-verdict complaint was that recovery was not available error in not doing either when different question supported under legal theory of plaintiff’s claim, not that recovery would judgment); City of Brownsville v. Alvarado, 897 S.W.2d 750, 752 not have been available under a different legal theory that (Tex. 1995) (“Submission of an improper jury question can would have applied if timely raised). be harmless if the jury’s answers to other questions render the improper question immaterial.”); H.E. Butt Gro. Co. v. C. Other findings render error immaterial Warner, 845 S.W.2d 258, 259-60 (Tex. 1992) (granulated If other findings render the finding in which a charge error submission not harmful); Boatland of Houston, Inc. v. Bailey, appears immaterial, then the charge error is deemed harm- 609 S.W.2d 743, 749-50 (Tex. 1980) (holding error in defen- less. See, e.g., U.S. Tire-Tech, Inc. v. Boeran, 110 S.W.3d 194, sive issues harmless when other jury findings supported trial 202-03 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) court’s judgment); Pack v. Crossroads, Inc., 53 S.W.2d 492 (Tex. (omission of issue on breach of implied warranty of fit- App.—Fort Worth, pet. denied) (although error claimed in ness for particular purpose harmless when jury found no failing to charge on survivor claim, any error harmless when timely notice of breach); Koehn v. CST Drilling Fluids, Inc., court found no evidence to support causation element of 2003 WL 21189759 (Tex. App.—Amarillo 2003, no pet. wrongful death action); Colonial County Mut. Ins. Co. v. Valdez, h.) (memo opin.) (any error in submitting sole proximate 30 S.W.3d 514, 518-19 (Tex. App.—Corpus Christi 2000, no cause instruction rendered harmless when no percentage pet.) (although DTPA question defectively included improper , assigned to defendant); Delaney v. Scheer 2003 WL 247110 theories and created harm under Casteel, Insurance Code (Tex. App.—Austin 2003, no pet. h.) (memo opin.) (any error question tied to same damage question supported judgment in submitting issue on naming sole managing conservator and rendered DTPA error harmless). rendered moot when jury found continued joint managing conservatorship proper); Lowe v. Garza, 2003 WL 1945379 D. Other issues or instruction resolve factual dispute (Tex. App.—Houston [1st Dist.] 2003, no pet. h.) (memo opin.) If other findings have the “same effect” or otherwise resolve (finding of excuse rendered any perceived error in negligence the disputed fact issues, courts of appeal are reluctant question immaterial); Gilbreath v. Hathaway, 2003 WL 1937168 to reverse. See, e.g., Hyundai Motor Co. v. Rodriguez, 995 (Tex. App.—Beaumont 2003, pet. denied) (refusal to include S.W.2d 661, 663 (Tex. 1999) (separate questions on defect unavoidable accident instruction harmless when jury heard for strict-liability and breach of implied warranty claims evidence of theory and was not required to pick one party or unnecessary when the controlling issues for both claims were ADVOCATE ✯ SPRING 2004 THE 58 “functionally identical”); Lee v. Huntsville Livestock Servs., employee acting in course and scope negated need to submit Inc., 2003 WL 1738418 (Tex. App.—Houston [14th Dist.] employer in negligence question). 2003, pet. denied) (memo opin.) (circumstantial evidence instruction sufficed to submit res ipsa loquitur theory); F. Slight wording errors insufficient to show harm Superior Laminate & Supply, Inc. v. Formica Corp., 93 S.W.3d Although “duty” and “breach” are not generally facts issues 445, 448-49 (Tex. App.—Houston [14th Dist.] 2002, for the jury, mere inclusion of those words does not always pet. denied) (novation defense supported by pleading of render the charge defective to submit adequately and fairly doctrine of merger when doctrines had “same effect” and the disputed fact issues. See Green v. Gemini Expl. Co., 2003 parties knew defendant intended to argue one contract WL 1986859 (Tex. App.—Austin 2003, pet. denied) (memo supplanted another); Star Enter. v. Marze, 61 S.W.3d 449 opin.) (question on oil and gas drainage claim that included (Tex. App.—San Antonio 2001, pet. denied) (“proximately the phrase “breach its duty” not harmful error when instruc- cause the occurrence” and “proximately caused the death” tions required jury to find proper elements to support such were functional equivalents under the facts and separate claim). But cf. see Maddox v. Denka Chem. Corp., 930 S.W.2d submissions were unnecessary); M.D. Mark, Inc. v. PIHI P’ship, 668, 670-72 (Tex. App.—Houston [1st Dist.] 1996, no writ) 2001 WL 619604 (Tex. App.—Houston [1st Dist.] 2001, (statement regarding general rule of duty was correct state- no pet.) (n.d.p.) (fraud and breach of fiduciary duty claims ment of law but constituted harmful comment on the weight encompassed same controlling issue and court did not err of the evidence). in refusing to submit fiduciary claim separately); Riddick v. Quail Harbor Condominium Ass’n, 7 S.W.3d 663, 673 (Tex. Moreover, a mismatch between the issue and the instruction App.—Houston [14th Dist.] 1999, no pet.) (single question may also be deemed insufficient error to cause reversal. See, submitted controlling fact issue determinative of contract and e.g., Pitts v. Sabine River Auth. of Texas, 2003 WL 21229541 breach of fiduciary theories of liability and court did not err (Tex. App.—Texarkana 2003, pet. filed) (condemnation in refusing to submit each theory separately). issue referred to “easement sought” and instruction referred to “taking” but variation insufficient to show jury confusion E. Deemed findings or “as a matter of law” evidence or other error). fills in omission A charge that erroneously omits an element of a claim (without G. No challenge to a $0 damage finding objection) is harmless if an express or deemed finding sup- In the absence of a challenge to a $0 damage finding, a court plies the missing element. See, e.g., In re J.F.C., 96 S.W.3d 256 of appeals will not hear any complaints regarding other pur- (Tex. 2003) (omission of best interests element in parental ported errors in the trial of the case. Courts consider such termination proceeding harmless when trial court made failure to render other complaints harmless. See, e.g., Tristan express finding in judgment and parent failed to object to , v. Walker 2003 WL 21212342 (Tex. App.—Corpus Christi omission). 2003, pet. filed) (memo opin.) (no complaint on negative defamation finding would be heard when no challenge to If the issue of liability is established as a matter of law, such $0 damage findings); Hernandez v. Garcia, 2003 WL 724182 “conclusion of law” may support a jury’s finding of damage. (Tex. App.—San Antonio 2003, no pet. h.) (memo opin.) (no See Balusik, 2002 WL 1822360 (n.d.p.) (instructing jury that complaint of negative finding on negligence would be heard defendant breached her fiduciary duty supported by evidence when no challenge made to $0 damage finding); Allchin v. and law and rendered refusal to instruct on commercial rea- Chemic, Inc., 2002 WL 1608616 (Tex. App.—Houston [14th sonableness proper). Dist.] 2002, no pet.) (n.d.p.) (jury’s malicious breach of fidu- ciary duty findings immaterial and not reviewable on appeal If not established as a matter of law but no liability finding when no challenge to $0 damage finding). is obtained despite an objection, the theory of recovery is waived. See, e.g., Nat’l Dev. & Research Corp. v. Panda Global Nina Cortell is a partner and member of the appellate section of Energy Co., 2002 WL 1060483 (n.d.p.) (Tex. App.—Dallas Haynes and Boone, LLP, in Dallas, Texas. Karen Precella is Senior 2002, pet. denied) (failure to request issue on breach of con- Counsel in the appellate section of Haynes and Boone, LLP, in Fort tract despite objection pointing out omission of issue resulted Worth, Texas. Heather D. Bailey is an associate in the appellate in waiver of right to recover despite jury finding on damage); section of Haynes and Boone, LLP, in Dallas, Texas. ✯ Rosell v. Central West Motor States, Inc., 89 S.W.3d 643, 653- 54 (Tex. App.—Dallas 2002, pet. denied) (stipulation that ADVOCATE ✯ SPRING 2004 THE 59 1 A trial court may refuse to submit a controlling issue only if the 6 Prior to Casteel, courts consistently found little problem with mul- evidence is legally (rather than factually) insufficient to warrant tiple factual bases for a single theory in one question. Specifically, its submission. See, e.g., Elbaor, 845 S.W.2d at 243; Bel-Ton Elec. courts noted that “[t]he fact that a jury question contains more than Serv., Inc. v. Pickle, 915 S.W.2d 480, 481 (Tex. 1996); Exxon Corp. one factual predicate to support an affirmative answer to a control- v. Perez, 842 S.W.2d 629, 630 (Tex. 1992); Moore v. Lillebo, 722 ling question, or more than one element of a cause of action, does S.W.2d 683, 686 (Tex. 1986); Southwestern Bell Tel. Co. v. Thomas, not render it defective.” Missouri Pac. R.R. Co. v. Lemon, 861 S.W.2d 554 S.W.2d 672, 673 (Tex. 1977); Garza v. Alviar, 395 S.W.2d 821, 501, 509 (Tex. App.—Houston [14th Dist.] 1993, writ dism’d by 824 (Tex. 1965); Thedford v. Missouri Pac. RR. Co., 929 S.W.2d 39, agr.) (quoting MCDONALD); see Texas Dept. of Mental Health & Mental 52 (Tex. App.—Corpus Christ 1996, writ denied); Gilgon, Inc. v. Retardation v. Petty, 848 S.W.2d 680, 682 n.2 (Tex. 1992) (complaint Hart, 893 S.W.2d 562, 566-67 (Tex. App.—Corpus Christi 1994, that question failed to delineate particular employee or particular writ denied); Walker v. Federal Kemper Life Assur. Co., 828 S.W.2d conduct found negligent contradicts broad-form submission man- 442, 454 (Tex. App.—San Antonio 1992, writ denied); Soto, 776 date); Scott v. Atchison, Topeka, & Sante Fe Ry. Co., 572 S.W.2d 273, S.W.2d at 754; Deviney v. McLendon, 496 S.W.2d 161, 166-67 (Tex. 278-79 (Tex. 1978) (broad-form submission under “Rule 277 can be Civ. App.—Beaumont 1983, writ ref d n.r.e.) accomplished very simply by listing the relevant acts or omissions 2 In Timberwalk, the court noted that “[e]rror in instructions to the [those raised by both pleadings and evidence) in a broad ultimate jury is more likely to be harmful in a closely contested case.” 972 fact issue . . . [or] by a complementary instruction”); Merckling v. S.W.2d at 755; see also Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d Curtis, 911 S.W.2d 759, 770 (Tex. App.--Houston [1st Dist.] 1995, 718, 723-24 (Tex. 2003); Quantum Chem. Corp. v. Toennies, 47 writ denied) (different factual bases for medical malpractice case S.W.3d 473 (Tex. 2000). did not present extraordinary circumstance that made broad-form 3 In Stokes, over objection, the trial court instructed the jury in a infeasible); Hyundai Motor Co. v. Chandler, 882 S.W.2d 606, 616- FELA case that the plaintiff was not entitled to workers’ compensa- 17 (Tex. App.—Corpus Christi 1994, writ denied) (charge not tion under Texas law. Although a correct statement of law, the court required to establish which design defect caused injury); Crawford found the instruction improper and harmful. 20 S.W.3d at 48. v. Deets, 828 S.W.2d 795, 800 (Tex. App.—Fort Worth 1992, writ 4 “So long as matters are timely raised and properly requested as denied) (different factual bases for medical malpractice case did not part of a trial court’s charge, a judgment cannot be permitted to present extraordinary circumstance that made broad-form infea- stand when a party is denied proper submission of a valid theory sible); Benjamin Franklin Sav. Ass’n v. Kotrla, 751 S.W.2d 218, 222 of recovery or a vital defensive issue raised by the pleadings and (Tex. App.—Houston [14th Dist.] 1988, no writ) (single causation evidence.” Exxon Corp. v. Perez, 842 S.W.2d 629, 630 (Tex. 1992) question for two theories of recovery based on same conduct did (citing Rules 277 and 278 for concept of “proper submission”); see not constitute error under broad-form principles). Bel-Ton Elec. Serv., Inc. v. Pickle, 915 S.W.2d 480, 481 (Tex. 1996). 7 Two other questions were submitted on retaliatory discharge and Indeed, refusal to submit a controlling defensive theory may deny age discrimination. Id. a constitutional right to trial by jury. Texas & Pac. Ry. Co. v. Van 8 The supreme court cited the following to show the split: “See In Zandt, 317 S.W.2d 528, 530-31 (Tex. 1958) (citing Section 15 of re J.M.M., 80 S.W.3d 232, 249 (Tex. App.-Fort Worth 2002, pet. Article I of Texas Constitution). denied), disapproved of on other grounds by In re J.F.C., 96 S.W.3d 256, 5 See, e.g., Brookshire Bros., Inc. v. Lewis, 997 S.W.2d 908, 921 (Tex. 267 n. 39 (Tex. 2002) (“[W]e cannot agree with the B.L.D. [court App.—Beaumont 1999, pet. denied); Wal-Mart Stores, Inc. v. Garcia, of appeals’] majority opinion that broad-form jury charge submis- 974 S.W.2d 83, 87-88 (Tex. App.—San Antonio 1998, no pet.); sions are per se violative of due process in termination cases.”); In re Provident Am. Ins. Co. v. Castaneda, 914 S.W.2d 273, 276-77 (Tex. K.S., 76 S.W.3d 36, 49 (Tex. App.-Amarillo 2002, no pet.) (“We are App.—El Paso 1996), rev’d on other grounds, 988 S.W.2d 189 (Tex. bound to follow E.B. unless the Texas Supreme Court overrules or 1998); Dodge v. Watts, 876 S.W.2d 542, 545 (Tex. App.—Amarillo vitiates it.”); In re M.C.M., 57 S.W.3d 27, 31 n. 2 (Tex. App.-Houston 1994, no writ); Greater Houston Transp. Co. v. Zrubeck, 850 S.W.2d [1st Dist.] 2001, pet. denied) (acknowledging the holding in [the 579, 593-94 (Tex. App.—Corpus Christi 1993, writ denied); Baylor court of appeals in] B.L.D. but concluding that “E.B. has not been Med. Plaza Servs. Corp. v. Kidd, 834 S.W.2d 69, 79 (Tex. App.—Tex- overruled, and this Court must follow it[ ]”).” Other cases have arkana 1992, writ denied); Worsham Steel Co. v. Arias, 831 S.W.2d also addressed the issue. See Sawyer v. Texas Dept. of Protective & 81, 85 n. 1 (Tex. App.—El Paso 1992, no writ); Curry v. Girard, 502 Regulatory Servs., 2003 WL 549216 (Tex. App.—Austin 2003, no S.W.2d 933, 934 (Tex. Civ. App.—Fort Worth 1973, no writ). But pet.) (memo opin.) (holding error not preserved but noting E.B.’s cf. Jackson-Strickland Transp. Co. v. Seyler, 123 S.W.2d 928, 935 (Tex. broad-form mandate does not violate parent’s due process); Cox Civ. App.—Fort Worth 1938, writ dism’d by agr.). A few cases also v. Texas Dept. of Protective & Regulatory Servs., 2002 WL 1025066 fell in the time period between Casteel and Harris County. See Norfolk (Tex. App.—Austin 2002, pet. denied) (noting that disjunctive S. Ry. Co. v. Bailey, 92 S.W.2d 577, 583 (Tex. App.—Austin 2003, broad-form submission authorized by E.B. still applies to submis- no pet.); Barrios v. Orsak, 2002 WL 31429784 (Tex. App.—Houston sion of statutory allegations); Thornton v. Texas Dept. of Protective & [1st Dist.] 2002, no pet.). Regulatory Servs., 2002 WL 246408 (Tex. App.—Austin 2002, pet. denied) (n.d.p.) (locating no invalid theories submitted to put case ADVOCATE ✯ SPRING 2004 THE 60 within scope of Casteel and holding that E.B. survives Casteel such that jury’s finding supported termination). 9 See Federal Express Corp. v. Dutschmann, 846 S.W.2d 282 (Tex. 1993) (actual damages based on contract and statutory claim would stand upon reversal of contract recovery and affirmance of statu- tory claim); Automobile Ins. Co. v. Davila, 805 S.W.2d 897, 903 (Tex. App.—Corpus Christi 1991, writ denied) (single damage question stands if any one liability question can support it). But cf Putter v. Anderson, 601 S.W.2d 73, 78 (Tex. Civ. App.—Dallas 1980, writ ref d n.r.e.) (pre-broad-form mandate case holding that failure of two of three libel counts resulted in remand when plaintiff secured only one unapportioned damage question). 10 Joint and several liability (or several liability only) for actual or punitive damages also presents an array of issues in submission of a multi-party charge. Those issues are beyond the scope of this paper. 11 For example, a plaintiff might prefer that the trial court not submit multiple defenses in separate questions because (1) the jury receives more than one opportunity to thwart the plaintiff’s recovery, (2) the opportunity for multiple defensive answers might create an overall perception against liability, (3) the possibility of conflicts increases with the number of questions submitted, and (4) a defendant can more easily challenge the evidentiary support of the jury’s findings. On the other hand, if the jury answers a multi-theory question adverse to the plaintiff, the plaintiff will face a difficult task in attacking the jury’s finding. 12 Some damage-related issues to consider in how broadly a court can combine theories include (1) whether claims have different measures of damages, (2) whether a party seeks tort based dam- ages for recovery of punitive damages, (3) whether a party can seek both punitive and trebled damages, (4) whether attorneys’ fees are at issue on a particular claim, and (5) the type of relief sought for various claims or conduct (e.g., forfeiture of different property, injunctive relief, etc.). ADVOCATE ✯ SPRING 2004 THE 61 LIVING IN A WORLD OF E XPERTISE: The Perils of Innocence—Guidelines for Trial Counsel’s Careful Handling of Expert Witnesses BY LADD A. HIRSCH & ESTHER R. DONALD I. SCOPE OF ARTICLE1 adds three restrictions to the Texas standard. FRE 702, as A frequent refrain among at least some trial attorneys is amended and effective December 1, 2000, imposes on experts’ that: “experts cannot win a case, but they can certainly lose opinions the additional requirements that: (1) the testimony one for you.” A less cynical more artistic restatement of this is based on sufficient facts or data, (2) the testimony is the notion is that experts are important threads in the fabric of product of reliable principles and methods, and (3) the expert a trial—they can make the tapestry stronger or cause the witness has applied the principles and methods reliably to entire garment to unravel. As a result, exercising great care the facts of the case. in retaining, working with and presenting expert witnesses will help trial counsel to avoid exposure to unfavorable results A. Applicable Authorities Governing Admissibility of at, or even before, the trial takes place. Expert Opinions The two oft-cited cases that have emerged as the controlling This paper is for practitioners—lawyers who actually prepare authority on this subject in Texas are Daubert v. Merrell Dow and try cases. It will cover four phases of dealing with expert Pharms., 113 S.Ct. 2786 (1993) on the federal level, and E. I. witnesses: locating, retaining, working with and presenting Du Pont de Nemours and Co. v. C. R. Robinson, et al., 923 S.W.2d experts in deposition and trial, and is weighted toward 549 (Tex. 1995) at the state court level. These cases mandate practical suggestions. that an expert’s testimony be relevant and reliable. In fact, the amendment to FRE 702 was in direct response to Daubert, and The focus of this paper to a significant extent is on the initial incorporated the Supreme Court’s two-pronged, gatekeeper phases of the attorney/expert relationship. This is not by approach. Daubert and Robinson have been the subject of much accident. The time spent by trial counsel in selecting experts discussion and scholarly writing during the last decade, and and during the early stages of the relationship with the expert their standards of relevance and reliability are critical to keep is likely to pay dividends later in the case. Avoiding the pit- in mind in retaining any testifying expert. Specifically, the falls presented when experts are involved in a case (which two pertinent questions to be addressed when considering is most cases today) will not only result in a stronger, more a potential expert are: (1) have this expert’s qualifications defensible expert opinion, but will also avoid a potentially and training prepared him to understand the evidence and fatal outcome—the disqualification of the expert at trial or utilize the method on which he will base his opinions; and the striking of the expert’s testimony, in whole or in part. (2) can this expert tie his expertise to the facts of the case and persuade the court that his opinions are germane? II. BEGIN WITH THE TRIAL IN MIND: CAREFUL SELECTION IS CRITICAL B. Locating a Qualified Testifying Expert The range of disciplines in which expert testimony may The search for a testifying expert to assist in explaining key be offered is virtually unlimited, but under Texas Rules of aspects of the clients’ case begins from within the parameters Evidence (TRE), all testifying expert witnesses must share a established by Daubert/Robinson. Expert witnesses tend to fall common attribute. By definition, experts must be qualified into three broad categories based generally on their back- “by knowledge, skill, experience, training, or education” to ground and qualifications and/or on where they are found. provide “scientific, technical, or other specialized knowledge” These categories are: (i) professorial experts in, or retired for the purpose of “assist[ing] the trier of fact to understand from, academia, (ii) professional or industry experts who the evidence or to determine a fact in issue.” TRE 702. testify frequently as a part of their professional activity, and (iii) “occasional” experts who testify infrequently, but who The comparable rule in the Federal Rules of Evidence (FRE) have expertise that is unique or distinctive, which qualifies ADVOCATE ✯ SPRING 2004 THE 62 them to offer expert opinions in a given case. Sections II. but often lack the attributes required to serve effectively as D-F address the relative pros and the cons associated with a witness. The removal from real world experience can experts in each of these categories. diminish the professor’s effectiveness in front of a jury; and at its extreme, it can render the expert’s testimony irrelevant, C. General Goals: Locate a Qualified Testifying Expert and vulnerable to a Daubert challenge. See Pack v. Crossroads, Who is Also Persuasive Inc., 53 S.W.3d 492 (Tex. App.-Fort Worth 2001). Although paradoxical, it is advisable for trial counsel to start with the end in mind when selecting a testifying expert, In the Pack case, a seemingly well-credentialed expert in because this expert will ultimately express opinions to the nursing home standards of care was limited by the court to trier of fact at trial regarding a critical portion of the client’s discussing only the standard of care for a nurse. This dimin- case. The value of impeccable credentials and academic ished the expert’s effectiveness and left holes in the plaintiff’s renown is not insignificant, but these laurels do not neces- case. The court imposed this limitation despite the expert’s sarily convey jury appeal. A well-qualified expert will not considerable academic and professional credentials. Id. at be persuasive if he lacks the ability to articulate his conclu- 506, 507. The court was apparently swayed by the expert’s sions in a convincing, compelling way. An expert witness admissions during voir dire that she had limited practical earns his keep by performing well at trial, and the client is experience in the field and had not delivered health care to not well served by paying for a lofty resume and a brilliant a patient in ten years. report if they are not also accompanied by a good courtroom demeanor, inclusive of basic common sense, calm under fire The professor’s lack of litigation savvy can also be an impor- and strong presentation skills. tant detriment in addition to his lack of real world experi- ence. By way of example, the academic expert is likely to D. Consideration of “Professorial” Experts be less sensitive to litigation concerns such as the danger of An academic expert can be the right choice when scholarly creating multiple drafts of his report, the risks of making research and opinions will help the trier of fact with the ill-considered notes on documents, and other missteps that subject matter at issue in trial. Universities, colleges, law create opportunities for effective, if not devastating, cross- schools and other graduate school programs are the typical examination at trial. environments for these professorial experts—many of whom can be quite lively and charismatic on the witness stand. Further, professors may not be attuned to the time commit- A notable testifying expert often shares many of the same ments required of a testifying expert. An academic expert qualities of an effective classroom instructor. The expert who may consider this work to be “moonlighting” and fail to spend loves teaching and has a gift for making a dry subject come the time required to obtain a nuanced understanding of the to life can be an invaluable resource in presenting important case. Some professorial experts tend to focus too much on ideas and concepts at trial. the big picture and substitute a general knowledge base for a more specific grasp of the vital details of the case. 1. Pros—Attributes that Favor Retaining a Professorial Expert For all these reasons, it is important for trial counsel to Not all professors are particularly talented in the class- exercise caution when retaining an academic expert. Multi- room (or courtroom), but most of them write reasonably degreed academics from the finest institutions can help to well. Therefore, the typical professorial expert is capable obtain spectacular results in some cases, but the mere fact of providing a well-written, thoroughly researched report. that someone is qualified as “the” expert in 18th Century Academics generally boast impressive resumes and credentials British Economics does not make that person “the” best and they have access to information, third-party sources and expert for a case. academic support to assist them with research and analysis of the facts, data and scientific or other theories at issue. E. Consideration of Professional Experts Professional experts make their living, or a significant 2. Cons—Disadvantages of Retaining the Professorial portion of it, by testifying in specific areas of expertise. A Expert number of firms across the country are devoted largely, if not The stereotype of the “ivory tower” professor contains a grain entirely, to providing expert testimony in legal proceedings. of truth and is a factor to be considered when retaining a tes- Professional experts can be found in a vast array of fields who tifying expert. In short, professors may be qualified experts, hold themselves out as qualified to testify on a seemingly ADVOCATE ✯ SPRING 2004 THE 63 endless number of topics. A number of on-line resources and in part, because they have “done it before.” Ideally, they data banks can be helpful in locating a professional expert. made any mistakes on previous cases (and at another client’s Trade groups and professional organizations such as the expense)—providing a more assured result and diminished AMA (physicians), the AICPA (accountants) can also serve likelihood of mistakes. The expert’s past experience can as reliable resources to trial counsel in search of a qualified carry with it, however, a trail of undesirable associations testifying expert. Further, there are organizations such as including, potentially, undisclosed issue conflicts, and TASA that serve as clearinghouses for expert witnesses in a impeachable statements or actions that give rise to accusa- variety of fields, which can be accessed on the internet and tions of bias. An expert whose prior testimony leans heavily via traditional means. toward one side may present a perception of bias, which negates the advantages of using a professional expert. In 1. Pros—Advantages to Retaining an Occasional Expert sum, the professional expert’s past work makes it essential There are many benefits that result from retaining a profes- to conduct due diligence about his work on previous cases sional testifying expert, who is focused on the assignment before he is retained. from trial counsel. By definition, a professional knows what he is doing and applies his skills effectively. A professional A “trial court has wide discretion to determine whether pre- expert knows how to estimate time and use the resources vious, arguably inconsistent statements of an expert witness available to him to ensure the best results possible for trial are relevant to that witness’s credibility.” Collins v. Wayne counsel and the client. Past experience in testifying often Corp., 621 F.2d 777, 785 (5th Cir. (Tex.) 1980).2 In a case makes a professional expert more confident before a jury and involving a serious bus accident in which the passenger seat during a difficult deposition or cross-examination. When the and backrest design were claimed to be faulty, the trial court testifying expert is experienced at presenting information in in Collins allowed the expert to be cross-examined regarding court, it increases the likelihood that his testimony is going his previous statements concerning backrest failures in a to be understood and appreciated by the jury. different type of vehicle. The appellate court affirmed noting the “possible inconsistency in [the expert]’s testimony that the The professional expert also tends to be more technologi- Wayne bus seats were defective and his prior testimony that cally advanced and adept. For example, an expert with the the Volkswagen seats were not defective.” Id. To compound know-how and resources can provide preliminary conclu- the problem in that case, trial counsel apparently failed to sions and information in a report that is accessible to the rehabilitate the expert by asking him to explain why his attorney via a website, but which is not printed in hard opinions were not inconsistent. Id. copy. Once the report has been read and discussed, it can be revised without any record of earlier drafts. In this way, The lesson is clear: the trial lawyer must make efforts to the professional expert avoids the traps of creating multiple become aware of all potentially-conflicting prior testimony drafts of the report and any troubling implications arising of the professional expert and be able to distinguish that from preliminary items that are excluded or revised in the testimony if necessary. The Fifth Circuit noted almost thirty subsequent drafts of the report. years ago that “prior inconsistency is a particularly appropriate weapon for attacking expert testimony, since demonstration 2. Cons—The Disadvantages of Retaining a Professional of the inconsistency is designed not to show that the expert Expert has erred, but that he is capable of error.” Reyes v. Wyeth Two distinct disadvantages arise when the decision is made Laboratories, 498 F.2d 1264, 1283 (5th Cir. (Tex.) 1974). to retain a professional testifying expert. First, professional Therefore, trial counsel must assess how damaging the past experts are typically quite expensive. The fees of professional statements of an expert will be in deciding whether to retain experts often exceed the fees that are charged by professorial his services. experts, because the professional generally has a sizable staff that can (and often will) devote numerous hours to the project, F. Consideration of “Occasional Experts” which makes it more difficult to control his fees. As a result, The occasional expert is like the accidental tourist—he has special care should be taken when discussing the litigation not studied to become a testifying expert specifically, and is budget and the anticipated fees of a professional expert. not seeking opportunities to testify on the subject. Instead, this witness likely works in, or has retired from, an industry The second, more dangerous risk of retaining a professional in which he has extensive practical experience, which is the expert is his track record. Professional experts are valuable, subject of the issues in dispute in the lawsuit. This expert ADVOCATE ✯ SPRING 2004 THE 64 may work for (or have previously worked for) a company accept this greater level of involvement when retaining an that is a party to the action, or for a competitor, a vendor or occasional expert as a testifying expert witness. customer. The occasional expert can be difficult to locate and/or reluctant to accept the assignment, but he can also Finally, from all three categories of experts, the industry be a valuable find once identified and on board. With an insider remains the most likely to waiver from his opinion, excellent occasional expert, trial counsel has unearthed a be swayed or persuaded by the other side. While the industry “diamond in the rough.” The occasional expert can make a expert’s jury appeal is generally high, his ability and desire tremendous difference in a case, but it is also possible that to persuade the jury may be low if he tends to balance and his extensive subject knowledge and experience may be out- validate “both sides of the story.” weighed by his lack of neutrality, professionalism, savvy and courtroom experience. III. RETENTION OF TESTIFYING EXPERTS: ATTENTION TO DETAIL IS ESSENTIAL 1. Pros—Advantages to Retaining an Occasional Expert Careful attention at the outset of the relationship with a new, To a jury, the occasional expert seems uniquely qualified. testifying expert witness will likely result in fewer surprises He has real world experience, is hands on, and legitimate. as the lawsuit proceeds and a better outcome ultimately. A Industry experts often communicate very well and sincerely checklist for this process is set forth in Appendix “A” to this with a jury. An occasional expert is believable and highly cred- article. A more detailed elaboration of the retention process ible because he is not seen as personally gaining a great deal follows. from his participation in the lawsuit. In fact, the occasional expert’s credibility may be enhanced if the jury perceives some A. Conduct Due Diligence amount of bravery or altruism in his coming forward to offer Trial counsel should attempt to learn as much as pos- his opinions in the case. If this person is still active in the sible about the testifying expert before he is retained. At a industry, the thinking is that he would not risk expressing minimum, counsel must review articles by and about the a controversial opinion unless he truly believed it. expert, and review testimony the expert has given in previous depositions and trials on related subjects. For any lawyers In addition to appearing less “high dollar” or profit-oriented, working in a firm, a firm-wide conflicts check is mandatory the occasional expert is, in fact, generally more reasonably to determine whether other lawyers at the firm have worked priced than academic or professional experts. He does not with or against the expert in the past or on current cases. typically have a large staff and is reasonable in billing for If so, this internal source of information can help reveal his expertise. This apparent economy can have a its own problems long before they might otherwise surface with a price-tag, however, if the lack of staff also results in slower potential testifying expert. turnaround and less professionalism, responsiveness and range of capabilities. Take advantage of technology. Obtain a copy of the expert’s resume and start checking; the internet makes investigating 2. Cons—the Risks of Retaining an Occasional Expert productive and also leads to specialized firms that will per- As previously noted, it can be difficult to locate an industry form this service for a fee. It is often worth the relatively expert and equally difficult to persuade him to take on the modest investment required for a background investiga- assignment. This type of experts is unproven and carries tion. Disasters can take place when little or no checking is attendant risks, e.g, will he present well at trial, be too accom- done of an expert’s curriculum vita—particularly when the modating to opposing opinions, and too middle-of-the-road opposition is doing its own checking. One example of this in expressing his own opinions? Many industry insiders shy lack of foreknowledge took place when an expert medical away from agreeing to become a testifying expert for fear that witness lied about his hospital privileges in French v. Brodsky, it will hurt their reputation in the professional community 521 S.W.2d 670 (Tex. Civ. App.-Hous (1 Dist.) 1975), writ and prove harmful to their day-to-day livelihood. ref’d n.r.e. The doctor who misstated his qualifications was impeached in front of the jury and revealed as a liar. Once In addition, the industry expert may not fully understand a misrepresentation has been uncovered, resurrecting the the nuances of litigation or the requirements of evidentiary expert’s credibility is difficult, if not impossible. and procedural rules. This overall lack of familiarity with the process requires more involvement and hand-holding If the early investigation bodes well, an initial meeting with a by trial counsel. As a result, trial counsel must be willing to potential testifying expert will help flesh out the information ADVOCATE ✯ SPRING 2004 THE 65 gathered to that point. The expert should be given some detail is worth considering, primarily because it grants the expert about the case to gauge his expertise and familiarity with the appearance of more independence from the client/party the issues involved. Even at this stage, missteps can occur. and, perhaps, a perception of reduced bias. Most importantly, Copious note-taking or memos prepared by the potential however, the attorney should follow one cardinal rule for expert are likely to create problems for him in deposition the engagement letter. That is, a testifying expert’s retention and at trial. letter should be thoroughly read by the attorney before it is signed and becomes a key piece of evidence used to impeach This initial meeting presents an excellent opportunity to the expert. ask tough questions of the potential expert. Awkwardness or embarrassment should not be a barrier at this point. It is It is important to use care in screening and documentation imperative that the retaining attorney uncover and consider even when retaining a consulting expert, because they often any negative history or previous testimony rather than letting become testifying experts at a later point in time. opposing counsel discover and utilize them later. There is still time at this point to decide against hiring this expert. IV. EXERCISING CARE WHILE WORKING EFFECTIVELY Moreover, this advance warning permits trial counsel to assess WITH A TESTIFYING EXPERT and develop a plan for dealing with any alleged conflicts or Practitioners who actively communicate with, guide, monitor problems that might have to be addressed and defused at trial. and oversee their experts will receive a better return on their Appendix “A” includes a suggested list of “tough questions.” investment and also secure better reports and testimony than While not exhaustive, the suggested lines of inquiry with if the expert is given free rein. The specific steps to achieve a the potential expert will help unearth potentially damaging satisfactory result are to confirm that the testifying expert is facts, if any exist. qualified, and that he understands the litigation budget, the specific issues in the case and his assignment. The potential B. Develop an Undocumented Budget danger comes from a tendency to assume that retaining the Expert fees significantly increase the costs of litigation and can expert witness largely completes trial counsel’s pre-trial to do quickly spiral if unchecked. Pitfalls exist, however, if a restric- list regarding the expert. The fact is, however, that lawsuits tive budget is imposed. It is important to avoid the appear- are organic—they take on distinct personalities, and change ance of overly limiting the expert’s opinions by imposing as the litigation proceeds. As a result, trial counsel must unreasonable budget constraints. A skilled cross-examination take steps to keep the expert “in the loop” and ensure that can leave the impression that a restrictive budget limited the he is updated on key case developments and the progress expert’s ability to reach the right answer. Therefore, the best of the case, including any setbacks or changes in litigation model for achieving a budget with the expert takes the form strategy. of a “Gentlemen’s Agreement” in which the expert agrees to an hourly fee and an acceptable anticipated range of fees that A. Communicating with the Expert will not be exceeded without further discussion. Opening the lines of verbal communication with the testi- fying expert should take place at an early stage. Specifically, C. Prepare the Expert’s Engagement Letter trial counsel should outline the expectations and guidelines The engagement letter with an expert can cause great harm under which the expert will be working on the case. Trial and prejudice as impeachment evidence. Any adverse con- counsel must provide thorough, oral instructions regarding sequences are readily avoidable so that the engagement letter the handling of written communications, drafts of reports, remains the innocuous document that both the expert and note taking, and email communications before any mistakes attorney intend. The expert’s engagement letter should outline, take place. It is dangerous to assume that an expert will use in simple terms, the work to be performed but none of the appropriate litigation procedures, and time must be taken to conclusions desired. It should specify an hourly fee, but should provide clear guidance to safeguard the expert’s credibility not include a written budget. It should state specifically that and his persuasive abilities. the fee is to be paid as work is completed, and that payment is not contingent on any opinions rendered by the expert. 1. Materials Sent to the Testifying Expert Time and attention should also be given to the consideration Some lawyers use retention letters specifying that the of materials to be provided to the expert. Federal courts lawyer, or law firm, is retaining the expert, rather than require disclosure of all materials that the testifying expert having the expert retained directly by the client. This tactic reviews, not merely the documents on which the expert ADVOCATE ✯ SPRING 2004 THE 66 relied. Trigon Insurance Co. v. U.S., 204 F.R.D. 277, 282 (F.D. To avoid problems arising from the destruction of materials Va. 2001), citing Kahn v. Ingersoll-Rand, 168 F.R.D. 633 (N.D. created or received by experts, several guidelines should be Ind. 1996). All documents considered by a testifying expert observed. First, the expert and his staff must be cautioned to must be disclosed except portions containing counsel’s preserve notes and drafts of reports. Consequently, the expert mental impressions, which would be considered attorney should avoid taking notes except when necessary, and should work product. Haworth, Inc. V. Herman Miller, Inc., 162 F.R.D. limit the types of notes taken. Detailed interview memos, 289, 293 (W.D. Mich. 1995). In Texas, too, a testifying expert especially from initial meetings with the lawyer, should “may be cross-examined on facts and data of which she is be avoided because they provide such fruitful grounds for aware, ‘but upon which she did not rely.’” Wheeler v. State, cross-examination. In short, it is advisable for the expert to 79 S.W. 3d 78, 82 (Tex. App.-Beaumont 2002). A testifying avoid gratuitous writings that might prove troublesome and expert must be careful when collecting information and which are discoverable. assembling a file; be sure to counsel a testifying expert in this regard early on. 4. The Danger of Spoliation of Evidence It is important to consider that courts can and will impose 2. Written Recordings by the Expert sanctions for spoliation—the improper alteration or destruc- The expert should exercise caution in recording any mat- tion of evidence. A party must exercise reasonable care in ters of a substantive nature, because opposing counsel will preserving relevant evidence. Texas law is split over whether be looking diligently for ways to present these items in a spoliation applies only to willful or bad faith destruction of manner that puts them in negative light undermining the evidence (see Crescendo Investments, Inc. v. Brice, 61 S.W. 3d expert’s opinions. Any writings, notes, drafts or other written 465 (Tex. App.- San Antonio 2001, pet. denied); Anderson v. communications (emails, particularly) that might convey the Taylor Publishing Co., 13 S.W. 3d 56 (Tex. App.-Dallas 2000, expert’s mental impressions should be limited, if not avoided, pet. denied), or whether even negligent destruction can trigger during early stages of his work so they are not taken out of sanctions (see Trevino v. Ortega, 969 S.W.2d 950 (Tex.1998); context on cross-examination by opposing counsel. Further, Offshore Pipelines, Inc., v. Schooley, 984 S.W. 2d 950 Tex. App.- the expert should not send any written communications to Houston [1st Dist.] 1998, no pet.)) Either way, extreme caution the client—attorney or party—other than bills or items is advised in handling and retaining evidence. related to scheduling matters. Similarly, the expert should not exchange or record internal written communications Similar care is required regarding evidence which is created by with staff members. The expert’s staff must be made aware an expert witness. Spoliation has been found to have occurred of this requirement and understand that no notes, ideas, when consulting experts destroyed drafts sent to them for thoughts, suggestions or ruminations of any kind should be edit and review by testifying experts in the same case. Trigon sent or emailed. Insurance Co. v. United States, supra. The fewer written drafts produced, the better. However, the ones that are produced 3. Preservation of All Drafts and Writings should be preserved by the expert in order to protect against It is advisable to direct the expert to refrain from disposing spoliation and any negative consequences. of any writings or materials prepared in connection with the case. In Andras v. Memorial Hospital System, 888 S.W.2d 567, 5. The Testifying Expert’s Working Notes 570 (Tex. App.-Houston (1 Dist.) 1994, writ denied), a sig- Of course, it is necessary and appropriate for experts to have nificant portion of the testimony by the plaintiff’s sole expert some notes. When the expert’s notes are limited and written witness was struck because he had destroyed the database on with depositions and trial in mind, they can be very useful. which he based his opinions. This case is instructive, because These notes help refresh the expert’s memory and impressions, the court had apparently given the expert a second chance and convey credibility. A good practice is for the expert to when he testified before trial that he could “recreate that data- transfer his notes to the computer and allow the attorney to base if he is called upon to do that.” By the time of trial, the review the notes on screen. If the expert is later asked whether discarded database had not been resurrected, and the judge the notes were shown to the attorney before they were printed observed that “if he could have reproduced this database he out, he can respond truthfully that “we discussed the notes should have done it by now.” Id. The expert testimony was and I supplemented them . . . .” struck, the decision was affirmed on appeal, and the plaintiff’s pleadings were struck and his case dismissed with prejudice. B. Monitoring the Expert’s Work This was a devastating, but preventable result. Taking an active role with the expert helps to ensure the ADVOCATE ✯ SPRING 2004 THE 67 best results. Trial counsel needs to become familiar with the C. Helping Shape the Expert’s Report expert, with what he is doing on the case and how to guide Guidance from counsel is also helpful in creating and shaping him toward a successful outcome. It is also important to know the expert report. In most cases, the expert will be asked to the qualifications of the expert’s staff, particularly those who produce a written report that formalizes his research and participate in the preparation of the expert’s report. findings and sets forth his impressions and conclusions. It is prudent at this point to bear in mind the Daubert and Robinson 1. The Testifying Expert Must Visit “The Scene of the requirements of reliability and relevancy and to confirm that Crime” the expert understands them. Items in the report that seem As a first step in monitoring an expert, the trial counsel “standard” to the expert should be explained if these items must make sure the expert has become active. A jury tends call reliability into question. Daubert challenges can and may to question an expert if he has never gotten out of his chair. be raised even in response to standard industry disclaimer In a case dealing with trade secrets in the recycling industry, language that is always included in the expert’s report; con- the expert should actually visit the recycling plant. An expert sequently, the more care that is taken to explain standard on business practices in a foreign country needs to visit the methodologies and industry practices, the less room there country that is the subject of the lawsuit. For an expert to will be for Daubert motions. appear credible, he needs to “go to the scene of the crime.” 1. Proper Format Renders the Report More Usable 2. Focus the Testifying Expert’s Time and Attention An expert can ensure relevancy and effectiveness by adhering Trial counsel must keep the testifying expert reined in. to an established format for his report. The report should Experts are expensive, and clients do not want to pay for begin with a brief summary of the assignment given to the unnecessary work. An added benefit in keeping an expert expert in which he explains the task that he was assigned focused derives from avoiding extraneous opinions and mus- to complete. The assignment should, of course, be stated ings in the report, which can become dangerous on cross- objectively in neutral terms, e.g., whether there was defective examination. This monitoring task can be delegated to an design in the product that made it dangerous and, if so, what associate—but it should not be overlooked. was defective about the design. Next should come a summary of opinions that is followed by a more thorough restatement A failure in supervision must have occurred with the pro- of the opinions, accompanied by evidentiary support. The fessorial expert in Celestine v. Petroleos de Venezuella SA, 266 opinions should be “footed”—that is, tied back to the evi- F.3d 343 (5th Cir.(La.) 2001), a Title VII racial discrimination dence analyzed by the expert. If the expert is outside the case. The professor in Celestine designated as the plaintiffs’ financial industry, a helpful analogy may be the accounting expert on racial harassment provided a deficient and unsup- expression “ticked and tied.” Auditors use that to express ported affidavit that was struck by the court, resulting in the that a specific number or comment is “ticked and tied” once granting of the defendant’s summary judgment motion. The it has been verified to explain the number or the comment district court refused to accept the affidavit because: “(1) it as to a company’s financial statement or balance sheet. That did not contain relevant factual information regarding the illustration is intended to convey to the expert that everything actual work environment . . . , and (3) it contained many in his report should be supportable and defensible based on inflammatory accusations . . . in general without any specific evidence or testing in the face of an opposing counsel’s attack reference whatsoever to the source of such a verbal attack.” or a rebuttal expert’s adverse conclusion. Id. at 357. 2. Report Content Is Critical 3. The Importance of Deadlines—External and Internal Ideally, the trial counsel’s due diligence and investigation of The final step in monitoring the expert before trial is to set and the expert’s competency should be enough assurance that adhere to deadlines. The expert should be promptly advised the report will be factually strong and accurate. In Slaughter of filing deadlines, discovery deadlines, Rule 11 agreements v. Southern Talc Co., 919 F.2d 304 (5th Cir.(Tex.) 1990), a and any other external deadlines. Internal deadlines should summary judgment of dismissal that was addressed to the be established, as well. An expert must know when he is credibility of expert testimony was upheld on appeal. The expected to provide an oral preliminary conclusion, and the appellate court reasoned that “[i]n our case, data derived due date for a written draft for review by counsel. Enough time from medically accepted diagnostic techniques were sloppily should be allotted to review the expert’s opinion and to allow compiled.” Although the court noted that the “diagnostic for supplementation and damage control, if necessary. methods used are not questioned, the errors in the reports ADVOCATE ✯ SPRING 2004 THE 68 render the basis of the resulting opinions suspect.” Id. at was offered and allowed to testify to illustrate the effects of 307. Daubert was not the problem—poor quality work by the a delay in an airbag’s deployment. The plaintiff presented expert was. One way to prevent this fiasco is by retaining other experts on airbag design and engineering. As a result, an expert who has proven his bona fides in the past, but the when Dr. Refroe’s expertise was challenged, the court allowed expert’s work should still be monitored to be sure he is doing his expert testimony. The appellate court affirmed that deci- excellent work in the case at hand. sion, concluding that: “based on Dr. Renfroe’s education and experience, he was qualified to give expert testimony to these 3. Exhibits to the Report must Also Be Handled with aspects of airbag deployment and delayed deployment as it Care affected Mrs. Gillespie’s movement. The trial court did not To bolster his report, an expert will generally create demon- abuse its discretion in finding Dr. Renfroe qualified as an strative exhibits. At this stage, it is not necessary that a large expert.” Id. at 655, 656. number of demonstratives are produced, but having several attached to the expert’s report is often beneficial. While these 2. Prevent Redundancy graphs, charts and other visual depictions can be helpful, they Clearly delineated boundaries can also help protect an must be handled carefully. Like the report itself, drafts will be “extra” expert from being eliminated before or during trial subject to scrutiny. Trigon, supra. Consequently, a testifying in a judicial effort to limit redundancy. In the middle of trial expert must remain sensitive to the fact that creating multiple in Aetna Cas. & Sur. Co. v. Guynes, 713 F.2d 11887, 1193 (5th drafts, and destruction of any drafts, is to be avoided. The Cir.(Tex.) 1983) the trial court decided to limit the number attorney should always review the demonstratives on line of fire investigator experts who could testify for the insured. (on computer) before they are produced, however, because The court then allowed the written report of the excluded they will be considered part of the expert’s report and can expert to be used to impeach the remaining expert. Id. The be attacked and challenged on similar grounds. court, in its effort to avoid cumulative testimony, seems to have been swayed by the fact that there were considerable D. Managing Multiple Experts professional affiliations between the two experts. Id. In this age of increasing specialization, it is not unusual to retain multiple experts in the same case. In addition It is well established that a district court can limit the number to adhering to guidelines for communications, deadlines, of expert witnesses who testify at trial. Ruud v. United States, monitoring and reports, several additional factors should be 256 F.2d 460 (9th Cir.), cert. denied 358 U.S. 817, 79 S. Ct. considered when multiple testifying experts are retained in 28, 3 L. Ed.2d 59 (1958); Chapman v. United States, 169 F.2d a case. It is important that the experts not be redundant nor 641 (10th Cir.), cert. denied 335 U.S. 860, 69 S.Ct. 134, 93 in conflict with one another. These two opposite, but equally L.Ed. 406 (1948). To avoid this exercise of discretion, trial disadvantageous, situations can be avoided with care. counsel should attempt to retain experts whose opinions are truly distinct from one another’s as well as to erect clear 1. Establish Boundaries for the Scope of Each Expert’s boundaries regarding the scope of each expert’s opinions Opinion s and testimony. Make sure each expert understands the specific scope of the question that he is investigating and on which he will be Moreover, multiple experts should refrain from communi- offering expert opinions. By establishing these boundaries cating with each other until after their reports are completed. up front, the expert can be better protected down the road. This policy will help maintain each expert’s independence An expert who receives and adheres to a narrowly defined and, again, help preserve boundary areas. assignment can more comfortably defer to another expert on cross-examination and thereby avoid getting trapped IV. CONFIDENTLY PRESENTING AND DEFENDING THE with questions posed in an area that is truly outside his TESTIFYING EXPERT expertise, or worse, disqualified because of a lack of certain By monitoring and nurturing experts during the first three expertise. phases of the relationship with trial counsel, this final stage becomes much more straightforward. Presenting and defending In Morton International v. Gillespie, 39 S.W.3d 651 (Tex. a testifying expert occurs in two different venues. Although App.-Texarkana 2001), a products liability case involving there is definite overlap between the guidelines for handling an automobile airbag, good boundaries and delineation pre- experts at deposition and at trial, there are enough distinctions served the testimony of an expert. The expert, Dr. Renfroe, that the topics each deserve individual treatment. ADVOCATE ✯ SPRING 2004 THE 69 A. Deposition of an Expert Witness 3 Consider Attending Opposing Expert ’s Deposition By the point of deposition, the attorney will know the A final consideration is whether to have an expert attend expert fairly well and be able to tailor suggestions to the the deposition of an opposing party’s expert. This is worth expert’s particular personality, style and demeanor. considering, particularly if the expert that you retain has been designated as a rebuttal expert, because it will give the 1. Preparation for Deposition expert a better understanding of the witness whose opinions It is usually true when preparing expert testimony that waiting he is rebutting. A previous glimpse at the competition can until the last minute can be problematic. As discovery and the aid your expert’s trial preparation. Further, sitting in on the pre-trial phase progresses, experts must be kept apprised of deposition of an opposing expert will inform your expert of material new developments so that the expert can integrate the strength of the opposing expert’s convictions. Moreover, them in his thinking and opinions. Some specific examples the cost of bringing an expert along may more than pay for of the type of information that should be shared include new itself if he can provide meaningful assistance at the deposition. court rulings, new pleadings filed by opposing parties and Often an expert can listen, observe and suggest questions that new evidence obtained in discovery whether in depositions are outside your technical expertise or scope of knowledge. or documents. This is particularly true with an industry expert, who will know the terminology and be able to spot the flaws in the 2. Prepare the Witness opposing theories, which can be invaluable. It is helpful to prepare for the deposition examination with a testifying expert through actual practice examination. Using B. Presenting The Expert at Trial another attorney to “play the part” of opposing counsel is wise; On the eve of trial, the only task left for the expert is to plan if the trial attorney is then able to observe the expert testifying, for and prepare to seize the opportunity to give the jury the he is likely to notice and provide better input. Counsel should benefit of his opinions. This is where an expert truly earns resist the urge to use video, even if the witness might benefit his keep. The testifying expert should be able to explain the from seeing himself testifying, because the videotaped record key issue persuasively and why it should be decided in favor is discoverable potentially, thereby causing more harm than of your client. In short, a skilled expert witness will make good. For the same reason, no notes or script should ever be the issues come alive for the jury. The question then is how given to the expert regarding his testimony. to present the issue at trial in a way that is compelling to the jury. Consider carefully the items that the expert will bring to the actual deposition. He should have his report, the documents 1. Adding Life and Color for the Jury that are ticked and tied to his report, plus any references that At trial, demonstratives are going to be employed extensively. are cited in the report. It is important that the expert be able Although new information and opinions cannot be revealed or to substantiate his opinions at the deposition. Depending on admitted, new ways and techniques for explaining the expert’s the subject matter of his testimony, it can be useful for the opinions and conclusions are welcomed and helpful. There expert to bring a calculator, as well, to provide support for exists a vast range of creative methods for the presentation of calculations and financial or numerical conclusions. It is best expert opinions. Encourage the expert witness to concentrate to be cautious in this regard, however, because the expert on new ways to present information to the jury. He must hold may be asked to perform new calculations for which he is not the jury’s attention—how will that be achieved? This is not prepared with his own calculator in hand. This can lead to an area that can be left to chance. mistakes or cause the expert to become flustered and/or lose focus on his opinions. Thus, it is a case-by-case determina- We live in a visual era and receive messages constantly via tion as to whether a particular expert is adept at handling video, audio, television, computers, books, tapes and a vast this situation. Assessment of opposing counsel’s style is also array of print media. Thinking “multi-media” for an expert required—how aggressive is he likely to be and will he be presentation leads to the right path. Use of drafts is now trying to trick the expert at the deposition? If so, it may be acceptable, because discovery has concluded, and this opens best to leave the calculator at home—even if the opposing the door to creativity. Working through ideas, sketches, and counsel provides the expert with another calculator, the jury depictions with the expert may result in a stronger presenta- will understand that this is not his customary device and it tion than either of you would conceive alone. Combine your may not be as effective an attempt at cross-examination. client’s overall story and your big picture view of the case with the testifying expert’s specific expertise and skill. The ADVOCATE ✯ SPRING 2004 THE 70 combination, along with hard work and creative thinking, Daubert and its Progeny should result in a courtroom presentation with impact. Regarding testifying expert witnesses and the case law that has developed in this area, the last ten years have been referred An expert should consider the use of charts and graphs, both to as “the Daubert decade.” Daubert and Robinson came in with hand-outs the jurors can hold and enlarged blow-ups for dis- a loud clamor, but what has followed jurisprudentially has play in the courtroom. Procure a whiteboard and markers, a been more of a slow, steady refinement of Daubert’s ground- PowerPoint projector, video of demonstrations or procedures, breaking standards. and clear, visible still photographs and an easel. Explore any avenue for communicating effectively with the jury. Perhaps the single most significant post-Daubert decision has been Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), If you have chosen a professorial expert or another who is which expands Daubert’s application to non-scientific experts. skilled at teaching—it may be best to stand back and get out Beginning with Kumho Tire, courts have assumed a gate- of his way. Letting an expert teach and present his findings keeper role in relation to the wide range of testifying experts in an interesting way tends to raise the expert’s comfort level. presented to them. A particular challenge is presented by A good presentation dramatically enhances the credibility of experts in fields where competing theories and methodologies an expert. A poor presentation is an opportunity lost. If the prevail. There may be one correct way to perform a kidney well-prepared trial counsel uses a testifying expert to make transplant, but methodology is less clear in how to value a compelling presentation and the other side fails to do so, minority shareholder interests, the proper standards to apply this can play a decisive role in the outcome of the case. by police officers in pursuing criminals who are fleeing at high speed or issues related to the patentability of new software. 2. Refrain from Neglecting the Substance Nonetheless, trial courts have taken on the responsibility Aside from the manner of presentation of the expert’s opin- of screening all types of testifying experts. Statistics show, ions, the goal remains to focus on the expert’s substantive tes- not surprisingly, that the total number of expert challenges timony to ensure that his opinions are adequately conveyed. and exclusions have grown significantly during this past Consider having a testifying expert sit in the courtroom for Daubert decade. certain portions of the trial before he testifies. It can be worth the expense if used judiciously, and is generally permitted, B. Recent Cases of Note Pertaining to Testifying Expert because “The Rule” does not typically apply to experts and Witnesses will not usually be invoked to exclude your expert from the 1. Vargas v. Lee, 317 F.3d 498 (5th Cir. (La) 2003) courtroom. See Elbar , Inc, v. Claussen, 774 S.W.2d 45, 52 Vargas underscores the trend toward extensive inquiry and (Tex. App.-Dallas 1989, writ dism’d); Riton Oil v. E. W. Moran thorough judicial monitoring of the reliability of an expert’s Drilling Co., 509 S.W.2d 678, 685 (Tex. App.–Fort Worth 1974, testimony. The Fifth Circuit summarized the current state of writ ref’d n.r.e.). It can be very helpful for a testifying expert the law on the admission of testifying experts as a judicial to attend opening statements and to observe the opposing requirement “to make certain that an expert, whether basing expert. It is more persuasive for the jury to hear an expert testimony upon professional studies or personal experience, comment on the opposing expert’s opinions from first-hand employs in the courtroom the same level of intellectual rigor knowledge. that characterizes the practice of an expert in the relevant field.” Id. at 500. Along with the substantive preparation and courtroom obser- vation, a measure of last minute tactical coaching usually Vargas presented situation in which a traumatic injury has proves helpful as well. Remind your expert not to be com- asserted as the cause for the plaintiff’s fibromyalgia syndrome. bative. A hostile approach will not enhance his credibility or The Fifth Circuit in 1999 had “previously addressed the jury appeal. Similarly, being overly protective with objections question of whether expert testimony regarding the cau- will undermine the expert’s credibility. It can be an uncom- sation of fibromyalgia syndrome by traumatic injury was fortable feeling, but the expert must largely stand on his own sufficiently reliable to be admitted.” The court at that time to present what he knows and hold to his ground. had decided that the theory was not reliable enough to meet the criteria of Daubert. The Court’s inquiry in Vargas V. RECENT DEVELOPMENTS IN THE LAW REGARDING focused on the question of whether scientific understanding TESTIFYING EXPERTS had progressed sufficiently since its previous controlling A. Challenges and Exclusions Have Increased under decision to now allow expert testimony on the issue. The ADVOCATE ✯ SPRING 2004 THE 71 court determined that such progress had not occurred. property valuation expert. The trial court had admitted the testimony of this appraisal expert, and was later found by Vargas suggests that the courts may continue to delve ever the Supreme Court to have abused its discretion. deeper into the actual theories and methods used and pro- pounded by testifying experts, exercising “broad latitude” The Court in Exxon conducted a detailed inquiry into the to exclude such theories and methods. Thorough discussion methods used for determining the condemnation value of land of an expert’s methodology at the outset of his engagement, taken by eminent domain. Specifically, rejecting the valuation coupled with adequate research into any judicial rulings on systems employed by the appraisal expert as improper and that methodology, might help safeguard an expert and prevent thus inadmissible, the Court took one further step as well. an ultimate—and undesirable—Vargas result. The Court declared the testimony unreliable based on the incorrect choice of valuation method and then labeled the 2. Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623 (Tex. 2002) testimony irrelevant based upon the misapplication of that On a similar path, the Texas Supreme Court has begun incorrect standard. Id. at 630. involving itself in a more active and substantive inquiry into , expert methodology. In Exxon v. Zwahr the court was faced The clear message is that courts are increasingly relying not with a scientific expert but instead with a purported on Daubert and later cases to eliminate (or limit) expert Checklist For Retaining A Testifying Expert Witness 1. Conduct due diligence: Has the expert ever been a party in any litigation? Review articlesauthored by expert........................ Has the expert ever been sued by a client or Review previous cases involving similar topic(s).. former client? ................................................ Review previous deposition and trial testimony ... Has the expert ever been subject to any criminal 2. Perform internal assessment: proceedings?.................................................. Run “conflicts” check............................................ Has the expert ever been accused of breach of Follow up on all replies re: knowledge of expert.. fiduciary duty? .............................................. 3. Conduct detailed resume check: Has the expert ever been fired from any position? Note any discrepancies ......................................... Has the expert ever been charged with sexual 4. Meet with potential expert: harassment?................................................... Discuss note-taking procedures ........................... 6. Discuss estimated fees and litigation budget Give broad overview of case ................................. Determine expert’s hourly rates (and staff rates) .. Assess appearance and demeanor......................... Agree upon range of estimated fees (total and each Elicit experience and knowledge .......................... phase)............................................................ Discuss any resume discrepancies uncovered ...... Do not confirm estimated range or budget in Resolve discrepancies, if possible ......................... writing .......................................................... 5. Ask tough questions before retaining the expert: Get assurances in the form of an oral Has the expert’s testimony been excluded/limited commitment ......................................................... by a court?..................................................... 7. Draft retention letter or review expert’s draft: Has the expert ever failed to be qualified? ........... Scope of specific assignment is outlined .............. Have expert’s opinions been subject of any No conclusions or opinions are stated.................. written opinion?............................................ Hourly fee and pay-as-you-go specified ............... Has expert been opposed before to other No budget estimate is given.................................. side’s expert? ................................................. Specifies that payment is not contingent on Consider experts’ personal life—is there outcome......................................................... anything negative?......................................... Consider having lawyer or firm designated Does the expert have any substance abuse issues? as “client”.............................................................. Is expert going through a contested divorce? ....... Thoroughly read and review entire letter.............. ADVOCATE ✯ SPRING 2004 THE 72 testimony when it never would have been excluded in the and brokerages. Esther R. Donald is a litigation associate with past. Consequently, handling an expert with care has become Clouse Dunn Hirsch LLP, and she provided extensive assistance of far greater importance. Trial counsel must avoid perils that in the preparation of this article. Her professional background include: (i) retaining an expert who has inadequate or inap- includes experience working on complex business disputes, as well propriate credentials, (ii) hiring an expert who has conflicts as serving as a civil and family law mediator, and a corporate and arising from past engagements and testimony, (iii) mishan- professional trainer. ✯ dling evidence or drafts of reports provided to or received from experts and (iv) using experts who apply unreliable 1For methods, whether scientific or not, or misapply acceptable simplicity and brevity, the authors have made use of masculine methods to the facts presented. A newly-observant judicial pronouns throughout this article with the understanding that many eye is watching testifying experts as never before; creativity of the finest trial lawyers and expert witnesses are women. is still necessary to persuade a jury, and now caution is also 2Citing Longenecker v. General Motors Corp., 594 F.2d 1283, 1286 mandated to withstand judicial scrutiny before the experts (9th Cir. 1979), in which “the plaintiff claimed that a faulty engine are permitted to provide any opinions to the jury. mount on a Chevrolet Impala caused the accident that injured him. The defendant’s expert witness testified that the engine mounts did Ladd A. Hirsch is a Partner with Clouse Dunn Hirsch LLP. Before not cause the accident. Over defendant’s objection, the trial court joining Clouse Dunn Hirsch LLP Mr. Hirsch was a partner with admitted a letter that the defendant’s expert had written stating that the firm of Haynes & Boone, L.L.P., where he headed the Business faulty engine mounts in another type of General Motors car with a Litigation Practice Group of the firm’s Dallas Office. He is a trial different engine were the cause of an accident. The Ninth Circuit lawyer with extensive experience litigating a broad range of disputes held that the trial court did not abuse its discretion in admitting for both plaintiffs and defendants in industries that include manu- the impeaching letter.” facturing, retail sales, health care, food service, airlines, insurance ADVOCATE ✯ SPRING 2004 THE 73 B USINESS TORT U PDATE BY DANIEL BISHOP I. NEGLIGENT MISREPRESENTATION the course of his business, or in a transaction in which the A. Background defendant has a pecuniary interest; (2) the defendant sup- Texas has adopted the tort of negligent misrepresentation plies “false information” for the guidance of others in their as described by the Restatement (Second) of Torts Sec. 522. business; (3) the defendant did not exercise reasonable care See Federal Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d or competence in obtaining or communicating the informa- 439, 442 (Tex. 1991). In Sloane, the court endorsed section tion; and (4) the plaintiff suffers pecuniary loss by justifiably 522 to define the scope of a lender’s duty to avoid negligent relying on the defendant’s misrepresentations. Federal Land misrepresentation to prospective borrowers. Section 522 (1) Bank Ass’n of Tyler v. Sloane, Id. provides: B. Recent Developments One who, in the course of his business, profession 1. Application to Attorneys or employment, or in any transaction in which he In McAmish, Martin, Brown, and Loeffler v. F. E. Appling Interests, has a pecuniary interest, supplies false informa- et al., 991 S.W.2d 787 (Tex. 1999), the Texas Supreme Court tion for the guidance of others in their business held that nonclients could sue attorneys for negligent mis- transactions, is subject to liability for pecuniary loss representation without regard to the nonclient’s lack of caused to them by their justifiable reliance upon privity with the attorney. The court rejected arguments that the information, if he fails to exercise reasonable a negligent misrepresentation claim is equivalent to a legal care or competence in obtaining or communicating malpractice claim, stating that liability is not based on the the information. breach of duty that a professional owes his or her clients, but on an independent duty to the nonclient based on the Courts applying Texas law have recognized a section 522 professional’s manifest awareness of the nonclient’s reliance cause of action against a variety of professionals and business. on the misrepresentation and the professional’s intention See, e.g., Steiner v. Southmark Corp., 734 F. Supp. 269, 279-80 that the nonclient so rely. (N.D. Tex. 1990) (auditor); Smith v. Sneed, 938 S.W.2d 181, 185 (Tex. App. – Austin 1997, no writ) (physician); Hagans v. The Court made it additionally clear that there were several Woodruff, 830 S.W.2d 732, 736 (Tex. App. – Houston 1992, inherent limits on the cause of action as it applied to attor- no writ) (real-estate broker); Lutheran Bhd. v. Kidder Peabody & neys. First, negligent misrepresentation is available only when Co., 829 S.W.2d 300, 309 (Tex. App. – Texarkana 1992, writ information is transferred by an attorney to a known party granted w.r.m.), judgment set aside, 840 S.W.2d 384 (Tex. for a known purpose. A lawyer may avoid or minimize the 1992) (securities placement agent); Blue Bell v. Peat, Marwick, risk of liability by setting forth (1) limitations as to whom Mitchell & Co., 715 S.W.2d 408, 411-12 (Tex. App. – Dallas the representation is directed and who should rely on it, or 1986, writ ref’d n.r.e.) (accountant); Cook Consultants, Inc. v. (2) disclaimers as to the scope and accuracy of the factual Larson, 700 S.W.2d 231, 234 (Tex. App. – Dallas 1985, writ investigation or assumptions forming the basis of the repre- ref’d n.r.e.) (surveyor); Great Am. Mortgage Investors v. Louisville sentation or the representation itself. Title Ins. Co., 597 S.W.2d 425, 429-30 (Tex. Civ. App. – Fort Worth 1980, writ ref’d n.r.e.) (title insurer); Shatterproof Glass Second, the Court stated that the “justifiable reliance” ele- Corp. v. James, 466 S.W.2d 873, 880 (Tex. Civ. App. – Fort ment required a consideration of the nature of the relation- Worth 1971, writ ref’d n.r.e.) (accountant). Nast v. State Farm ship between the attorney, client, and nonclient. Generally, Fire and Cas. Co., 82 S.W.3d 114 (Tex. App. - San Antonio a third party’s reliance on an attorney’s representation is not 2002, no pet. hist.) (insurance agents). justified when the representation takes place in an adversarial context. Id. at 794. The characterization of the inter-party Applying section 522, Texas courts have set out the following relationship should be guided by “the extent to which the four elements for a cause of action in negligent misrepre- interests of the client and the third party are consistent with sentation: (1) a representation is made by the defendant in each other.” Id. ADVOCATE ✯ SPRING 2004 THE 74 In a subsequent case by the Dallas Court of Appeals, Mitchell charge to the jury did not make any distinction between its v. Chapman, 10 S.W.3d 810 (Tex. App. – Dallas, 2000, pet. “out of pocket” damages and the benefit of the bargain, so it denied), the Dallas Court had a chance to construe the could not recover under negligent misrepresentation. Supreme Court’s language regarding an “adversarial context.” The plaintiff alleged that the opposing attorney in a case The Court went on to reject H.I.S.D.’s award of punitive negligently misrepresented the existence of a document. The damages based on gross negligence in the inducement of Dallas Court held that the unsuccessful litigant did not have the contract, stating that “[g]iven the availability of a cause a cause of action for negligent misrepresentation against the of action for fraudulent inducement, we fail to perceive any attorney on the other side of the case, citing McAmish and rationale for acknowledging a claim for grossly negligent Section 522 of the Restatement (Second) of Torts. See also inducement.” Id. Chapman Children’s Trust v. Porter and Hedges, 32 S.W.3d 429 (Tex. App. – Houston [14th], 2000, pet. denied) Finally, the Court did not reach an issue that has remained open for Texas courts – whether defendants can submit a In 2003, the Fourteenth Court of Appeals in Houston fur- comparative negligence question to the jury on negligent ther applied the McAmish case to an attorney in the case misrepresentation. See Federal Land Bank Assoc. of Tyler v. of McMahan v. Greenwood, et al, 108 S.W.3d 467 (Tex. Sloane, 793 S.W.2d 692, 696 at n.4 (Tex. App. – Tyler 1990), App.ÑHouston [14th Dist.] 2003, pet. filed). In McMahan, aff’d in part and rev’d in part on other grounds, 825 S.W.2d the issue was when the attorney’s relationship became adver- 439 (Tex. 1991) (“Contributory negligence is a defense to the sarialÑbefore or after the representations were made. The cause of action for negligent misrepresentation.”). The trial attorney argued that after he became adversarial with the court refused to submit the comparative negligence question plaintiff, the plaintiff could no longer rely on previous state- to the jury and the Court of Appeals affirmed on the basis ments made at a time when arguably they were getting along that error was not preserved. The Supreme Court refused with and helping each other. The Fourteenth Court of Appeals to reach the issue because the negligent misrepresentation rejected this argument, holding that no authority was cited cause of action was reversed on other grounds, as discussed to support the argument that a non-client was not entitled to above. The Court of Appeals in the D.S.A. case has an excel- rely on the attorney’s previous statements once they became lent discussion of the issues involved in the comparative adversarial. Id. at 26. At a minimum, a fact issue was raised negligence issue. 975 S.W.2d at 18. in this situation. Id. In Allied Vista, Inc. v. Holt, 987 S.W.2d 138 (Tex. App. – 2. Independent Injury Requirement/No Punitive Houston [14th District] 1999, pet. denied) the 14th Houston Damages Court of Appeals also decided a case involving the measure In D.S.A., Inc. v. Hillsboro Independent School District, 973 of damages in a negligent misrepresentation case. In Allied S.W.2d 662 (Tex. 1998), the Texas Supreme Court considered Vista, an employee sued his former employer and its presi- the question of the appropriate measure of damages under dent, claiming that the employer had promised him that they negligent misrepresentation and whether punitive damages would supply all necessary equipment to start a recycling were available under a negligent misrepresentation theory. plant and a salary as a consultant while the new plant was in H.I.S.D. sued D.S.A., a contractor hired to build an elemen- the start-up phase. The Court held that the damages that the tary school, for recovery of costs involved in replacing a roof, employee sought were “benefit of the bargain” damages and repairing plumbing, and re-grading parking lots that were not could not be recovered under negligent misrepresentation. performed pursuant to the contract between the parties. In addition, the Court held that the promises were too vague to justify any reliance, stating that a negligent misrepresenta- The Court held that a “benefit of the bargain” measure of tion must include a representation of an existing fact, not a damages was not available for a claim of negligent misrepre- promise of future conduct. sentation, since the cause of action implicates only the duty of care in supplying commercial information: “honesty or In 2003, the Eastland Court of Appeals wrote on the same good faith is no defense, as it is to a claim for fraudulent mis- issue. In Barnett v. Legacy Bank of Texas, 2003 WL 2235858 representation.” Id. at 664. The Court held that H.I.S.D. did (Tex. App.ÑEastland, no pet. hist.), a bank brought an action not meet its burden of proving an “independent injury” apart against a guarantor to recover for breach of a limited guaranty from the contract, distinguishing a negligent misrepresenta- agreements in connection with a construction loan that the tion claim from a fraudulent inducement claim. Id. H.I.S.D.’s bank made to the project owner. The guarantor filed counter ADVOCATE ✯ SPRING 2004 THE 75 claims for fraud, negligent misrepresentation, and other claims misrepresentation). The plaintiff seems to be helped in these against both the bank and a bank employee. The trial court cases if its proof on breach of contract fails to materialize. granted a summary judgment to the bank and employee. The alleged misrepresentation claim that was the basis for fraud 3. Statute of Limitations – Discovery Rule and negligent misrepresentation was that the bank would The Texas Supreme Court in HECI Exploration Co., et al. v. loan additional funds to cover the cost of change orders if Neel, et al., 982 S.W.2d 881 (Tex. 1999) discussed the issue another lender did not loan the needed funds. In regard to of whether the discovery rule tolled the statute of limita- the negligent misrepresentation claims, the court held that tions in a negligent misrepresentation claim arising from “the sort of false information contemplated in a negligent an oil and gas lessee’s failure to notify royalty owners of a misrepresentation case is a misstatement of existing fact, not cause of action against an adjoining operator for depleting a promise of future conduct.” Id. at 8. Since the alleged mis- a common reservoir. representation was a promise of future conduct, the guarantor failed to raise a fact issue and the summary judgment was The Court first noted that the statute of limitations for affirmed. This case distinguishes negligent misrepresentation negligent misrepresentation is two years, which was not a from fraud, which can be based on promises of future perfor- disputed issue between the parties in this particular case. Id. mance. See Formosa Plastics Corporation v. Presidio Engineers at 884. See also, Milestone Properties, Inc. v. Federated Metals and Contractors, Inc., 960 S.W.2d 41 (Tex. 1998). Corp., 867 S.W.2d 113 (Tex. App. – Austin 1993, no writ). The Court then analyzed the discovery rule issue by focusing In MCN Energy Enterprises, Inc. v. Omagro de Colombia L.D.C., on the type of injury suffered in this implied covenant case, 98 S.W.3d 766 (Tex. App. Fort Worth 2003, no pet. hist.), following the reasoning of Computer Associates International v. a manufacturing company brought an action against a pro- Altai, 918 S.W.2d 453 (Tex. 1996).1 The Court held that the spective investor for negligent misrepresentation, fraud, type of injury in this case – failure to notify about certain and other causes of action. The jury found in favor of the facts – was not inherently undiscoverable because the royalty plaintiff and the investor appealed. The negligent misrep- owners should have known about other operators in the resentation involved in the case was the defendant indi- area and the existence of a common reservoir. The Court’s cating, through words and conduct, that it was committed reasoning made it clear that the type of injury suffered by the to making an investment in the construction and operation plaintiffs in future cases will govern whether the discovery of a fertilizer plant. Under many negligent misrepresenta- rule applies in other negligent misrepresentation cases. tion cases, this would be considered a future promise and unenforceable. However, the Fort Worth Court of Appeals In more recent cases, lower courts have applied the rule set upheld the negligent misrepresentation finding of the jury out in HECI Exploration Co. In Sabine Towing and Transportation against an argument of legally insufficient evidence, relying Co., Inc. v. Holliday Insurance Agency, Inc., 54 S.W.3d 57 (Tex. on the wording on the jury question in issue. The Court App. – Texarkana 2000, pet. denied), the Texarkana Court also upheld the damages found by the jury of $2.2 million, of Appeals also followed the HECI rule to find that the dis- even though the damages arguably equaled a “benefit of covery rule did apply to negligent misrepresentation causes the bargain” theory. Id. at 5. The evidence was the same on of action, but did not apply to the particular case they were breach of contract, fraud, and negligent misrepresentation. reviewing. The Court of Appeals used the two prong test to This case may be explained by the wording of the jury ques- find that a denial of insurance coverage was not an “inher- tions, but it certainly seems to go a different direction that ently undiscoverable injury,” in a case in which the plaintiff most of the negligent misrepresentation cases in 2003. See, complained about not being added as an insured under a , e.g. Agillion, Inc. v. Oliver 114 S.W.3d 86 (Tex. App.ÑAustin , commercial insurance policy. See also Matthiesen v. Schafer 27 2003, no pet. hist.)(no negligent misrepresentation when S.W.3d 25, 31 (Tex. App. – San Antonio 2000, pet. denied) contract existed between parties); New York Life Insurance (discovery rule may be applied to negligent misrepresenta- , Company v. Miller 114 S.W.3d 114 (Tex. App.ÑAustin tion); Prieto v. John Hancock Mutual Life Insurance Company, 132 2003, no pet. hist.)(no negligent misrepresentation when F. Supp.2d 506 (N.D. Tex. 2001) (discovery rule applied to representations were primarily from contract). Compare negligent misrepresentation, but did not apply in insurance Lyda v. Butler Manufacturing Company, 103 S.W.3d 632 misrepresentation case because not “objectively verifiable”); (Tex. App.ÑSan Antonio 2003, no pet. hist.)(no contract Heller Healthcare Finance, Inc. v. Boyes, 2002 WL 1558340 was shown by supplier simply delivering materials after (N.D. Tex.). letter received by contractor, but fact issue on negligent ADVOCATE ✯ SPRING 2004 THE 76 4. Justifiable Reliance for commercial purposes. Plaintiff claimed that the broker In Swank, et al v. Sverdlin, et al, 2003 WL 22053837 (Tex. and others had represented that there were no restrictions App.ÑHous. [1st Dist.] no pet. hist.), a corporation’s inves- on the use of the property. Plaintiff obtained a favorable tors and agents brought an action for an injunction against verdict and judgment. a former CEO of the corporation. The former CEO filed a counterclaim individually and on behalf of the corporation On appeal, defendants claimed that plaintiff could not have in its derivative capacity for fraud, breach of fiduciary duty, relied on any representations when plaintiff hired his own negligent misrepresentation, and other causes of action. The third parties to assure that no restrictions would interfere jury awarded $1.5 billion to the CEO and the corporation. with his development. The Corpus Christi Court of Appeals The verdict was reduced by the trial judge who heard the agreed, holding that as a matter of law the buyer’s decision case to $235 million. A second trial judge who heard further to undertake such an investigation indicated he was not post judgment motions reduced the judgment to $180 mil- relying on the seller’s representations about the property. lion. Numerous issues were appealed on the various causes The court additionally held that plaintiffs were foreclosed of action. In regard to the negligent misrepresentation cause from recovering under fraud for the same reason. of action, the trial judge had disregarded the jury’s affirma- tive finding and the plaintiffs appealed. In particular, the In Waco, the Court of Appeals followed a different path in a First Court analyzed whether plaintiff had proven justifiable suit on a promissory note. In Burleson State Bank v. Plunkett, reliance. The First Court focused on both the “nature of the et al., 27 S.W.3d 605 (Tex. App. – Waco 2000, no pet. hist.), relationship and the contract” to hold that the reliance was the Court affirmed a finding of negligent misrepresentation by not justified as a matter of law. Id. at 19. The Court cited a jury, despite an argument by defense counsel that reliance McCamish, et al v. F.E. Appling Interests, supra, holding that was destroyed by a clause in the loan documents providing representations made in a business or commercial transaction that there were no other duties or agreements outside those were not justified when the representation took place in an outlined in the loan documents. The Court reasoned that adversarial context. The contracts were also contrary to the the “notice of final agreement” did not negate as a matter of misrepresentations. This case may mark the first time that the law reliance on the Bank’s misrepresentations regarding the McCamish analysis, which has previously only been applied loan transaction. to attorneys, also is applied to other negligent misrepresenta- tion. The Court further held that the representations were 5. Alter Ego promises of future conduct, and, as such, could not form the In an unusual case dealing with a Rule 13 sanctions motion, basis for negligent misrepresentation. the Texarkana Court of Appeals held that a creditor cannot maintain a negligent misrepresentation claim against share- The Fourteenth Court of Appeals in Houston also wrote on holders of a corporation arising out of corporate debt without , justifiable reliance in 2003. In Beal Bank v. Schleider 2003 WL proving alter ego. Texas-Ohio Gas, Inc. v. Mecom, et al., 28 22053855 (Tex. App.ÑHouston [14th Dist.], no pet. hist.), S.W.3d 129 (Tex. App. – Texarkana 2000, no pet. hist.). a maker of a promissory note asserted claims for negligent The trial court in this case dismissed the shareholders from misrepresentation and other causes of action against a bank. the suit on the basis of Rule 13 sanctions, ruling that the The jury found in favor of the plaintiff and judgment was suit against the defendant shareholders was groundless as entered against the bank. The bank appealed, claiming no a matter of law. The Texarkana Court of Appeals agreed, justifiable reliance as a matter of law. The Court also focused but reversed because the trial court had held no hearing on the contract, holding that a provision stating that “no to determine that the case was filed in bad faith or for the modification is binding unless it is in writing” foreclosed the purposes of harassment. The interesting part of the case plaintiff from proving reliance. Id. at 10. dealing with negligent misrepresentation states (possible dicta) that the allegation of negligent misrepresentation was The Corpus Christi Court of Appeals and Waco Court of groundless because “by definition” there can be no fraud Appeals both wrote on reliance in two decisions that came involved to pierce the corporate veil under Art. 2.21 of the out in August of 2000. In Bartlett v. Schmidt, 33 S.W.3d 35 Texas Business Corporation Act. (Tex. App. – Corpus Christi 2000, no pet. hist.), the plaintiff purchaser sued a real estate broker, the seller, and others In Harco Energy, Inc., et al v. The Re-Entry People, Inc., 23 because the subject property was restricted for only resi- S.W.3d 389 (Tex. App. – Amarillo 2000, no pet. hist.), the dential use and the plaintiff intended to use the property Amarillo Court of Appeals went a different direction, holding ADVOCATE ✯ SPRING 2004 THE 77 that the evidence was not sufficient in a bench trial to sup- because it did not contain a definition of negligence and port a negligent misrepresentation claim against some of the the jurors might not understand the legal meaning or have corporate entities because there was no evidence of reliance a different understanding of the legal meaning. The Court on the part of the plaintiff. The evidence was sufficient to held without elaboration that the question and instruction sustain the judgment against the president of the corpora- submitted were sufficient. Id. at 767. tion, although the Court apparently only reached the issue on breach of contract and fraud. 7. Release Trinity Industries, Inc. v. Ashland, Inc., et al, 53 S.W.3d 852 The issue of when a president or individual of a corporation (Tex. App. – Austin 2001, pet. denied), involved a plaintiff may be held individually liable for negligent misrepresenta- who purchased a steel vessel manufacturing subsidiary from tions made in the capacity of corporate representative was the defendant, and later brought suit for environmental con- specifically addressed by the Corpus Christi Court of Appeals tamination and cleanup costs. The defendant seller asserted in Kingston v. Helm, 82 S.W.3d 755 (Tex. App. - Corpus Christi third-party claims against the subsidiary, now owned by the 2002). Kingston involved a purchaser who brought action plaintiff, for negligent misrepresentation and fraud, seeking against the developer and its president for alleged decep- to put the responsibility effectively back on the plaintiff for tive trade practices, fraud, and negligent misrepresentation the misrepresentations made prior to the sale. At issue was a stemming from the purchase of a town home. The Court release in the purchase agreement that provided that “Ashland of Appeals held that: (1) the purchaser was not required to (Seller) and their affiliates shall have released Beaird (subsid- pierce the corporate veil in order to hold developer’s president iary) from any and all claims, demands, debts and liabilities individually liable, and (2) the purchaser was not required of any nature whatsoever.” to prove fraud by the shareholder liability provision of the Texas Business Corporation Act in order to hold president The question presented by the release was whether the release personally liable. covered negligent misrepresentation and fraud claims, leaving plaintiff Trinity free to sue the defendant Ashland for breach of 6. Jury Charge contract for bringing the suit against its subsidiary Beaird. The Carr, et al v. Weiss, 984 S.W.2d 753 (Tex. App. – Amarillo Austin Court of Appeals reviewed the law regarding releases, 1999, pet. denied) involved a claimant who found an apart- stating that releases were subject to the rules of construction ment complex as an investment opportunity and sued the governing both contracts and indemnities. In particular, the ultimate purchaser of the complex, alleging negligent misrep- Court found that a releasing instrument must “specifically resentation on the basis of an agreement that the two would mention” the claim to be released to be effective, and that own it together. The plaintiff submitted the following as the the broad language of the clause (“all claims”) did not release jury question on negligent misrepresentation: either negligent misrepresentation or fraud. The Court’s rea- soning included a reference to the “express negligence” test Did Jim Carr make a negligent misrepresentation involved in Dresser Industries, Inc. v. Page Petroleum, Inc., 853 on which Larry Weiss justifiably relied? S.W.2d 505 (Tex. 1993). See also Baty v. Protech Insurance, 63 S.W.3d 841, 855 (Tex. App. – Houston [14th Dist.] 2001, “Negligent misrepresentation” occurs when: pet. filed) (settlement agreement providing for release of “any claim” based upon non-compete agreement did not release a. a party makes a representation in the course tort claims because not mentioned). of his business or in a transaction in which he has a pecuniary interest, 8. Declaratory Judgment In Averitt v. PriceWaterhouseCoopers L.L.P., 89 S.W.3d 330 (Tex. b. the representation supplies false information App. -Fort Worth 2002, no pet. hist.), the Court addressed for the guidance of others in their business, and the issue of whether it was proper to use a declaratory judg- ment action to determine potential liability on a negligent c. the party making the representation did misrepresentation claim. Averitt was a long standing client not exercise reasonable care or competence in of PriceWaterhouseCoopers, L.L.P. (collectively, PWC) and obtaining or communicating the information. eventually hired them to create a trust for her oil and gas interests. The Trust was created with the principle pur- The defense argued that the jury question was inadequate pose of allowing the Averitt family to take advantage of the ADVOCATE ✯ SPRING 2004 THE 78 generation-skipping transfer tax exemption under the Internal investment bonds). The courts have focused on the entire Revenue Code. Eventually, it was discovered that PWC had relationship between the parties, and more specifically, on never filed a gift tax return for the Trust, and Averitt filed the defendant’s acts, to determine whether the finding of a suit in Midland County for breach of contract, accounting , fiduciary relationship is warranted. See English v. Fisher 660 malpractice, breach of fiduciary duty, and fraud. In response, S.W.2d 521 (Tex. 1983). Subjective belief and trust on the PWC filed a declaratory judgment action in Tarrant County. part of the plaintiff is not enough. The defendant must, by Averitt moved to transfer venue to Midland County and filed some undertaking, give the plaintiff a reasonable basis for a plea in abatement asking the trial court to abate PWC’s believing that the defendant would act in the plaintiff’s best declaratory judgment action pending final adjudication of , interests. Crim Truck & Tractor Co. v. Navistar Id. To impose a Averitt’s suite in Midland County. In addition, Averitt moved fiduciary relationship in a simple business transaction, Texas for summary judgment on the grounds that PWC had failed courts typically have required a finding of a fiduciary rela- to state a cause of action for which declaratory relief could tionship prior to and apart from the transaction in question. be granted. The trial court denied Averitt’s motion to transfer See Swanson v. Schlumberger Tech. Corp., 959 S.W.2d 171 (Tex. venue, plea in abatement, and motion for summary judgment 1997); Insurance Co. of North America v. Morris, Id. and granted summary judgment for PWC on its declaratory judgment claim. The Fort Worth Court of Appeals held Other general factors that Texas courts have considered in that the declaratory judgment action was improper because deciding fiduciary relationships have included family ties, Averitt’s claims sounded in tort rather then a breach of con- Texas Bank and Trust Co. v. Moore, 595 S.W.2d 502 (Tex. 1980) tract. Id. at 5. The court further stated that a declaratory (aunt-nephew); non-legal professional relationships. Sauvres judgment action can only be used to decide a real controversy, v. Christian, 253 S.W.2d 470 (Tex. Civ. App. – Fort Worth not a potential one. Id. 1952, writ ref’d n.r.e.) (accountant); Pace v. McEwen, 574 S.W.2d 792 (Tex. Civ. App. – El Paso 1978 writ ref’d n.r.e.) II. BREACH OF FIDUCIARY DUTY (stockbroker); co-tenants, Hammon v. Ritchie, 547 S.W.2d 698 A. Background (Tex. Civ. App. – Fort Worth 1977, writ ref’d n.r.e.). In these Under Texas law, the first step in determining whether a cases, the relationship alone does not create the fiduciary breach of fiduciary duty has occurred is determining whether relationship, but it may be a factor in establishing a factual a fiduciary relationship exists between the parties. A fidu- fiduciary relationship. ciary relationship will be found in some relationships as a , matter of law. See e.g., Langford v. Shamburger 417 S.W.2d The duties of a fiduciary, once the relationship has been 438 (Tex. Civ. App. – Fort Worth 1967, writ ref’d n.r.e.) established, can vary depending on the instrument involved, (trustee-beneficiary); Archer v. Griffith, 390 S.W.2d 735 (Tex. special statutes, and the common law. However, in general, 1965) (attorney-client); Johnson v. Peckam, 120 S.W.2d 786 the following duties have been recognized by Texas Law: (Tex. 1938) (partners) (See also Texas Revised Partnership Act, Art. 6132b-1.01 et seq.); Anderson v. Griffith, 501 S.W.2d 1) duty of competence; TEXAS PROP. CODE Sec. 695 (Tex. Civ. App. – Fort Worth 1973, writ ref’d n.r.e.) (real 113.056 (trustee); International Bankers Life Ins. Co. estate brokers and agents); International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex. 1963) (corporate v. Holloway, 368 S.W.2d 567 (Tex. 1963) (directors and offi- directors) (See also Tex. Bus. & Corp. Act Art. 2.41 cers-corporation); Hyde Corporation v. Huffines, 314 S.W.2d D and Art. 2.42 C; T.R.P.A. Tex. Rev. Civ. Stat. Art. 763 (Tex. 1958) (licensee-licensor). 6132b-4.04(c) - “business judgment rule”) (partners); Davis v. Sheerin, 754 S.W.2d 375 (Tex. App. – Houston In other relationships, the plaintiff must prove the fiduciary [1st Dist.] 1988, writ denied) (minority shareholders relationship as a question of fact. See e.g., Crim Truck & against majority). Tractor Co. v. Navistar Int’l Transport Corp., 823 S.W.2d 591 2) duty to exercise reasonable discretion; Sassen v. (Tex. 1992) (no fiduciary duty as a matter of law between Tanglegrove Townhouse Condo Assoc., 877 S.W.2d 489 franchiser and franchisee – existence of relationship is a fact (Tex. App. – Texarkana 1994, writ denied) (condo question); Associated Indemnity Corp. v. CAT Contracting, 964 association designated as atty-in-fact); Corpus Christi S.W.2d 276 (Tex. 1998) (no fiduciary relationship as a matter Bank and Trust v. Roberts, 597 S.W.2d 752 (Tex. of law between surety and principal on construction bond); 1980) (trustee exercise of discretion always subject Insurance Co. of North America v. Morris, 981 S.W.2d 667 (Tex. to review). 1998) (no fiduciary duty on surety-principal on securities ADVOCATE ✯ SPRING 2004 THE 79 3) duty of loyalty; Slay v. Burnett Trust, 187 S.W.2d Courts interpreting Texas law in the past have looked at the 377 (Tex. 1945) (fiduciary cannot gain any benefit scope of the agency and the extent of authority to make trades for himself at expense of his beneficiary); Texas Bank in determining whether the stockbroker owed a fiduciary and Trust Co. v. Moore, 595 S.W.2d 502 (Tex. 1980) duty to the customer. See Miley v. Oppenheimer & Co., Inc., (“presumption of unfairness” that arises from any gift 637 F.2d 318 (5th Cir. 1986); Magnum Corp. v. Lehman Bros., or advantage of opportunity); International Bankers 794 F.2d 198 (5th Cir. 1986). In general, a non-discretionary Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex. 1963) account has been viewed as creating a very narrow common (corporate officers took secret commissions on sale law fiduciary duty, imposing only the obligation to not make of corporate real estate). unauthorized trades. Miley, supra. A broker who manages a 4) duty of full disclosure; Montgomery v. Kennedy, 669 discretionary account, where he is not limited to the express S.W.2d 309 (Tex. 1984) (affirmative duty to make a orders of the client, will be held to a much broader fiduciary full and accurate confession of transactions, profits, duty. Id. The Texas Supreme Court in Edward Jones did not and mistakes); Willis v. Maverick, 760 S.W.2d 642 really analyze this case from the standpoint of a fiduciary (Tex. 1988) (breach of duty of disclosure is same as duty, choosing instead to focus on whether any duty at all fraudulent concealment); Archer v. Griffith, 390 S.W.2d was owed to the customer. 735 (Tex. 1965) (beneficiary not required to prove elements of fraud); Johnson v. Peckam, 120 S.W.2d More recently, the Austin Court of Appeals has followed 786 (Tex. 1938) (beneficiary not required to prove the Edwards case to hold that an investment firm had no he relied on fiduciary to disclose). fiduciary duty to inform a spouse of a change in beneficiary, even though she was also their client. In Anton v. Merrill When a fiduciary profits or benefits in any way from a transac- Lynch, et al, 36 S.W.3d 251 (Tex. App. – Austin 2001, pet. tion with the beneficiary, a presumption of unfairness arises denied), an investor’s surviving spouse sued Merrill Lynch that shifts the burden of persuasion to the fiduciary to show: and their investment advisor, claiming that Merrill violated a 1) that the transaction was made in good faith; 2) that the fiduciary duty when they complied with the investor’s request transaction was fair and equitable to the beneficiary; and 3) to remove the spouse as death beneficiary of the investor’s after full and complete disclosure of all material information individual retirement account. The Austin Court of Appeals to the principal. Stephens County Museum, Inc. v. Swenson, 517 first held that the investment firm had no duty to ascertain S.W.2d 257 (Tex. 1974); Texas Bank and Trust Co. v. Moore, 595 the investor’s competence, citing Edwards. The second issue S.W.2d at 509. If there is no evidence rebutting the presump- the Court faced, whether the investment firm had a duty to tion, no breach of fiduciary question is necessary. Id. inform the spouse of the change in beneficiary, was an issue of first impression. The Austin Court of Appeals reviewed B. Recent Developments the policy issues at stake and reached the conclusion that 1. No Duty by Stockbroker to Determine Competence the imposition of such a duty would create “great burdens , In Edward Jones & Co., et al v. Fletcher 975 S.W.2d 539 (Tex. on financial consultants.” Id. at 257. The Court further 1998), the Texas Supreme Court addressed the question of reviewed the additional issue of whether Merrill had a duty whether a stockbroker has a legal duty to ascertain the mental to inform her that she would no longer receive all the IRA competence of the investor prior to assisting in transferring funds after her spouse’s death, which the plaintiff based on securities. Plaintiff, the independent executrix of an estate, an agency theory. The Court stated that this was a “closer brought suit against Edward Jones & Co. based on the issue”. Nevertheless, the Court found that no duty existed transfer of securities to the nephew of the decedent prior to because the anticipated asset that disappeared was not part the decedent’s death. The lawsuit was based on negligence, of her Merrill Lynch account for which the agency was cre- breach of fiduciary duty, duty of good faith and fair dealing, ated. In summary, the Austin Court concluded that none of and negligent misrepresentation, among other causes of the fiduciary claims survived summary judgment. action. The jury found in favor of plaintiff and the Court of Appeals affirmed. The Texas Supreme Court held that the 2. Attorneys stockbroker had no duty, fiduciary or otherwise, to determine The Supreme Court in 2002 held that an associate owes a fidu- the competence of the investor, reasoning that the law afforded ciary duty to his law firm not to personally profit or realize any protection already to incompetents through guardianships financial gain from referring a matter to another law firm or and by making their agreements voidable. Id. at 545. lawyer, absent the employer’s permission. See Johnson v. Brewer & Pitchard, P.C., 73 S.W.3d 193 (Tex. 2002). The court had ADVOCATE ✯ SPRING 2004 THE 80 very little trouble concluding that under common-law agency fee forfeiture, then the trial court determines the extent of principles, the associate-law firm relationship is a fiduciary the forfeiture. Id. Because there were fact issues regarding the one. Id. at 202. As such, an associate may not personally profit breach of fiduciary duty, the jury, not the trial court, had to from a referral without the permission of the law firm. Justice determine these fact issues. Therefore, the trial court erred in Owen was very careful to state, however, that an associate granting directed verdict as to the fee forfeiture claims. may refer a client or potential client to someone other than his own firm without violating his fiduciary duty, provided Subsequent appellate courts have made it clear that the for- the associate does not receive any benefit, compensation, or feiture of attorney fees for the breach of fiduciary duty are other gain as a result of the referral. Id. at 203. reserved for “clear and serious” violations of duty. See e.g., Malone v. Watkins, 2002 WL 1722337 (Tex. App. – Houston In Aiken v. Hancock, 115 S.W.3d 26 (Tex. App. – San Antonio [1st Dist.], no pet. hist.) (holding that attorney’s breach of fidu- 2003, pet. filed), a client sued his attorney for misrepresenting ciary duty in allegedly disseminating confidential information that the attorney was ready for trial and that the retained was inadvertent, did not cause significant injury to the client, expert was adequately prepared. The Court of Appeals rejected and therefore did not warrant forfeiture of attorney fees). the breach of fiduciary duty claim because there was no indi- cation that the attorney obtained an improper benefit. The 3. No Fiduciary Duty Between Insurer and Insured Court distinguished breach of fiduciary duty from an ordinary An employer sued its worker’s compensation carrier, claiming negligence case. (For a similar perspective, see Gonzales v. that it had breached its fiduciary duty by inappropriately set- America Title Company of Houston, 104 S.W.3d 588 (Tex. App. tling and paying claims. The Houston Court of Appeals [1st – Houston [1st Dist.] 2003, pet. filed). The Court held that Dist.] held that there is no general fiduciary duty between the title company may have acted unprofessionally but that an insurer and its insured. Duddlesten v. Highland Insurance is not the same as a breach of fiduciary duty). Co., 110 S.W.3d 85 (Tex. App. – Houston [1st Dist.] 2003, rev. denied). Citing its prior ruling in R.R. Street, the Court held In Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999), the Texas that to impose an informal fiduciary relationship in a busi- Supreme Court held that a client need not prove actual dam- ness transaction, the requisite special relationship of trust and ages to obtain forfeiture of an attorney’s fee once a breach confidence must exist prior to, and apart from, the agreement of fiduciary duty by the attorney is established. Once the made the basis of the suit. Because the Appellant produced jury finds that an attorney has breached his fiduciary duty no evidence of such a relationship, the Court upheld the sum- to the client, the trial court determines the amount of any mary judgment on the breach of fiduciary duty claim. fee forfeiture, since it is an equitable remedy. Id. at 234. It is within the discretion of the trial court to determine whether 4. Power of Attorney Creates Fiduciary Duty as a Matter the attorney receives full compensation or whether compen- of Law sation will be reduced or denied. Id. at 243. In Jackson Law In Vogt v. Warmock, 107 S.W.3d 778 (Tex. App. – El Paso Office, P.C. v. Chappell, et al, 37 S.W.3d 15, (Tex. App. – Tyler 2003, rev. denied), the executor of estate sued the woman 2000, pet. denied), the Tyler Court of Appeals followed Arce who had been given the decedent’s power of attorney. She in determining that a trial court had exercised his discretion had never acted under the power of attorney and none of the in reducing a fee by $5000. gifts she received from her elderly lover were effectuated by the power of attorney. Nonetheless, the Court held that as a More recently, the Houston Court of Appeals followed Arce matter of law she owed a fiduciary duty on the basis of the in deciding whether a directed verdict was proper relating to power of attorney and that as a result, she had the burden to claims for fee forfeiture based on a law firm’s alleged breaches prove that the gifts she received were given fairly. of fiduciary duty. See Deutsch v. Hoover, Bax & Slovacek, L.L.P., 2002 WL 31662403 (Tex. App. - Houston [14th Dist.] no pet. 5. Aiding and Abetting a Breach of Fiduciary Duty/ hist.). In Deutsch, the court reiterated the holding in Arce Contribution which stated that clients need not prove actual damages to In Hendricks, et al v. Grant Thornton, 973 S.W.2d 348 (Tex. obtain fee forfeiture for their attorney’s breach of fiduciary App. – Beaumont 1998, writ denied), the Beaumont Court duty. Id. at 8. Rather, the jury must determine the factual of Appeals wrote on several issues in a fraud and breach issues before the trial court can determine whether the breach of fiduciary duty case arising out of a failed government of fiduciary duty, if any, found by the jury was a serious breach securities trading program. The primary defendant was the that merits fee forfeiture. Id. at 9. If the facts seem to warrant accounting firm of Grant Thornton, which worked for an ADVOCATE ✯ SPRING 2004 THE 81 investment firm known as Hillcrest Securities Corporation. at 373. Since Ch. 32 only comes into play when a payment The trades, on which plaintiffs lost thousands of dollars, is made or a judgment rendered, the Court of Appeals found were purportedly reviewed and verified for authenticity by that the trial court was premature in granting summary judg- Grant Thornton. Summary judgment was granted for Grant ment on this issue. Id. at 374. Thornton on several causes of action, including fiduciary duty, Texas securities claims, fraud, and aiding and abetting 6. Creation of Fiduciary Duty breach of fiduciary duty. Summary judgment was also granted Both of the Houston Courts of Appeal recently wrote on for the plaintiffs on the defendants’ claims for contribution the creation of a fiduciary duty in Swineheart v. Stubbeman, against the plaintiffs. Both sides appealed. McRae, Sealy, Laughlin & Browder, Inc., 48 S.W.3d 865 (Tex. App. – Houston [14th Dist.] 2001, pet. denied) and R. R. Street In regard to the aiding and abetting claim, the defendant & Co. v. Pilgrim Enterprises, Inc., et al, 81 S.W.3d 276 (Tex. claimed that since the trial court had ruled that the fidu- App. – Houston [1st Dist.] 2001, rev. granted). In Swineheart, ciary duty claim was disposed of on limitation grounds, the a geologist brought a legal malpractice action against his aiding and abetting claim was gone as well, since it was just former attorneys, claiming that the firm had not properly a “tag-along” claim. The Court of Appeals disagreed, stating represented him in connection with a lawsuit against an oil that the claims were “distinct” and that “[i]t is settled as the company that had gone into bankruptcy. One of the issues law of this State that where a third party knowingly partici- involved in the appeal was whether the oil company had owed pates in the breach of duty of a fiduciary, such third party a fiduciary duty toward the plaintiff geologist. The Houston becomes a joint tortfeasor with the fiduciary and is liable as 14th Court of Appeals considered two possible grounds for such.” Id. at 372. the imposition of the fiduciary duty: 1) the geologist had a joint venture with the oil company, which would give rise to The third party liability rule set out by the Court of Appeals a fiduciary relationship as a matter of law; and 2) an informal has been used both offensively and defensively in the past in confidential relationship arose that created a question of fact. Texas to either reach an additional defendant or to preclude In holding that there was not duty created as a matter of a third party from enforcing a contract right against the law on the first ground, the Court pointed to testimony that principal if the right was obtained as the result of a breach indicated that the parties had not agreed to share losses in of fiduciary duty. See City of Fort Worth v. Pippen, 439 S.W.2d their business arrangement. In regard to the second ground, 660 (Tex. 1969) and Remenchik v. Whittington, 757 S.W.2d 836 the Court reviewed the testimony and record to find that a (Tex. App. – Houston [14th Dist.] 1988, no writ). The third prior confidential relationship (before the dispute in ques- party can also be held liable for accepting benefits from the tion) had not existed, nor did the record indicate anything transaction knowing the benefits were the result of a breach other than an arm’s length relationship, except for plaintiff’s of fiduciary duty. Cf. Stephens County Museum, Inc. v. Swenson, testimony that he had subjectively trusted the oil company. 517 S.W.2d 257 (Tex. 1975). The Court found that subjective trust by one party to the agreement did not give rise to enough of a relationship to A third party will not be held liable for knowingly partici- justify the imposition of a fiduciary duty. pating in a breach of fiduciary duty when the third party is doing that which they have a legal right to do. See Baty v. In R. R. Street, the Houston 1st Court of Appeals reviewed a Protech Insurance, 63 S.W.3d 841, 855 (Tex. App.-Houston case in which the owner of a dry cleaning plant (Pilgrim) [14th Dist.] 2001, pet. filed). brought both statutory and common law claims against the supplier of dry cleaning products, seeking to recover envi- In regard to contribution, the Court of Appeals listed the ronmental cleanup costs and other damages. The case was various contribution schemes available in Texas and reached tried to a jury and the trial court directed a verdict against the the conclusion that the case fell within TEX. CIV. PRAC. & plaintiff on their breach of fiduciary claims. On appeal, the REM. CODE ANN. Sec. 32.001, the original contribution Houston 1st Court of Appeals reviewed the facts on the record scheme. The court was aided by the fact that the case had been that the plaintiff claimed created a special relationship: filed before the effective date of the comparative responsibility statute, Ch. 33 of the Civil Practice and Remedies Code. 1. Street’s representative, Harold Corbin, had complete However, the court noted that Ch. 33 would not apply in any access to Pilgrim’s facilities, but Street’s competitors event because the comparative negligence statute applies only did not. to cases in which negligence is the only theory involved. Id. 2. Corbin testified that he advised Pilgrim regarding ADVOCATE ✯ SPRING 2004 THE 82 what purchases to make and that he knew that 48. The fact that the two parties worked together in several Pilgrim followed his advice “98 percent of the business ventures and at one time were close friends did not time.” establish a fiduciary duty as a matter of law. 3. Corbin stated that had he been told about the pos- sibility of PCE losses, he would have passed that In Willis v. Donnelly, 118 S.W.3d 10 (Tex. App. – Houston information to Pilgrim. [14th Dist.] 2003, no pet. hist.), the Court cited Pabich for the 4. Corbin stated that Street assigned him the job of proposition that the existence of a fiduciary duty between becoming Pilgrim’s “vice-president of the [dry] co-shareholders in a closely held corporation depends on cleaning room.” the circumstances. The Court focused on the defendant’s 5. Guy Robertson, Sr., testified that there was a time oppressive conduct and dominating control of the business. when Pilgrim was expanding in Houston that he The Court cited several facts that showed the defendant used spoke to Corbin either every night, every other day, his control to seek personal advantage. Based on these facts, or at least twice a week to get “a weather report” on the trial court instructed the jury that the defendant owed a Pilgrim’s operations because Robertson could not fiduciary duty. On appeal, the defendant argued that it was visit all of Pilgrim’s facilities. error to instruct the jury on the fiduciary duty. The Houston 6. For 20 years, Corbin filled a “report card” evaluating Court of Appeals agreed that the existence of the duty was a the performance of Pilgrim’s dry-cleaning plants and fact question, but ruled that the defendant waived the error would give the evaluations to Robertson. by not objecting to the charge prior to submission to the jury. 7. Corbin helped teach the dry-cleaning business to Thus, the holding in Pabich remains the standard, leaving Guy Robertson, Jr. Willis as distinguishable on procedural grounds. 8. Corbin helped in selecting Pilgrim’s waste disposal company and acted as an intermediary between it The Amarillo Court of Appeals went a little further than Pabich and Pilgrim. in Robbins v. Payne, 55 S.W.3d 740 (Tex. App. – Amarillo 9. Street’s advertisements solicited reliance on its dry- 2001, pet. denied), in holding that two founders of an internet cleaning technicians to insure that no PCE was business did not have a fiduciary duty toward each other, lost. when the relationship was not longstanding and did not go 10. Street had scientific knowledge about Pilgrim’s “beyond that ordinarily existing between parties to a contract processes that Pilgrim did not have. of this type.” Id. at 749. The Amarillo Court also held that 11. Street had been doing business with the Robertson it did not create a fact issue for one of the parties to “admit” family for over 50 years, i.e., before Pilgrim owing a fiduciary duty since from a “legal standpoint” the existed. party stated that he did not understand the term and only knew what it meant “to him.” Id. In affirming the trial court, the Court focused on the fact that no evidence was offered of a special relationship of trust and Compare the Robbins case with Carr v. Weiss, 984 S.W.2d 753 confidence apart from the business relationship made the , (Tex. App. – Amarillo 1999, pet. denied). In Carr the Amarillo basis of the lawsuit. Additionally, neither party was in a depen- Court of Appeals reviewed the evidence on the existence of dent position, since each was an accomplished businessman a fiduciary duty in a case where the plaintiff sued based on who knew how to deal with environmental issues. an oral contract to jointly acquire an apartment complex with the defendant. After the complex was purchased, the , In Pabich v. Kellar 71 S.W.3d 500 (Tex. App. – Fort Worth defendant purchaser denied the agreement and the plaintiff 2002, pet. denied) a former employee and minority share- brought suit based on breach of fiduciary duty, fraud, neg- holder in a video reconditioning business sued the majority ligent misrepresentation, and breach of oral contract. After shareholder for breach of fiduciary duty, fraud, and tortious reviewing the personal relationship between the parties, the interference. The trial court held that as a matter of law a Court of Appeals held that the evidence was sufficient to fiduciary duty existed between the shareholders. On appeal, present a jury question on the existence of a fiduciary duty. the Fort Worth Court of Appeals held that the trial court The evidence reviewed by the court included the social history committed error by assuming the existence of a fiduciary of the parties, the business relationship, and representations duty, instead of submitting it to the jury, stating that “a co- made by both parties during the time period in question. Id. shareholder in a closely held corporation does not as a matter at 766. The court stated that “the relationship between the of law owe a fiduciary duty to his co-shareholder.” Id. at parties, their activities, and their objectives was more than a ADVOCATE ✯ SPRING 2004 THE 83 mere personal relationship but was, rather, of a confidential the partnership at any time, even if the motive is “self-gain.” nature. Id. at 765. Id. The Court states on the fiduciary duty issue that a partner owes a “strict duty” of good faith and candor, and that there , Under the same evidentiary standard as Carr the Waco Court is a “general prohibition” against the fiduciary using the of Appeals considered the following evidence as sufficient to relationship to benefit his personal interest, except with full support the jury’s finding of a fiduciary duty: disclosure to the principal. Id. at 175. 1. The two parties had worked together on other projects The Court’s language tracks the language of cases prior to for three years. 1994, when the Texas Revised Partnership Act was passed. 2. The defendant was always in charge of those proj- Prior to 1994, the law in Texas was clear that each partner ects and he controlled the financing and books. The owed a fiduciary duty to each of the other partners and this plaintiff always trusted him to keep accurate financial relationship was characterized as “highly” fiduciary in nature. records. See Johnson v. Peckham, 120 S.W.2d 786 (Tex. 1938). The 3. The defendant told the plaintiff they would “make adoption of the Texas Revised Partnership Act was intended millions” together. to bring partnership law in line with modern business 4. The parties ate lunch together every day for four practices, including a rejection of the traditional “fiduciary” years. label, but cases still carry over the stricter language. See e.g., Brosseau v. Ranzau, 81 S.W.3d 381, 395 (Tex. App. - Beaumont This evidence was considered more than a scintilla of evi- 2002, pet. filed)(partners owe one another a fiduciary duty, dence and the Court of Appeals overturned the trial court’s included in which is a strict duty of good faith, while a man- , take nothing judgment. Cathy v. Meyer 115 S.W.3d 644 (Tex. aging partner owes his partners the highest fiduciary duty App. – Waco 2003, no pet. hist.). recognized in law). Likewise, in El Paso Production v. Valence, 112 S.W.3d 616 8. Competition Not a Breach of Fiduciary Duty (Tex. App. – Houston [1st Dist.] 2003, no pet.), the Court A key employee of a trucking company started a competing held it was error to grant a motion for directed verdict on trucking company. Before leaving his job, he incorporated the breach of fiduciary duty claim where there was some the new company, bought insurance, obtained hauling per- evidence that the operator of the oil well was acting as an mits and talked with drivers about leaving the old company agent for the owner. to join his new company. The trucking company sued the key employee for breach of fiduciary duty. Abetter Trucking 7. Partnership Dissolution Company v. Arizpe, 113 S.W.3d 503 (Tex. App. – Houston In Welder v. Green, 985 S.W.2d 170 (Tex. App. – Corpus [1st Dist.] 2003, no pet. hist.). In an opinion that appears Christi 1998, pet. denied), a former partner filed an action contradictory, the Houston Court of Appeals acknowledges against another former partner on theories of breach of fidu- that an agent has a fiduciary duty not to compete with the ciary duty, fraud, and breach of duty of good faith and fair principal and that an employee has a duty to deal openly dealing. The evidence on breach of fiduciary duty was that with an employer and to fully disclose information affecting the defendant partner had paid increased amounts to himself the company’s business. After citing this established law, the as “trust management” fees, instead of accounting fees to the Houston Court then concludes “there is nothing legally wrong firm. When the plaintiff partner discovered his actions, he in engaging in such competition or in preparing to compete objected and the defendant partner repaid the money into before the employment terminates.” Id. at 510. The Court the partnership. The parties could not agree on dissolution was influenced by the fact that the employee was an at-will terms and the lawsuit resulted. Plaintiff partner received a employee not subject to a noncompete clause. jury verdict and judgment, which was partially taken away by the trial court. Both sides appealed. 9. Failure to Develop by a Mineral Estate Owner Not a Breach The Corpus Christi Court of Appeals affirmed in part, and The owner of the surface and mineral estate was sued for a reversed in part, holding that the evidence supported breach failure to develop by the non-participating royalty owner. The of fiduciary duty, but no damages, because the only evidence Texas Supreme Court ruled that a fiduciary duty existed but of damages occurred as a result of the dissolution. Id. at 177. the owner of the surface and mineral estate had no duty to In the absence of a written agreement, partners can dissolve develop. The fiduciary duty only required the owner to acquire ADVOCATE ✯ SPRING 2004 THE 84 every benefit for the non-participating royalty owner that he justified by the evidence presented to the trial court. acquired for himself. Since there was no special benefits on privileges obtained, there was no breach of fiduciary duty. III. FRAUD In Re Bass, 113 S.W.3d 735 (Tex. 2002.). See also Hlavinka v. A. Background Hancock, 116 S.W.3d 412 (Tex. App. – Corpus Christi 2003, To prevail on a common-law fraud claim in Texas, a plaintiff pet. filed). must establish: (1) the defendant made a material representa- tion; (2) the representation was false; (3) the defendant either 10. Statute of Limitations knew the representation was false when made or made it In re Estate of Fawcett, 55 S.W.3d 214 (Tex. App. – Eastland recklessly without any knowledge of its truth and as a positive 2001, no pet. hist.), involved a suit by a former shareholder assertion; (4) the defendant made the representation with the against the remaining shareholder and the corporation for intention that it be acted upon; (5) the representation was breach of fiduciary duty, based on failure to disclose the in fact relied upon; and (6) damage to the plaintiff resulted. fact that the corporation had an opportunity to construct See DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990), and operate a natural gas pipeline. A summary judgment cert. denied, 498 U.S. 1048, 111 S. Ct. 755, 112 L.Ed.2d 775 was granted on limitations grounds by the trial court. On (Tex. 1991); Trenholm v. Ratcliff, 646 S.W.2d 927 (Tex. 1983). appeal, the Eastland Court of Appeals examined whether A fraud cause of action is generally based on a representation the discovery rule applied in breach of fiduciary cases and of fact, but it can be based on a representation of opinion whether the accrual of the cause of action should be deferred when (1) the opinion is based on past or present facts, or (2) until the plaintiff knew or should have known of the injury. the speaker knows of the opinion’s falsity. See Trenholm, 646 The Court reviewed the Texas Supreme Court rulings over S.W.2d at 930. A representation is material if a substantial the last four years on the discovery rule (Computer Associates likelihood exists that a reasonable plaintiff would consider v. Altai; Murphy v. Campbell) and stated that both fraudulent the representation important in entering into the transaction concealment and “inherently undiscoverable” injuries have in question. See Weatherly v. Deloitte & Touche, 905 S.W.2d been referred to as discovery rule cases. The Court of Appeals 642 (Tex. App. – Houston [14th Dist.], writ dism’d w.o.j.). reasoned that injuries occurring in a fiduciary relationship would seem to be in the first type of case (fraudulent con- A fraud claim can be based on a promise made with no inten- cealment), but have instead been categorized as “inherently tion of performing, irrespective of whether the promise is later undiscoverable.” The Eastland Court pointed out that the subsumed within a contract. Formosa Plastics Corporation v. result is the same: the issue is when the plaintiff knew or Presidio Engineers and Contractors, Inc., 960 S.W.2d 41 (Tex. should have known, with the exercise of reasonable diligence, 1998). Crim Truck and Tractor Co. v. Navistar Int’l Transp. Corp., of the injury. In this case, the Court of Appeals ruled that the 823 S.W.2d 591 (Tex. 1992). However, the mere failure to trial court erred in granting the summary judgment. perform a contract is not evidence of fraud. See Formosa, 960 S.W.2d at 48. 11. Punitive Damages In Brosseau v. Ranzau, 81 S.W.3d 381, 395 (Tex. App. - In regard to reliance, plaintiff must show that he actually Beaumont 2002, pet. filed) the Beaumont Court of Appeals and justifiably relied on defendant’s misrepresentations. See reviewed a case in which the plaintiff sued his partner over Haralson v. E. F. Hutton Group, Inc., 919 F.2d 1014 (5th Cir. a house they owned together in Mexico. After a bench trial, 1990) (under Texas law, fraud requires showing of actual the trial court entered a judgment for approximately $107,000 and justifiable reliance). In reviewing the record on appeal, in actual damages and $200,000 in punitive damages. On the court of appeals considers whether – given the particular appeal, the Beaumont Court of Appeals reviewed whether plaintiff’s individual characteristics, abilities, and appreciation the breach of fiduciary duty would support the award of of facts and circumstances – it is “extremely unlikely” that punitive damages. The Court noted that the “intent” issue there was actual reliance on the plaintiff’s part. See Haralson, concerning exemplary damages is whether the one with a 919 S.W.2d at 1026. fiduciary duty intended to gain an additional unwarranted benefit for himself. See Cheek v. Humphreys, 800 S.W.2d Texas recognizes two measures of direct damages for common 596 (Tex. App. – Houston [14th Dist.] 1990, writ denied). law fraud: the out-of-pocket measure and the benefit-of-the- The Court reviewed the award in light of the established bargain measure. Arthur Anderson & Co. v. Perry Equipment, Kraus factors (Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908 945 S.W.2d 812 (Tex. 1997); W. O. Bankston Nissan, Inc. v. (Tex. 1981) and found that the amount awarded was Walters, 754 S.W.2d 127 (Tex. 1988); Leyendecker & Assocs., ADVOCATE ✯ SPRING 2004 THE 85 , Inc. v. Wechter 683 S.W.2d 369 (Tex. 1984). The out-of-pocket judgment on a fraudulent inducement claim. The Court of measure computes the difference between the value paid and Appeals, citing Formosa, held that the legal duty not to pro- the value received, while the benefit-of-the-bargain measure cure the contract by fraud was independent from the duties computes the difference between the value as represented under the contract. Therefore, the parol evidence rule did not and the value received. Arthur Anderson, 945 S.W.2d at 817. bar the evidence and it could be used to defeat the summary The benefit-of-the-bargain measure does not include lost judgment. Further, the Court held that the “merger”clause profits on a “bargain that was never made.” Formosa Plastics in the contract could not defeat the “reliance” element as a Corporation, 960 S.W.2d at 50. However, when properly matter of law, since it did not expressly state an intent to pleaded and proved, consequential damages that are fore- waive the fraud cause of action. See also Shell Oil Products seeable and directly traceable to the fraud and result from v. Main Street Ventures, 90 S.W.3d 375 (Tex. App. – Dallas it may be recoverable. Arthur Anderson, 945 S.W.2d at 817. 2002, no pet. hist). Consequential damages could include foreseeable profits from other business opportunities lost as a result of the fraudulent In this past year, the First Court of Appeals in Houston also misrepresentation. Formosa Plastics Corporation, 960 S.W.2d wrote an opinion which went the other way in construing 49 at fn.1. a “merger clause.” In Ikon Office Solutions, Inc. v. Eifert, 2003 WL 21782347 (Tex. App.ÑHouston [1st Dist.] no pet. hist.), B. Recent Cases a seller of a company (Eifert) brought a fraud action against 1. Fraudulent Inducement the buyer (Ikon) based on misrepresentations about the job , In R. E. Haase and PRH Investments v. Glazner 62 S.W.3d 795 responsibilities that the seller would have following the sale. (Tex. 2001), the Texas Supreme Court considered a fraudulent The contract of sale included a “merger” clause that stated it inducement case brought by a potential franchisee against contained the entire agreement of the parties and that “no the franchisor. The specific issue considered by the Supreme commitments have been made relative to bonuses, guarantees Court was whether a party can maintain a claim based on or any other special provisions, except as specifically identi- either fraud or fraudulent inducement when the claim is pre- fied herein.” Id. at 11. The court noted that the job description mised on a contract that is unenforceable under the Statute of was the subject of intense negotiation and the parties were Frauds. The trial court granted summary judgment against the sophisticated and represented by counsel. Further, the merger plaintiff and the Court of Appeals reversed, holding that the clauses were not boiler plate and were negotiated. Applying fraud and fraudulent inducement claims alleged a breach of Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. duty independent of the contract claims. The Court of Appeals 1997), the First Court held that the release was broad enough relied heavily on the Supreme Court’s opinion in Formosa to cover the specific matter in dispute and negated reliance Plastics Corporation v. Presidio Engineers and Contractors, 960 as a matter of law. This case suggests a trend toward giving S.W.2d 41 (Tex. 1998). The Texas Supreme Court reversed “merger clauses” more weight, which we are also seeing in the Court of Appeals, holding that the franchisee could not negligent misrepresentation. maintain an action for fraudulent inducement if the contract was barred by the Statute of Frauds. The Supreme Court 2. Ratification conceded that language in the Formosa opinion suggested In Fortune Production Co., et al v. Conoco, Inc., 52 S.W.3d 671 that there was a distinction between fraud and fraudulent (Tex. 2000) the Texas Supreme Court considered the issue inducement, but stated that reliance was still an element of of how and when a party can ratify a fraudulent transaction. fraudulent inducement, and without a binding agreement In Fortune Production Co., several natural gas producers sued there could be no reliance. The Court went on further to hold Conoco, claiming that they were defrauded into accepting a that the plaintiff could recover on an “out-of-pocket theory.” lower price for their gas due to misrepresentations made by In other words, plaintiff could not assert a fraudulent induce- Conoco. The jury found fraud, but also found that each of the ment claim without a contract, but could assert a fraud claim plaintiffs had ratified the contracts with Conoco after they based on out-of-pocket damages. became aware of the fraud. The trial court did not award any damages for fraud in the judgment, but rendered judgment In 2002, in DRC Parts & Accessories, L.L.C. v. VM Motori, on an unjust enrichment finding and both sides appealed. 112 S.W.3d 854 (Tex. App. – Houston [14th Dist] 2002, pet. The Court of Appeals affirmed the trial court’s judgment in filed), the 14th Court of Appeals in Houston wrote on the all respects. issue of whether extrinsic evidence that conflicted with the express terms of the contract could be used to avoid summary The Texas Supreme Court affirmed the Court of Appeals ADVOCATE ✯ SPRING 2004 THE 86 in part and reversed in part, holding that (1) only some of can contract away this fraudulent inducement exception if the producer’s claims for fraud damages were foreclosed, the agreement “clearly expresses the parties’ intent to waive and (2) the evidence was legally insufficient to support the fraudulent inducement claims or … disclaims reliance on rep- total amount of fraud damages found by the jury. Id. The resentations about specific matters in dispute.” Schlumberger Supreme Court distinguished some of the producer’s claims Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997). The from others, finding that there may be circumstances under Waco Court of Appeals held that the agreements in this case which a party who was induced to enter a contract by fraud did not satisfy the requirements set forth in Schlumberger to could ratify the contract after they learned of the fraud. Id. at preclude a fraudulent inducement claim. 5. In this case, the plaintiffs who simply continued to sell gas under their existing contracts after they learned of the fraud In Procter v. RMC Capital Corp., 47 S.W.3d 828 (Tex. App. did not waive their right to sue for damages, although they did – Beaumont 2001, no pet. hist.) a purchaser of income pro- waive the right to recision. Id. at 6. However, the plaintiffs who ducing rental property brought a fraud action against the continued to perform after the existing contracts expired did vendor, basing the fraudulent inducement claim on a com- waive the right to seek damages for the post-contract period. mercial real estate contract which contained an “as-is” clause. Id. The Court distinguished new or executory contracts from The Beaumont Court of Appeals reviewed the Prudential case existing contracts, stating that parties who entered into new , and the record and followed Fletcher holding that once the contracts or decided to perform under executory contracts seller has produced proof of an “as-is” clause, the buyer must after learning of the fraud had ratified the fraud and could produce some proof that he would not have agreed to the no longer sue for damages. clause because of false representations made by the seller. Specifically, the buyer’s summary judgment must raise a fact In regard to damages, the Supreme Court focused on the issue on each element of a common law fraud claim based on evidence that had been presented at the trial court which the specific representations of the condition of the subject of dealt with the price that Conoco had been willing to pay the contract. In this case, the Court of Appeals held that the other producers. The producers had put in evidence that buyer had not raised a fact issue through his affidavit, and they could have negotiated the same pricing terms as the affirmed the summary judgment of the court below. other producers had they known of the fraud. However, the Court stated that the record reflected that Conoco had only 4. Failure to Read a Contract agreed to pay the higher price for a small fraction of the gas, In Amouri v. Southwest Toyota, Inc., 20 S.W.3d 165 (Tex. App. so that there was no evidence that Conoco would have paid – Texarkana 2000, pet. denied), the Texarkana Court of that higher amount for the entire amount of plaintiff’s gas. Appeals reviewed a summary judgment in which plaintiff Citing Formosa Plastics, the Court held that the evidence did claimed that he had been fraudulently induced into signing not support the “bargain” that would have been struck by a car lease, alleging that he was told it was an agreement to plaintiffs had they known of the fraud, even though evidence sell the car, rather than lease it. The trial court granted a was produced of a similar “bargain.” summary judgment for the defendant car dealership on the grounds that the contract clearly stated it was a car lease and 3. “As-Is” Clauses plaintiff was under an obligation to read and understand the In Fletcher v. Edwards, 26 S.W.3d 66 (Tex. App. – Waco 2000, agreement he had signed. The Texarkana Court reversed, pet. denied), the Waco Court of Appeals addressed the ques- holding that “the failure to read a contract will be excused tion of whether an “as-is” clause in a real estate transaction where the execution of the contract has been fraudulently barred the plaintiffs from a fraud cause of action. Relying on induced.” Id. at 170. The affidavit of the plaintiff stating the Prudential Ins. Co. of America v. Jefferson Assocs., 896 S.W.2d misrepresentations and his reliance was sufficient to raise a 156 (Tex. 1995), the defendants argued that a real estate fact issue precluding summary judgment. agreement that contained a clause to accept the property “in its present condition” barred the plaintiffs’ causes of action in 5. Jury Charge – Post Contract Fraud fraud, DTPA, and negligent misrepresentation. Prudential Ins. The Corpus Christi Court of Appeals considered a jury Co. held that an “as-is” agreement negates the causation essen- charge issue involving fraud in Kajima International, Inc. tial to recovery for a DTPA violation, fraud, and negligence v. Formosa Plastics Corporation, USA, 15 S.W.3d 289 (Tex. cause of action. Id. at 161-162. However, such an agreement App. – Corpus Christi 2000, pet. denied). In Kajima, a will not bind a buyer who is induced to enter the agreement contractor sued a project owner for fraud and negligent because of a fraudulent representation. Id. at 162. The parties misrepresentation arising from work performed for the owner. ADVOCATE ✯ SPRING 2004 THE 87 In addition to proof of misrepresentations at the time of execu- One who makes a fraudulent representation is tion of the contract, plaintiff put on evidence of misrepresen- subject to liability to the persons or class of per- tations made regarding overtime work outside the contract sons whom he intends or has reason to expect to after execution. At the time of trial, the trial court limited act or to refrain from action in reliance upon the the fraud question to consideration of fraud in the induce- misrepresentation, for pecuniary loss suffered by ment and denied plaintiff’s request for a broader jury ques- them through their justifiable reliance in the type tion that would have allowed the jury to consider evidence of transaction in which he intends or has reason that the defendant engaged in a “string along” fraud scheme to expect their conduct to be influenced. after the execution of the contract. The Corpus Christi Court reversed, holding that both pleading and proof were made The Court summarized Section 531 by stating that a “maker of representations after the contract concerning defendant’s of a misrepresentation is liable if he has information that “fraudulent inducement of conduct that was not contractually would lead a reasonable man to conclude that an especial required and that occurred subsequent to the execution of likelihood exists that it will reach certain persons and will the original contracts.” Id. at 291. influence their conduct. Id. at 805. In this case, the evidence raised a fact issue whether Ernst and Young had “reason to The Corpus Christi Court analyzed an issue that has been expect” its representations would be relied on by investors open in Texas courts since Formosa Plastics v. Presidio, 960 to the company it was auditing. S.W.2d 41 (Tex. 1998) – is fraud available as a cause of action for post contract representations? The Corpus Christi The Texas Supreme Court reversed the Court of Appeals, Court reaches the conclusion that under this fact situation holding that the Court of Appeals was correct on the law, fraud is available, whether it is characterized as “fraudulent but had misapplied the standards to the fact of this case. inducement to make an oral amendment to an existing The Supreme Court agreed with the plaintiffs that Texas contract, fraudulent inducement to enter into a new oral con- fraud jurisprudence was consistent with Section 531 of the tract, fraudulent misrepresentation, fraudulent inducement Restatement, and held that the “reason to expect” standard to continue performance, or fraud in the performance.” Id. was appropriate for Texas fraud claims. However, the Supreme at 293. See also Valsangiacomo v. Americana Juice Import, Inc., Court also held that the plaintiffs had not met their burden 35 S.W.3d 201 (Tex. App. – Corpus Christi 2000, no pet. under the expert’s affidavits, because they only cited to “com- hist.)(personal jurisdiction case in which fraud was the alleged monly accepted practices in the investment community,” and contact); National Center for Policy Analysis v. Fiscal Associates, did not specifically show that Ernst and Young had reason Inc., 2002 WL 433038 (N.D.Tex)(misrepresentations after to expect that the plaintiffs would rely on their audit report. execution of contract caused Plaintiff to continue working General industry practice may show foreseeability, but did on contract). not raise a fact issue on whether the maker of the representa- tion had a reason to expect that it would reach people in the 6. Accountant Liability – “Reason to Expect” Intent industry and influence their conduct. Id. at 581. In Ernst and Young & Co. v. Pacific Mutual Life Ins. Co., 51 S.W.2d 573 (Tex. 2001), the Texas Supreme Court reviewed 7. Statute of Limitations – Discovery Rule a summary judgment on behalf of the defendant accounting - Charge company on a common law fraud claim. The defendant had In LaGloria Oil and Gas Company v. Carboline Company, 84 submitted affidavits of accounting experts that stated that it S.W.3d 228 (Tex. App. – Tyler 2001, no pet. hist.), the Tyler had followed generally accepted auditing standards (GAAS) Court of Appeals considered several issues regarding the and that there was no evidence that it had made representa- statute of limitations and the discovery rule in fraud cases. tions intending for the plaintiffs or other investors to rely The plaintiff (LaGloria) was an oil refiner who had sued a on them. The trial court granted the summary judgment. fireproofing manufacturer for fraud and other claims after On appeal, the Dallas Court reversed, holding that (1) affi- it discovered severe corrosion underneath its fireproofing davits of plaintiff’s experts raised a fact issue on the GAAS material. After a summary judgment was denied on fraud, standards, and (2) it was only necessary for plaintiff to prove the trial court granted a separate trial solely on the issue of that defendant intended that a particular class of persons limitations, before proceeding to trial on the issue of liability. rely on its representations and that plaintiff was a member The sole issue presented to the jury was as follows: of that class. Id. at 804. The Court cited Section 531 of the Restatement (Second) of Torts in reaching its decision: Do you find from a preponderance of the evidence ADVOCATE ✯ SPRING 2004 THE 88 LaGloria discovered, or in the exercise of reason- Tyler Court of Appeals reviewed a case in which a natural able diligence should have discovered, before gas processing plant (Intrastate) brought a fraud and tortious April 13, 1991, the existence of corrosion that interference claim against a well operator in connection with was occurring under Pyrocrete 102 fireproofing a settlement agreement in a decision to disconnect a pipeline. at LaGloria’s refiner in Tyler, Texas. A jury found against the defendant on both theories and defendant appealed on several grounds. First, the defendant Plaintiff objected because it left out a “necessary element” claimed that the case was tried on a false promise theory, but – that the injury suffered by LaGloria was likely caused by the plaintiff was now trying to broaden the case to encompass wrongful act of another. The Tyler Court of Appeals reviewed other theories. The Court overruled this point by noting that two recent Supreme Court decisions, KPMG Peat Marwick v. the plaintiff’s pleadings contained references to both false Harrison County Housing Finance Corp., 988 S.W.2d 746 (Tex. representations and failure to disclose material facts. Second, , 1999) and Childs v. Haussecker 974 S.W.2d 31 (Tex. 1998), to the defendant argued that no concealment cause of action was hold that a correctly worded discovery rule question must possible because there was no special relationship between include language inquiring when, if at all, the plaintiff should the parties. Citing the Formosa case, the Court found that have discovered the “nature of the injury.” (Childs held that the a duty to disclose exists, regardless of a special or fiduciary nature of the injury requires “knowledge of the wrongful act relationship, if partial disclosure would be misleading. In this and the resulting injury.” Id. at 40.) Therefore, the jury ques- case, since the defendant had not disclosed that it intended tion for the discovery rule must include language inquiring to demand additional terms later in regard to the settlement as to whether the plaintiff knew or should have known the agreement, it had not disclosed the entire truth. Further, the injury was likely caused by the wrongful conduct of another. defendant had not disclosed that it did not intend to follow See also Superior Laminate & Supply, Inc. v. Formica Corporation, the settlement agreement in accordance with the law. This 93 S.W.3d 445 (Tex. App. – Houston [14th Dist] 2002, pet. evidence, along with the evidence of false promises, was denied); and Slusser v. Union Bank Insurance Co., 72 S.W.3d enough to sustain the verdict. 713 (Tex. App. –Eastland 2002, no pet. hist.). , In Myers v. Walker 61 S.W.3d 722 (Tex. App. – Eastland 2001, The defendant also argued that the discovery rule could not no pet. hist.), the Eastland Court handled a similar issue. The be applied because the injury was not “inherently undis- plaintiff (Walker) in Myers had taken two thirds of his retire- coverable.” The Court stated that the “traditional” discovery ment savings out of his IRA at the request of the defendant rule did not apply in fraud cases, since they are not “true (Myers) and had invested it in the defendant’s business, which discovery rule” cases, but noted that the language employed involved purchasing medical receivables. Rather than pur- was similar once the discovery rule was determined to be chase the medical receivables, the defendant chose to divert applicable. However, the Court made it clear that no require- the money into various entities, which he owned. Plaintiff ment was necessary in fraud cases for the wrongful act to be sued, and the parties entered into a settlement agreement “inherently undiscoverable” before the discovery rule could that required the defendant to pay money and transfer stock. be applied. The defendant subsequently failed to follow the settlement agreement, and this lawsuit resulted. The trial court entered Finally, the Court decided that the four year statute of limita- judgment on a fraud claim in connection with the settlement tions would govern, since that was the statute of limitations agreement and defendant appealed. On appeal, the Eastland in force at the time suit was brought. The defendant argued Court of Appeals held that sufficient evidence was presented that the two year statute should apply, looking to the time to support the judgment, citing evidence that the defendant period when the cause of action accrued. The Court of Appeals was an attorney who attempted to change the terms of the found no authority for this proposition, and looked to TEX. agreement after mediation. CIV. PRAC. & R EM. CODE Section 16.001(a)(4) for the general rule on the statute of limitations. Patel v. Ambassador Drycleaning Co., Inc, 86 S.W.3d 304 (Tex. App.ÑEastland 2002, no pet. hist.), involved a similar issue 8. Settlement Agreements by the Eastland Court of Appeals. After settling a contract Both the Tyler and Eastland Courts of Appeal have written dispute with the suppliers of a drying cleaning machine, the several opinions on fraud in connection with settlement agree- dry cleaner brought a breach of contract action and fraud ments. In Samedan Oil Corporation v. Intrastate Gas Gathering, action for non-performance of the settlement agreement. The Inc., 78 S.W.3d 425 (Tex. App. – Tyler 2001, no pet. hist.), the trial court held that the defendant had substantially performed ADVOCATE ✯ SPRING 2004 THE 89 the settlement agreement and it also found that the defendant examined the law regarding actionable misrepresentations did not fraudulently induce the settlement agreement. The and duty to disclose and found that the owner of the mall Court of Appeals reversed on the breach of contract claim, could not be held liable for either type of fraud. The owner but affirmed the decision on the fraud claim, holding that of the mall, according to the plaintiff’s evidence, made the evidence before the trial court was sufficient to justify representations about the following: he “should not worry” the finding. about a long term lease; that he would “take care” of him; the space “should” rent for a certain amount. According to the 9. Duty to Disclose and Actionable Misrepresentations Supreme Court, these representations did not amount to any In Bradford v. Vento, 48 S.W.3d 749 (Tex. 2001), the Texas evidence because they were only statements that the parties Supreme Court addressed the issue of concealment fraud. would have to “work out” a lease later. In regard to the duty The plaintiff in Bradford was a prospective buyer of a store in to disclose, the Supreme Court disagreed with the Court of a shopping mall who went into business with the defendant Appeals that this was a partial disclosure that conveyed a and ended up in a dispute over ownership and profits. After false impression. The Court stated that there was no evidence a lawsuit was filed on the grounds of fraud, tortious interfer- that the mall owner either knew that plaintiff was ignorant ence and other causes of action, the jury found against the of the lease terms or that the plaintiff did not have an equal defendant and others, including the owner of the mall, for opportunity to discover them. By its holding and its language, $1,274,000 in actual and $6,500,000 in punitive damages. the Supreme Court created doubt on whether a cause of action The fraud portion of the charge contained this language: exists in Texas for a “partial disclosure”: QUESTION NO. 1 Several courts of appeals have held that a general duty to disclose information may arise in an arm’s Did any of the defendants commit fraud against Roell length business transaction when a party makes Vento? Answer Yes or No for each defendant: a partial disclosure that, although true, conveys a false impression. See e.g., Hoggett v. Brown, 971 Fraud occurs when – S.W.2d 472, 487 (Tex. App. – Houston [14th Dist.] a. a party makes a material misrepresentation, 1997, no writ); Ralston Purina, 850 S.W.2d at 636. b. the misrepresentation is made with knowledge of The Restatement (Second) of Torts section 551 also its falsity or made recklessly without any knowl- recognizes a general duty to disclose facts in a edge of the truth and as a positive assertion, commercial setting. Restatement (Second) of Torts c. the misrepresentation is made with the intention section 551 (1977). In such cases, a party does that it should be acted on by the other party, not make an affirmative misrepresentation, but and what is said is misleading because other facts are d. the other party acts in reliance on the misrepre- not disclosed. We have never adopted section 551. sentation and thereby suffers injury. SmithKline Beecham, 903 S.W.2d at 352. But even if we were to adopt such a general duty, there is Fraud may also occur when – no evidence to support the jury’s liability finding a. a party conceals or fails to disclose a material under the submitted jury charge. fact within the knowledge of that party, b. the party knows that the other party is ignorant See also Samedan Oil Corp. v. Intrastate Gas Gathering, Inc., of the fact and does not have an equal opportu- 78 S.W.3d 425 (Tex. App. – Tyler 2001, judgment vacated); nity to discover the trust, Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200 (Tex. c. the party intends to induce the other party to take App. – Houston [14th Dist.] 2001, pet. denied). In Samedan, some action by concealing or failing to disclose as discussed earlier, the Court of Appeals held that a partial the fact, and disclosure could be fraud in the absence of a special rela- d. the other party suffers injury as a result of acting tionship. In Greenwood, the Houston Court of Appeals held without knowledge of the undisclosed fact. the same in regard to partial disclosure as a defense. The Greenwood case has an excellent discussion regarding the use The Court of Appeals affirmed the judgment on the fraud of fraud as a defense to breach of contract. grounds and other grounds and the defendant appealed to the Texas Supreme Court. On appeal, the Supreme Court In 2002, several courts of appeals wrote on the issue of ADVOCATE ✯ SPRING 2004 THE 90 partial disclosure in fraud cases or fraud by omission. In In Pellegrini v. Cliffwood-Blue Moon Joint Venture, Inc., 115 Fleming v. Texas Coastal Bank of Pasadena, 67 S.W.3d 459 (Tex. S.W.3d 577 (Tex. App.--Beaumont 2003, no pet. hist.) the App.– Houston [14th Dist.] 2002, no pet. hist.), the 14th Court Beaumont Court of Appeals closely followed Bradford v. Vento of Appeals again stated their view that a partial disclosure in a case that involved a geophysicist contractor who was could be fraud in the absence of a special relationship. In seeking to recover on an overriding royalty on an oil well Fleming, the plaintiff was swindled out of his retirement under terms of a contract. The issue in regard to fraud was money by a con man, who asked the plaintiff to come to his whether the defendant had the obligation to disclose prior bank and purchase a CD that would be used for collateral in well development that the plaintiff believed was hid from the con man’s business. In the process of purchasing the CD, him during the negotiations. The Beaumont Court stated that the plaintiff asked about the con man’s credit and was told the negotiations involved an arms-length transaction with that the con man was a “good customer”, “generally carried experts on both sides of the contract, that the parties had an six figures” in his account, and “had a good business.” After interest in identifying the prospects prior to execution of the the money was gone, it came out that the con man was a contract, and the plaintiff could have made an investigation new customer, his account had frequent returned items, and to protect his own interests. Given these facts, no duty arose a grand jury had subpoenaed records from his accounts at on the part of the defendant. the bank. The Court held that this was not enough to justify reliance or a false impression, but stated the general duty 10. Proportionate Responsibility to disclose enough information in a arm’s length business In JHC Ventures, L.P., et al v. Fast Trucking, Inc., 94 S.W.3d 762 transaction to avoid a false impression. (Tex. App.-San Antonio 2002, no pet. hist), the San Antonio Court of Appeals addressed one of the most difficult issues In Marshall v. Kusch, 84 S.W.3d 781 (Tex. AppÑDallas 2002, in business litigation todayÑwhether parties are entitled to no pet. hist.) (sale of ranch, in which history of anthrax not a comparative submission of fraud or other “business torts” disclosed), and Bankruptcy Estate of Harrison v. Bell, et al, under Chapter 33 of the Texas Civil Practice and Remedies 99 S.W.3d 163 (Tex. App. – Corpus Christi 2002, no pet. Code. In JHC Ventures, the plaintiff (Fast Trucking) brought hist.)(dispute between attorneys over referral fee), the Dallas a suit for breach of warranty, fraud, and DTPA violations and Corpus Christi Courts of Appeal looked at two different against JHC Ventures, Greg Hoss, Hoss Equipment, and others fraud by omission cases. In the Marshall case, the Dallas as a result of alleged defects in dump trailers purchased by Court concluded that no duty arose to disclose information Fast Trucking. The jury found that JHC Ventures and Hoss in an arms length transaction, due to no relationship between Equipment committed fraud, breached warranties, and the parties. In Harrison, the court seemed to assume a duty violated the DTPA. The jury also found that Fast Trucking because the defendants were employees of the plaintiff, failed to use ordinary care in using the trailers. The judge although this was not discussed. In both cases the courts submitted a comparative question that found that the parties stated the general rule that silence cannot be a false represen- caused the damages in the following percentages: plaintiff tation in the absence of a duty to disclose information. Fast Trucking --40%; JHC Ventures--10%;Hoss Equipment- -20%; and Greg Hoss--30%. Judgment was entered that JHC In 2003, this issue has continued to come up in the courts Ventures and Hoss Equipment were jointly and severally liable of appeals. In Nelson v. Najm, 2003 WL 22413416 (Tex. for all actual damages, without reducing the damages. On App.ÑHouston [1st Dist.] no pet. hist.), a purchaser of a gas appeal, the defendants argued that Chapter 33 applied to the station brought a fraud action against the seller for failing breach of warranty, fraud, and DTPA claims to reduce or bar to disclose the existence of an underground waste oil tank. the damages. In regard to the breach of warranty claims, the After a bench trial in which the court awarded damages to San Antonio Court of Appeals held that Chapter 33 did not the plaintiff, the defendant appealed on the grounds there apply, since this cause of action could not be considered a was no duty to disclose the waste tank and no affirmative “tort.” Fraud, on the other hand, was clearly a tort so that representations were made to the plaintiff. The Houston Chapter 33 did apply to that portion of the verdict. Id. at p. 7. Court of Appeals held that the Texas Administrative Code Finally, the Court referred to the specific portions of Chapter provided a statutory duty to disclose, despite the fact 33 to find that DTPA violations were included in its cov- that the statutory duty was not pleaded. Id. at 5. The erage. SEE TEX. CIV. PRAC. & R EM. CODE ANN. Sec.33.002(h). Houston Court further concluded that the $100,000 Given the fact that one of the parties (Greg Hoss) should not awarded by the trial judge was effectively a rescission mea- have been included in the submission since the fraud claim sure of damages, which was also not pled by plaintiffs. against him was barred, the Court of Appeals remanded for ADVOCATE ✯ SPRING 2004 THE 91 new submission. Defendants also raised the issue of whether contract parties, a tort cause of action may exist, allowing Duncan v. Cessna Aircraft, 665 S.W.2d 414 (Tex. 1984) applied the damaged party to seek “tort” damages including punitive to reduce damages, but the Court held that this issue had damages. This broader avenue of recovery makes the claim not been properly preserved. for tortious an attractive theory. 11. Vicarious Responsibility Texas recognizes a cause of action for tortious interference In Millan v. Dean Witter Reynolds, Inc., 90 S.W.3d 760 (Tex. with a contract if the following elements can be proved: (1) App.-San Antonio 2002, pet. filed), the San Antonio Court the existence of a contract; (2) a willful and intentional act of of Appeals reviewed a case in which a mother sued her son interference, (3) proximate causation; and (4) actual damage and the brokerage firm in which he worked, alleging con- or loss to the plaintiff. Powell Industries v. Allen, 985 S.W.2d version, fraud, breach of fiduciary duty, and other claims. 455 (Tex. 1998); ACS Investors, Inc. v. McLaughlin, 943 S.W.2d The trial judge directed a verdict on the fraud claim on the 426 (Tex. 1997). issue of vicarious liability, finding that the acts in question went beyond the normal brokerage duties, including stealing Although a Plaintiff may prove all four elements, a defendant checks from his mother’s bathroom drawer, writing checks may prevail by pleading and proving a privilege or a legal on his mother’s account, forging his mother’s signature, justification for the interference. Such justification may be and sending bogus statements to his mother. The Court of based on the exercise of either (1) one’s own legal rights or (2) Appeals affirmed, finding that the acts were not within his a good-faith claim to a colorable legal right, even though that general scope of authority. Justice Stone wrote a dissenting claim ultimately proves to be mistaken. Prudential Insurance opinion, finding that the acts were not “utterly unrelated” to Company of America v. Financial Review Services, Inc., 29 S.W.3d his duties. Id. at 8. 74 (Tex. 2000). 12. Damages B. Recent Developments The First Court of Appeals in Houston has written this past 1. Interference with Prospective Contracts year on double recovery and damages in fraud cases. In F.S. Although the Texas Supreme Court has repeatedly affirmed New Products, Inc. v. Strong Industries, 2003 WL 22440424 (Tex. that a claim for tortious interference requires proof of the App.ÑHous. [1st Dist.] 2003, no pet. hist.) the manufacturer “existence of a contract,” the courts of appeal have, in the past, of dump truck trailing axles sued one of its dealers for fraud expanded this cause of action to include tortious interference in the inducement on a non-competition agreement and other with prospective contracts. See Milam v. National Insurance causes of action. Damages on both breach of contract and Crime Bureau, 989 S.W.2d 126 (Tex. App. – San Antonio fraud were awarded by the jury for the loss of the manufac- 1999, no pet. hist.); Bradford v. Vento, 997 S.W.2d 713 (Tex. turer’s profits on one of its lines of products. The plaintiff App. – Corpus Christi 1999, no pet. hist.). manufacturer elected to accept breach of contract damages ($65,000) and attorneys’ fees on one of the defendants and Creating some speculation about the long term future of fraud ($675,000) and exemplary damages on the other defen- this cause of action, the Texas Supreme Court noted in dant who produced the product that was in competition. The Prudential: plaintiff’s argument was that the defendants had committed different acts, the amount of the jury verdict was different We have never enumerated the elements of a cause of on each finding and that the total amount was less than they action for tortious interference with prospective con- had asked for from the jury. However, evidence had only been tracts, although we have concluded that justification presented on lost sales, profits, and costs associated with the is an affirmative defense to tortious interference with lost sales of the competing product line. Therefore, plaintiff prospective business relations as well as to tortious had only “one loss” that was presented in evidence. interference with an existing contract. (Citing Calvillo v. Gonzalez, 922 S.W.2d 928, 929 (Tex. 1996). IV. TORTIOUS INTERFERENCE A. Background Prudential, 29 S.W.3d at 78. The Court declined to address Parties to a contract may sue each other for breaching the the point because neither the parties nor the courts had contract and obtain the contractual benefits and possibly addressed the issue. attorneys fees. If, however, the contract is breached or impaired because of the conduct of someone other than the In Wal-Mart v. Sturges, 52 S.W.3d 711 (Tex. 2001), the Texas ADVOCATE ✯ SPRING 2004 THE 92 Supreme Court again addressed tortious interference with Co., 54 S.W.3d 401, 414-15 (Tex. App. – Waco 2001, prospective relations with the express intent of bringing pet. denied). “some measure of clarity to this body of law.” Id. at 713. However, the Supreme Court still did not identify the specific The Court of Appeals then found that, using the new standard, elements of the cause of action. In Wal-Mart, the Supreme three of the four insurance companies had not “intentionally” Court reviewed a case in which the plaintiffs sued for prevented the formation of the relationships and, therefore, tortious interference with prospective relations, claiming that summary judgment was proper. In regard to the fourth, the Wal-Mart interfered with their contract to purchase some real court reversed on procedural grounds, finding that its sum- estate next to one of the Wal-Mart stores. The Supreme Court mary judgment had not raised the issues properly. looked at the historical development of the interference tort in Texas and other jurisdictions and reached the conclusion The case of Suprise v. Dekock, 84 S.W. 3d 378, 379 (Tex. App. that plaintiff must prove that it was harmed by conduct that – Corpus Christi 2002, no pet. hist.), illustrates a practical was either independently tortious or unlawful. The Supreme litigation tip regarding pleadings in a cause of action for Court stated that conduct that is merely “sharp” or “unfair” tortious interference with prospective contract. This case cannot be the basis for the action, specifically disapproving involved a group of hunters who owned a hunting property a line of cases in Texas such as Light v. Transport Ins. Co., 469 and brought suit against neighboring land owners for alleged S.W.2d 433 (Tex. Civ. App. – Tyler 1971, writ ref’d n.r.e.). In tortious interference with use and enjoyment of land. Id. regard to justification as a defense, the Court held that the The trial court granted the neighboring owners summary concept was “subsumed” in plaintiff’s proof, and was only a judgment, and the hunters appealed. Id. The issue on appeal defense to the extent that it is a defense to the “tortiousness was whether the hunters had failed to state a claim for tor- of the defendant’s conduct.” “Justification and privilege are tious interference when they did not specifically mention not useful concepts” in assessing interference with prospec- the terms “prospective contract” or “business relationship” tive relations. Id. at 727. in their pleadings. Id. at 380. The hunters did specifically mention in their pleadings that the neighboring owners had In Baty v. Protech Insurance Agency, 63 S.W.3d 841 (Tex. App. interfered with their efforts to the sell the property by posting – Houston [14th Dist.] 2001, pet. denied), the Houston 14th signs and calling prospective buyers. Id. at 381. Accordingly, Court of Appeals had a chance to apply the Supreme Court’s the court said, the hunters did sufficiently state a claim for opinion in Wal-Mart. In Baty, the plaintiffs brought suit for tortious interference with prospective contract because the tortious interference against the two of their former officers wording of the petition made apparent the gist of the com- who had formed a competing business, along with four plaint. Id. at 382. insurance companies who were former clients. The trial court granted summary judgment for the insurance companies. On A case decided by the Corpus Christi Court of Appeals in appeal, the Houston Court of Appeals considered Wal-Mart 2002 addressed the issue of what constituted an “independent and how it fit within the context of the defendants’ summary tort” such that it would form the basis of a claim for tortious judgments. The Court set out what it considered the elements interference with prospective business relationship. See Allied of the cause of action to be in light of Wal-Mart: Capital Corporation v. Cravens, 67 S.W. 3d 486 (Tex. App. – Corpus Christi 2002, no pet. hist). In Allied, the Cravens In light of Sturges and Bradford, the elements of a owned two properties secured by a deed of trust and were claim for tortious interference with a prospective late in their note payments, resulting in foreclosure proceed- business relationship appear to be: (1) a reasonable ings. Id. at 488. Allied advertised the foreclosure sale, and probability that the plaintiff would have entered into the Cravens obtained a temporary restraining order. Id. In a business relationship; (2) an independently tortious support of their motion, the Cravens presented testimony that or unlawful act by the defendant that prevented the a prospective purchaser was deterred by the advertising. On relationship from occurring; (3) the defendant did appeal, Allied argued that the trial court erred in granting the such act with a conscious desire to prevent the rela- TRO because movants failed to show a likelihood of success tionship from occurring or the defendant knew the on the merits. Id. Specifically, Allied contends that the Cravens interference was certain or substantially certain to would not win at trial because their actions in advertising the occur as a result of the conduct; and (4) the plaintiff foreclosure are not an independent tortious act or a violation suffered actual harm or damages as a result of the of law which would allow recovery for tortious interference. defendant’s interference. Ash v. Hack Branch Distrib. Id. at 489. The Court of Appeals agreed, holding that because ADVOCATE ✯ SPRING 2004 THE 93 the Cravens did not assert any independent cause of action conduct, this was further evidence that the CEO had not such as fraud, but rather, asserted that the conduct was unfair acted contrary to its interests. because it provided detailed foreclosure information only to a few people before the sale was posted. In Swank, the First Court of Appeals in Houston faced similar issues and reached a similar conclusion. The plaintiff had sued 2. Interference by Corporate Agent for tortious interference on an employment agreement and was Generally, a party cannot interfere with its own contract. claiming that several directors/investors in the corporation , Holloway v. Skinner 898 S.W.2d 793 (Tex. 1995). However, had interfered with his employment contract. The jury agreed, when the defendant serves the dual roles of corporate agent and on appeal one of the issues was whether the evidence and the third party who allegedly induces the corporation’s had shown they acted “solely” in their own interests. The breach, the “interference” issue can become complicated. In First Court reversed the jury finding, holding that “mixed” that event, a plaintiff must generally prove that the corporate motives were not sufficient, and even stating that corporation agent’s alleged interference was in furtherance of the agent’s complaints were not “conclusive” evidence that the agents personal interests, not the corporation’s. Id. were acting solely in their own interests. Id. at 17. This issue came up in two opinions in 2003, Ed Rachel 3. Justification as Defense , Foundation v. D’Unger 117 S.W.3d 348 (Tex. App.ÑCorpus Justification is an affirmative defense to tortious interference Christi 2003, no pet. hist.), and Swank v. Sverdlin, 2003 WL with contract, based either on: (1) one’s own legal rights; or 22053837 (Tex. App.ÑHous. [1st Dist.] no pet. hist.). In Ed (2) a good faith claim to a colorable legal right, even though Rachel Foundation, a former officer of a non-profit corporation that claim ultimately proves to be mistaken. Tex. Beef Cattle brought claims against the foundation for wrongful termi- Co. v. Green, 921 S.W.2d 203 (Tex. 1996). In Vingcard v. nation, breach of contract, and brought claims against the Merrimac Hospitality Systems, 59 S.W.3d 847 (Tex. App. CEO of the foundation for tortious interference. After a jury – Fort Worth 2001, no pet. hist.), the Fort Worth Court of verdict for plaintiff, the foundation and CEO appealed. The Appeals considered the use of justification as a defense in a issue on appeal in regard to tortious interference was two- case in which a computer workstation manufacturer brought fold: 1)whether an at-will employment agreement could be a tortious interference action against a buyer and another the subject of tortious interference, and 2) whether the CEO manufacturer. After a verdict in plaintiff’s favor, defendant had acted “solely” in furtherance of his interests, as opposed appealed on several grounds, including the failure of the jury to the corporation’s interest. The Court first held that an at- to find justification. The Court of Appeals pointed out that will employment agreement could be the subject of tortious the issue of whether a defendant has a legal right or color- interference, consistent with prior precedent. See Sterner v. able legal right is a question of law, which did not need to Marathon Oil, 767 S.W.2d 686 (Tex. 1990). In considering be submitted to the jury. The only issue that goes to the jury the second issue, the Corpus Christi Court focused on the is whether there is evidence of good faith, which is after the foundation’s view of the CEO’s conduct: court has concluded that no legal right exists. In this case, the Court of Appeals found that the evidence supported the A principal is a better judge of its own best interests jury’s failure to find good faith. than a jury or court. If a principal does not complain about its agents’ actions, the agent cannot be held to In Samedan, discussed infra, 78 S.W.3d 425 (Tex. App. – Tyler have acted contrary to the principal’s interests. 2001, no. pet. hist), the Tyler Court of Appeals also considered whether justification could be submitted by way of instruc- Id. at 16. tion, rather than as a separate question. The instruction in Samedan read as follows: Evidence was presented that the CEO benefited by use of a ranch and an increased salary, but the Court held that the Interference is intentional without justification if plaintiff had to prove more than “the fact that Altheide (the committed with the desire to interfere with a defendant) had benefited personally from firing D’Unger contract or with the belief that interference is (the plaintiff).” Id. at 16. The plaintiff basically had to prove substantially certain to result provided that such that the defendant acted willfully or intentionally to serve interference is not in the exercise of one’s own equal his personal interest at the expense of the foundation. Further, or superior right or interest in the subject matter . since the foundation had not complained about the CEO’s (Emphasis added). ADVOCATE ✯ SPRING 2004 THE 94 The court held that the submission was appropriate, even reversed on the ground the contract was not illegal under though the Texas Pattern Jury Charge provides for a separate Mexican law. question. The Court of Appeals primarily based its holding on the lack of any authority mandating a separate question 5. Intentional Interference and the fact that Samedan had not informed the trial court The defendant must take action to induce the breach of con- why a separate question was necessary. tract in order to be liable for tortious interference. A defendant must do more than enter into a contract with a party, knowing A more recent case addressing justification as a defense is that the party had contractual obligations to another. The Richter v. Wagner Oil Company, 90 S.W.3d 890 (Tex. App. defendant must have interfered or persuaded the party to - San Antonio 2002, no pet. hist.). Richter involved an breach for tort liability to arise. Davis v. HydPro 839 S.W.2d entrepreneur and his partner who brought several claims 137 (Tex. App. – Eastland 1992, writ denied). against oil company, including tortious interference with contract, based on the company’s purchase of reserves. In an Austin Court of Appeals Case, the court affirmed a The purchase took place after the entrepreneur disclosed trial court’s decision to enter a JNOV and render a take- that his partner was likely the successful bidder of the nothing judgment despite the jury’s award of $15,000,000. reserves. Chief Justice Hardberger reiterated the holding John Paul Mitchell Systems v. Randall’s Food Markets, 17 S.W.3d in Tex. Beef Cattle Co., stating that the motivation behind 721 (Tex. App. – Austin 2000, pet. denied). The jury found the interference is irrelevant. Tex. Beef Cattle Co. v. Green, that Randall’s Food Markets was selling Paul Mitchell hair 921 S.W.2d 203 (Tex. 1996). Improper motives cannot products and in so doing was tortiously interfering with Paul transform lawful actions into actionable torts. Id. at Mitchell’s exclusive distribution contracts. The distributor, 211. The court further explained, based on the Supreme Jade Drug Company, sold the products to Randall’s and the Court’s holding in Sturges, that “when two parties are president of Jade testified that he knew that Paul Mitchell competing for interests to which neither is entitled, then had contracts with various salons to sell its products exclu- neither can be said to be more justified or privileged in his sively through the salons. He testified that Jade was not an pursuit. Wal-Mart v. Sturges, 52 S.W. 3d 711 (Tex. 2001). authorized dealer of Paul Mitchell products and that for In this case, both Richter and Wagner were competing for his company to obtain the product, “somebody broke their the right to purchase oil reserves, and neither was declared agreement”. 17 S.W.3d at 730. Despite this testimony, the the successful bidder. Therefore, Wagner’s purchase of the Court held that: oil reserves was a bona fide exercise of its own rights. Here, although there is evidence that Jade purchased 4. Effect of Foreign Law on Contract in Question products when it knew of Paul Mitchell’s closed In Long Distance International v. Telefonos de Mexico, 18 S.W.3d distribution system, there is no evidence that Jade 706 (Tex. App. – San Antonio 2000, rev’d on other grounds) “induced” anyone to breach its exclusive distribu- 49 S.W.3d 347 (Tex. 2001), the Court determined that the tion agreement with Paul Mitchell…. If one of Paul contract in question was illegal under Mexican law, and, Mitchell’s dealers or salons breached its obligations of therefore, tortious interference was not available as a cause its own volition, and Jade merely participated in the of action. Since the Plaintiff was suing to obtain damages for transaction, this does not constitute the “knowing the interference with its contract to illegally provide phone inducement” required under Texas law to impose service in Mexico, the Court concluded that liability for tortious interference with Paul Mitchell’s distribution network. [a] contract made with a view of violating the laws of another country, though not otherwise obnoxious 17 S.W.3d at 731. Contrast this case with Graham v. Mary to the laws either of the forum or of the place where Kay, Inc., 25 S.W.3d 749 (Tex. App. – Houston [14th] 2000, the contract was made, is illegal and will not be pet denied) to find a successful approach to the “exclusive enforced. dealership” type case. In Graham, the evidence showed that Mary Kay had an exclusive distribution agreement with its 18 S.W.3d at 713. This is consistent with the general rule sales people who agreed to sell the products exclusively that a contract that is void cannot be the basis for a claim for at home visits to customers. The defendant Graham was tortious interference. Juliette Fowler Homes v. Welch Associates, obtaining Mary Kay products from these sales people and 793 S.W.2d 660 (Tex. 1990). On appeal, the Supreme Court selling the products at a flea market. Mary Kay sued to ADVOCATE ✯ SPRING 2004 THE 95 obtain an injunction to stop these flea market sales. Graham 6. An Inference of Intentional Interference Is Not contended that there was insufficient evidence of improper Enough interference. The Court found: Proving willful interference is an onerous burden. A recent decision recognized that: The evidence shows that Graham actively sought current Mary Kay salespersons who were willing to Because a defendant accused of tortious interference breach this clause in their agreement and sell their rarely admits his guilt, a plaintiff must prove his cause products to Graham. Graham knew of this restriction of action with circumstantial evidence. because she had been a beauty consultant, signed an agreement and was terminated for selling cosmetics Dagley v. Haag Engineering, 18 S.W.3d 787 (Tex. App. – Houston at a retail location. The summary judgment evidence [14th Dist.] 2000, no pet. hist.). Despite this acknowledgement, showed that Graham cajoled these beauty consultants the Court ruled that the Plaintiff’s evidence was insufficient into continuing to sell to her, even after they knew to raise a fact issue. In Dagley, the plaintiff-homeowner sued that dealing with Graham was in breach of their agree- the engineering firm that State Farm used to evaluate his ments. Thus, we find there was ample evidence of hail damage. The homeowner contended that the engineers willful and intentional interference by Graham, that minimized the report of damage, thus preventing him from these acts were essential to Graham’s conduct of her collecting insurance benefits under the contract. The engi- business…. neers did not dispute that State Farm improperly denied the insured’s claims, or that the engineers had a long standing 25 S.W.3d at 753. The contrast between these two cases shows and financially significant relationship with State Farm. that it is not enough that a Defendant knew that a contract The engineers also did not dispute that they knew that their was being breached; the defendant must be the one interfering actions would affect State Farm’s conduct. Despite this, the with the contract and causing the breach. Court held that this was not enough to prove intentional interference. In this past year, the Austin Court of Appeals wrote again on tortious interference in New York Life Insurance Company Daniel Bishop is a partner in the Austin firm of Watson, Bishop, , v. Miller 114. S.W.3d 114 (Tex. App.ÑAustin 2003, no pet. London and Galow, which specializes in business torts and per- hist.). In New York Life, a life insurance agent brought suit sonal-injury litigation. Bishop is past president of the Austin for tortious interference against another insurance agent Young Lawyers Association and currently serves as Treasurer of for interfering with his contract with New York Life. After the Litigation Section, State Bar of Texas. ✯ finding that New York Life had not breached its contract with the plaintiff, the Austin Court found that the evidence was 1In Altai, a trade secret case, the Court articulated two principles insufficient to support a tortious interference finding. Since the contract was not breached, the defendant could not have that generally apply in discovery rule cases: (1) the nature of the “interfered” with it. Id. at 125. injury must be inherently undiscoverable, and (2) the injury itself must be objectively verifiable.