Today the Texas Supreme Court issued an order denying the petition for review in HMC Hotel Properties II L.P. and Host Hotels & Resorts, Inc. F/K/A Host Marriott Corporation and Host Hotels & Resorts, L.P. F/K/A Host Marriott, L.P. v. Keystone-Texas Property Holding Corporation (12-0289).

In an amicus brief in support of the petition for review, TCJL argued that the San Antonio Court of Appeals has drawn a roadmap for unhappy parties to escape agreements they have voluntarily made. Based on the court of appeals’ ruling, a party need only allege that the other party misinterpreted the contract with “malice” in order to establish potential tort liability, using the fact of the interpretation itself to establish liability for punitive damages. If this is indeed the outcome, then overnight Texas will become the last place in the world that parties will voluntarily enter into contracts that involve any significant amounts of capital or level of exposure. Even the contract laws of other fora will not be sufficient to protect parties if Texas courts are given this clear signal to punish “wrongdoers” whose only malfeasance is to have the temerity to try to enforce a contractual obligation. TCJL’s brief cautioned that if the court of appeals decision holds up, the punitive damages reform since Moriel and the 1995 legislative codification will be seriously undermined.

This is an alarming decision in that it leaves unexamined a verdict of more than $70 million, including more than $7 million in punitive damages, based on extremely dubious construction of Texas law. TCJL plans to urge the Supreme Court to reconsider its refusal to hear this case.

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