TCJL Amicus Report
June 2023
1. The Ohio Casualty Insurance Company v. Patterson-UTI Energy, Inc.; Patterson-UTI Management Services, LLC; Patterson-UTI Drilling Company, LLC; and Marsh USA, Inc.(No. 23-0006)
This case arose from a personal injury action against the Patterson companies. Patterson had obtained an excess policy from Ohio Casualty that provided coverage after the primary policy and two other excess policies were exhausted. They were exhausted, and Patterson made a claim on the Ohio Casualty policy for damages awarded against them and defense expenses (over $4 million). Ohio Casualty paid the indemnity for the damages but declined to reimburse Patterson’s defense expenses on the basis that its policy excluded defense costs. Patterson sued for breach of contract and bad faith under Chapter 542, Insurance Code. The trial court awarded summary judgment to Patterson. Ohio Casualty appealed.
The court of appeals affirmed. The decision turned on whether the defined term “ultimate net loss” in the primary policy, which explicitly included defense expenses, was incorporated into the excess policy by virtue of the excess policy’s “following form” provision. That provision, according to the court, “states that the excess policy will ‘follow’ the ‘first underlying insurance’ [except] for the terms, conditions, definitions, and exclusions of this policy.” While conceding that its policy generally incorporated the primary policy under the following form provision, Ohio Casualty contended that the excess policy unambiguously excluded defense expenses based on the policy’s divergent definition of “loss,” which supplanted the term “ultimate net loss” contained in the primary policy. In the excess policy, “loss” was defined as “those sums actually paid in the settlement of satisfaction of a claim which you are legally obligated to pay as damages after making proper deductions for all recoveries and salvage” (emphasis added). In the absence of a definition of “damages” in the excess policy, the court looked to the primary policy, which appears to include “defense expenses” as damages covered by the policy. The dispute, then, is whether the term “damages” should be given its common meaning in the excess policy (in which case it would not include defense costs) or the meaning assigned in the primary policy’s definition of “ultimate net loss.”
The court of appeals held that the “following form” language in the excess policy controlled in the absence of “clear and unambiguous language” excluding defense costs, despite the policy’s use of different terminology to describe a covered “loss.” The court appealed to public policy concerns, worrying that “Ohio Casualty’s argument . . . could conceivably open the door for vague language in excess policies to implicitly diverge from primary policies in “follow form” excess policies with far-reaching financial consequences for insureds.” It seems equally conceivable, however, that the court’s reasoning could lead to excess policies dropping “follow form” provisions altogether if those provisions can be interpreted to override other conditions of coverage in the policies.
TCJL’s letter asks SCOTX to accept review and clarify two issues: (1) whether the court of appeals properly grafted the underlying policy’s definition of “ultimate net loss” onto the excess policy’s plain meaning use of the terms “loss” and “damages,” and (2) whether the ordinary meaning of “damages” includes defense costs and attorney’s fees. The latter issue transcends insurance contracts and is of general interest to the business community. We hope that SCOTX sees it that way and takes the case.
The petition for review is in the merits briefing stage.
2. American Honda Motor Co., Inc. v. Milburn (No. 21-1097)
The presumption of nonliability for products manufactured to meet or exceed mandatory federal safety standards, § 82.008, CPRC, is one of the cornerstones of the 2003 tort reform effort. This provision has come under repeated attack in product liability litigation around the state, especially in the context of motor vehicle accidents. In order to over to overcome the presumption, the plaintiff must that the specific standard governing the product at issue is inadequate and exposes the public to an unreasonable risk of harm. In general, plaintiffs have to produce an expert qualified under Rule of Evidence 702 to give an opinion detailing the inadequacy of the federal standards. Some trial courts are better than others at enforcing Rule 702 and properly applying the Robinson standards. Others have allowed evidence of corporate lobbying of Congress and federal agencies to argue that the defendant made material misrepresentations about their products to water down the pertinent regulations. Still others have let the jury hear evidence relating to dissimilar products or other safety issues to show inadequacy. Some of these cases have produced megaverdicts on highly questionable evidentiary grounds.
This case arose from a collision between a Honda Odyssey, driven by an rideshare driver, and a pick-up truck. One of the passengers in the Uber was sitting in the middle seat of a fold-down third row. This particular seat design, which is common in a variety of SUVs, has a federally approved safety design which requires the lap belt to be anchored to the seat (otherwise the seat does not fold flat). The manufacturer specifically instructs and warns owners to make sure the belt is anchored before passengers sit there. The driver did not do this, and the plaintiff was injured when he ran a red light and hit the truck. At trial, the plaintiff’s seatbelt expert admitted that the seatbelt in question met the standard. There was also no evidence that any other injuries involving the seatbelt had been reported and no recalls have ever been made.
The plaintiff, however, offered a second expert who opined that the federal standard was inadequate because Honda could foresee that a passenger in that seat would not know about the seatbelt design or whether it was properly anchored. She made this conclusion based on a test designed and performed by plaintiff’s counsel (with no representative of the defendant present), in which several dozen people were asked to sit in that seat and fasten the seatbelt, which was unanchored. Predictably, no one knew or asked about it, but simply assumed the belt was operating properly. This is called “human factors” testing, and the “expert” admitted that it was both contrived and unscientific. Incredibly, the trial judge let the testimony in over Honda’s objection. The trial judge also excluded evidence that the driver had a criminal record, assaulted a passenger, and been involved in another accident while speeding. Even more incredibly, the trial court refused to allow Honda to submit the fault of a settling party—the driver—to the jury on the basis that he was an “employee” of the rideshare company. The jury awarded the plaintiff more than $30 million.
The court of appeals affirmed. In an opinion notably bereft of legal analysis, the court found that the trial court did not abuse its discretion in admitting the plaintiff’s bogus study or excluding evidence of the driver’s fault. It likewise let stand the trial court’s decision to keep the jury from assigning fault to the driver. I wish I could give you a reasoned justification for this holding, but alas I cannot. Honda has filed a petition for review with SCOTX challenging both the validity of the “human factors” test and the exclusion of the driver’s fault. TCJL filed an amicus curiae brief in support.
Our brief argues that both the trial and appellate courts failed in their duty as gatekeepers to throw out “junk science” expert testimony. By not applying Rule 702 to the plaintiff’s “human factors” expert, these courts have opened the door to whatever “study” a plaintiff’s counsel can cook up in order to rebut the presumption of nonliability, so much so that the presumption will become a dead letter. We also take the courts to task for flat out violating Chapter 33, CPRC, by blocking submission of the negligent driver’s fault. In our view, this case demonstrates how a result-oriented court can use evidentiary rulings to subvert legislative policy decisions about tort law. Unfortunately, we have to ask SCOTX once more to intervene and correct an egregious abuse of discretion and erroneous appellate decision.
The Court granted the petition for review on June 2, 2023.
3. Texas Equal Access Fund v. Ashley Maxwell (No. 02-00147-CV); Sadie Weldon v. The Lilith Fund for Reproductive Equity(No. 02-22-00413-CV); Texas Right to Life v. Van Stean (No. 03-21-00650-CV)
In two cases currently pending before the Fort Worth Court of Appeals, TCJL filed amicus letters urging the Court to adjudicate the constitutional issues raised by SB 8, the legislation creating a no-injury cause of action by any person against any person for aiding or abetting an abortion. It is important to emphasize that TCJL’s letters take no position whatsoever on the underlying policy issues involved in the bill but only on the constitutional standing and delegation issues decided by MDL Judge David Peeples in Texas Right to Life v. Van Stean, which is currently pending before the Austin Court of Appeals (No. 03-21-00650-CV).
As our letters state:
We do not purport to know how a court of last resort will view SB 8, but we can be sure of one thing: until the constitutional issues are resolved, every single defendant will respond to an SB 8 lawsuit or Rule 202 petition (for presuit deposition) with a constitutional challenge. It will constitute legal malpractice not to do so. Given that SB 8 puts the whole onus of costs and attorney’s fees on a defendant for having the temerity to invoke and vindicate its constitutional protections (not to mention the damages awaiting an unsuccessful defense), it seems appropriate that whether a defendant actually possesses any such protections in a post-SB 8 world be decided before the torrent of litigation is further unleashed against Texas businesses. If we are going to create a lawsuit industry like this, we should at least do it in an orderly and clear-sighted fashion.
The cases are before the courts of appeals in slightly different postures. In Sadie Weldon v. The Lilith Fund for Reproductive Equity (No. 02-22-00413-CV), the trial court denied Weldon’s TCPA motion to dismiss. In the other case, Texas Equal Access Fund v. Ashley Maxwell (No. 02-22-00347-CV), the trial court dismissed Texas Equal’s constitutional challenges. Last year TCJL filed a similar amicus letter with the Austin Court of Appeals in the Van Stean case. In view of the high stakes involved in resolving the constitutional issues—not to mention the constitutional status of several bills pending in the Legislature and in other state legislatures that follow the SB 8 model—Texas businesses deserve an answer so that they may know where they stand. Delay is doing nobody any good and serves only to destabilize the business climate.
All three cases remain pending in the Fort Worth and Austin Courts of Appeals.
4. ExxonMobil Corporation v. National Union Fire Insurance Company of Pittsburgh, PA. v. Exxon Mobil Corporation and Starr Indemnity & Liability Insurance Company (No. 21-0936)
The First Court of Appeals [Houston] handed down a decision in a coverage dispute between an additional insured and CGL carriers that flatly contravenes recent SCOTX precedent. In the related appeals National Union Fire Insurance Company of Pittsburgh, PA. v. Exxon Mobil Corporation and Starr Indemnity & Liability Insurance Company and Exxon Mobil Corporation v. Starr Indemnity & Liability Insurance Company (No. 01-19-00852-CV; Opinion issued September 21, 2021), the court of appeals reversed a summary judgment in favor of the additional insured, Exxon, for reimbursement of damages and attorney’s fees under its contractor’s CGL coverage. TCJL filed an amicus curiae brief in support of Exxon Mobil’s petition for review to the Texas Supreme Court.
The underlying litigation commenced in 2013. Exxon contracted with Savage Refinery Services, LLC for construction services at its Baytown Refinery. As is standard practice, Exxon required Savage to carry “its normal and customary” CGL for injury, death, or property damage and to cover Exxon as an additional insured. While performing services at the plant, two Savage employees were injured by a release of hot water and steam. One of the employees filed a lawsuit against Exxon, while the other sought payment of damages outside of litigation. Exxon ultimately settled with both for about $22 million. It then sought reimbursement of the settlement amount and attorney’s fees from Savage’s CGL and umbrella policy carriers, AIG Europe Limited, National Union, and Starr. AIG paid its limit, but National Union and Starr denied coverage. Exxon filed breach of contract claims against both companies, as well as a declaratory judgment claim. The trial court granted summary judgment for Exxon against National Union. It also granted summary judgment for Starr against Exxon on the basis that the Starr policy covered marine risks and was not a CGL policy. Everybody appealed.
This is the second time the same issue had come through the Houston courts of appeals in a matter arising from the same accident. In this second round, the First Court looked almost exclusively to the Service Agreement to bootstrap Exxon out from under the plain language of the CGL policy, which covers additional insureds like Exxon. The court of appeals also concocted an interpretation of “commercial general liability” coverage that allowed it to sidestep SCOTX’s clear holding in State of Pennsylvania, Deepwater Horizon, and other cases that an insurance policy must explicitly incorporate extrinsic documents. If the policy does not do that, then a court may only look to the extrinsic document to determine the contractor’s insurance obligations to the additional insured. Exxon’s contract with Savage dictates that Savage cover Exxon for the very occurrences that happened in this case. That should be the end of the story, but it appears that SCOTX will have to tell the First Court that they really meant it the first time.
As referred to above, in 2019, SCOTX handed down an opinion in Exxon Mobil Corporation v. The Insurance Company of the State of Pennsylvania (No. 17-0200), in which TCJL likewise participated as amicus curiae. That case involved the carrier’s attempt to recover from Exxon the workers’ compensation benefits paid to Savage’s employees under a subrogation provision in its policy with Savage. Exxon argued that the carrier had waived its subrogation right in the policy. The carrier argued that Exxon’s service contract with Savage limited Savage’s obligation to indemnify Exxon for Exxon’s tort liability and that Savage could not therefore waive subrogation for liability it did not assume under that contract. SCOTX agreed with Exxon that the language of the policy controls and that extrinsic documents, such as service contracts, should only be consulted if explicitly incorporated by reference into the policy. The Court only referred to the service contract to determine whether Savage was required to provide Exxon with a waiver of subrogation, which Savage was. Absent an explicit provision in the carrier’s endorsement, therefore, the carrier was not entitled to subrogation from Exxon. As Justice Guzman wrote, “Mere reference to a constitutional obligation to provide the waiver does not import extrinsic limits on the waiver’s application.”
TCJL’s brief in the current case recapitulates our arguments in State of Pennsylvania that the court of appeals’ erroneous incorporation of a service agreement into the primary insurance policy deprives the additional insured of coverage it bargained and paid for. It also confers a windfall on the insurer, which reaped the benefit of selling the policy and then sought to avoid its indemnity obligation under the policy. We believe that SCOTX’s insistence that a contract must explicitly incorporate extrinsic documents provides a bright line rule that businesses clearly understand and upon which they can confidently rely. The court of appeals’ decision undermines that policy and introduces significant uncertainty into carefully negotiated agreements to allocate risk in construction contracts. We urge SCOTX to accept review and remind the court of appeals of the Court’s prior opinions on the issue.
SCOTX reversed and remanded to the court of appeals on April 14, 2023. A motion for rehearing is pending before the Court.
5. In re Breviloba, LLC (No. 21-0541)
In a case in which TCJL participated as amicus curiae, the Texas Supreme Court reversed a split Waco Court of Appeals decision holding that a Walker County Court at Law did not have jurisdiction over an eminent domain case because the alleged damages exceeded the dollar cap on the amount in controversy imposed by §25.0003(c)(1) on a county court’s additional jurisdiction. The case, In re Breviloba (No. 21-0541) arose from a suit brought by a pipeline company against a landowner in the county court at law to condemn a 50-foot-wide pipeline easement. The landowner, among other things, sought $13 million in damages and moved to transfer the case to district, which the court denied. The Waco Court of Appeals, over a dissent, granted the landowner’s petition for mandamus and ordered the transfer, reasoning that the amount in controversy exceeded the county court’s $250,000 amount in controversy cap.
In a per curiam opinion without oral argument, SCOTX reversed. The Court’s analysis of the varying levels of jurisdiction granted to county courts at law notes the patchwork nature of the system and ultimately concluded that §21.001, Property Code, grants independent jurisdiction to county courts at law in eminent domain cases to which the cap on the amount in controversy does not attach. According to the Court, the cap only applies to a county court’s additional jurisdiction, not to the primary grant in §21.001. Moreover, once a county court at law has jurisdiction over an eminent domain case, that jurisdiction extends to all of the issues that may be raised, including the condemnor’s right to condemn (which the landowner contests in this case). “Jurisdiction over ‘eminent domain cases,’” the Court observes, “would be a hollow grant without the ability to adjudicate condemnation authority.” While the landowner attempted to recast its claim as a bad faith or fraud claim (alleging that Breviloba was a “sham entity” designed to invoke eminent domain authority where it did not previously exist), the “gravamen” of the claim involves the entity’s right to condemn, which is properly adjudicated in an eminent domain proceeding.
At issue in the case is whether the general statutory grant of jurisdiction to county courts at law, §25.0003, Government Code, trumps the specific grant of concurrent jurisdiction to those courts in eminent domain cases under §21.002, Property Code. TCJL’s brief argued that a condemnation petition filed under Chapter 21, Property Code, in a proper statutory county court controls, even if the property owner claims damages in excess of the jurisdictional limit. Chapter 21 mandates transfer to a district court only in cases involving title issues or other matters that the trial court determines cannot be fully adjudicated. Neither of those conditions existed here. Even though §25.0003 refers to jurisdictional limits, it also specifically exempts cases where another law gives the county court at law jurisdiction. The trial court determined that it could fully adjudicate the property owner’s damages claim as part of the eminent domain proceeding properly initiated under Chapter 21. Any other reading of the two statutes encourages forum shopping, encourages litigation, and raises the cost of the eminent domain process–all against the express will of the Texas Legislature.
As we stated in the brief: “Whether a case constitutes an ‘eminent domain case’ is determined once and for all when an entity with the power of eminent domain [i.e., claiming such authority] files the statutorily required condemnation petition. In other words, the nature of the case does not change when the property owner appends various and sundry claims to it, as the owner belatedly did here. It remains an eminent domain case and should only be transferred under the limited conditions set out in Section 21.002. The legislature designed Chapter 21 to incentivize condemnors and property owners to reach voluntary agreements without the need for costly and protracted litigation. The court of appeals’ opinion will have the opposite effect: it incentivizes litigation by permitting property owners who don’t like the way a condemnation proceeding is going to try their luck in a different court.” Fortunately for the eminent domain process, SCOTX agreed.
SCOTX denied the ranch’s motion for rehearing.
6. TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC (No. 21-0028)
TCJL filed an amicus curiae brief in a case that seeks to nullify an arbitration provision in a contract between two offshore oil producers. The issue in the case is whether a contract language that incorporates by reference the rules of the American Arbitration Association (AAA), which include a specific provision delegating the threshold question of the arbitrator’s jurisdiction to the arbitrator, expresses a “clear and unmistakable intent” to arbitrate the question of arbitrability. The Tyler Court of Appeals answered in the affirmative, but SCOTX granted review.
TCJL’s brief in support of Respondent MP Gulf of Mexico’s brief on the merits argued that a provision incorporating the AAA rules can only be read to mean all of those rules. If the parties had wanted to carve out Rule 7(a) and separately provide for its application, they could easily have done so, especially in a transaction between sophisticated parties who negotiated robustly and at arm’s length. We also expressed serious concerns about the effect of a ruling in favor of the Petitioner that on contracts with similar incorporation provisions. Not only would such a ruling represent, in our words, “a breath-taking public incursion into the realm of freely-made private agreements,” it would potentially negate any number of contracts that incorporate regulations or policies by reference. A few that come to mind include OSHA or other safety standards, employment regulations and policies, workers’ compensation statutory and regulatory provisions, or National Highway Traffic Safety Administration rules. We simply see no compelling reason to single out a contractual arbitration clause for different treatment than any other provision that expressly incorporates extrinsic documents.
In an opinion by Justice Boyd, SCOTX affirmed the court of appeals. Noting that the Court had yet to resolve this issue, Justice Boyd conducted an exhaustive review of federal and state court authority (which anyone interested in the state of the law on delegation in an arbitration agreement should take a look at). Based on this review, he concluded that the substantial majority of jurisdictions follow the “general rule” that “an agreement to arbitrate disputes in accordance with rules providing that the arbitrator ‘shall have the power’ to determine ‘the arbitrability of any claim’ incorporates those rules into the agreement and clearly and unmistakably demonstrates the parties’ intent to delegate arbitrability issues to the arbitrator.”
The question then became whether the arbitration agreement carved out certain claims for arbitration, while leaving others to the Harris County district courts, as Total argued. The Court found it unnecessary to wade into the parties’ dispute about the scope of the arbitration agreement, which was separate and distinct from the delegation of arbitrability issue. Thus, having determined that the agreement delegated arbitrability through the incorporation of the AAA Commercial Rules, the scope question would have to be decided after the arbitrator determined his or her own jurisdiction. Though the Court agree “that parties can contractually limit their delegation of arbitrability issues to only certain claims and controversies, we do not agree that the arbitration clause contained within the Systems Operating Agreement accomplishes that result.”
It appears to us that the Court was looking for a bright line rule that would greatly reduce the opportunity for satellite litigation over the scope of arbitration agreements and found it in the decisions of most jurisdictions that had decided the issue. As Justice Boyd pointed out, taking the position that any exclusions to the scope of an arbitration agreement requires the court, not the arbitrator, to decide which claims were subject to arbitration in the first instance “would render [Rule 7a] essentially meaningless. . . A rule that requires arbitrators to determine arbitrability only after a court has already determined arbitrability essentially has no effect at all.” More importantly, the Justice Boyd observed, that position “conflates the parties’ agreement to arbitrate disputes with their agreement to delegate arbitrability issues to the arbitrator.” Again, those issues are distinct, and if parties want to limit delegation of arbitrability, they have to be crystal clear about doing that and not leave it to the courts to sort it out.
Justice Busby wrote a vigorous dissent that, among other things, took issue with the majority’s reading of Rule 7(a) as giving the arbitrator exclusive authority to determine his or her own jurisdiction. Noting that Rule 7(a) was amended in 2022 to, at least arguably, reflect the non-exclusivity of the arbitrator’s power (the rule now says that the arbitrator determines arbitrability “without any need to refer such matters first to a court”), Justice Busby would have allowed the trial court to decide which issues the parties agreed to arbitrate and which they did not.
In any event, the Court’s decision gives parties negotiating a contract with an arbitration provision a pretty clear roadmap when it comes to delegation of arbitrability. An agreement that broadly incorporates the AAA rules but limits the scope of the arbitration agreement will not down the road get one of the parties out of arbitration, at least until the arbitrator decides jurisdiction and which claims are arbitrable. We will be curious to see what the effect of this decision might be (if any) on the future of arbitration in complex business deals. Given the current disillusion with the expense of arbitration in some quarters of the business community, perhaps we might see much more limited arbitration provisions that constrain both the delegation and scope issues. After all, we have courts businesses are already paying for. Why pay for both, unless there is a very specific reason to do so?
The Court denied Total’s motion for rehearing on June 9, 2023.
7. Sarah Gregory and New Prime, Inc. v. Jaswinder Chohan, Individually and as Next Friend and Natural Mother of GKD, HSD, and AD, Minors, and as Representative of the Estate of Bhupinder Singh Deol, Darshan Singh Deol, and Jagtar Kaur Deol (No. 21-0017)
In a case that could have a similar impact on awards for noneconomic damages as the 1994 Texas Supreme Court decision in Transportation Ins. Co. v. Moriel had for punitive damages awards, TCJL filed an amicus curiae brief urging the Court to provide additional guidance to intermediate appellate courts when reviewing judgments including significant awards of subjective noneconomic damages.
Last November the Court heard oral arguments in two cases involving noneconomic damages, United Rentals N. Am., Inc. v. Evans (No. 20-0737) and Gregory v. Chohan (No. 21-0017), both of which come out of the Dallas Court of Appeals. We have previously reported in detail on these cases and the issues they involve, so we will not revisit the facts and issues here. TCJL’s brief focuses on the Gregory case, in which the primary issue is the standard of review for noneconomic damages in tort cases. United Rentals raises the additional issues of, among other things, sufficiency of the evidence to support noneconomic damages and Batson challenges in jury selection.
In our brief, we review the history of the 1987 final report of the House/Senate Jount Committee on Liability Insurance and Tort Law Procedure, which recommended a $250,000 cap on noneconomic damages in tort cases. We point out that the committee found that noneconomic damages were “by definition, subjective and nonverifiable” and “inherently impossible to predict on a case-by-case basis.” Nothing has changed since then, as the cases now before the Court amply demonstrate. Short of a cap, however, what can SCOTX do to enhance meaningful appellate review on such awards?
We urged the Court to consider elaborating on its prior decisions, particularly those in Saenz v. Fidelity & Guar. Ins. Underwriters, 925 S.W.2d 607 (Tex. 1996) and Parkway Co. v. Woodruff, 901 S.W.2d 434 (Tex. 1995). Specifically, we suggest that that a medical diagnosis of a physical or psychological reaction be required as a basis for an award. In other words, mere ordinary grief and sorrow would not be enough. As Justice Spears wrote in his dissent in Moore v. Lillebo, 722 S.W. 2d 683 (Tex. 1986), one of the Court’s decisions in the 1980s that radically revised traditional tort principles, there ought to be direct evidence of a physical manifestation of an “intense emotional injury, resulting in depression or other physical reactions.” He also suggested that evidence of an injury to a familial relationship, to quote our brief, “should involve more detailed and corroborative accounts of the familial relationship as it actually existed at the time of the loss.” In other words, simply being related to a person does not mean that a relationship exists to which a significant emotional injury can be inflicted. In short, we encourage the Court to provide additional safeguards that require direct evidence of the severity of the emotional harm at issue.
Our brief further urges the Court to address the widespread tactic of “jury anchoring.” This tactic appears in many guises, but the purpose is to suggest to the jury an arbitrary algorithm or formula that would produce a substantial noneconomic damages award sufficient to “send a message” to the defendant. In Gregory, the plaintiff’s counsel argued to the jury that mental anguish damages could be based on assigning a certain monetary value per mile annually driven by the defendant employer’s trucks to, as we said, send the trucking company a “message.” As we say in the brief, “‘[S]ending a message’ sounds like a phrase associated with punitive damages, not noneconomic damages.” Clearly, we argue, “at least some guardrails could be placed around the permissible arguments the jury can hear without contaminating it with inflammatory suggestions with no basis on the plaintiff’s actual harm.”
In our view, these cases are among the most important to get to the Court in many years. Whatever the Court says will have an enormous effect on personal injury litigation going forward, just as Moriel sparked reform of arbitrary punitive damages awards. Recognizing the significance of the case, the U.S. Chamber of Commerce and several insurance associations have weighed in as well. Oral argument has been scheduled on January 31. We expect that the Court will hand something down by late spring. Stay tuned to this channel for breaking news.
The Court reversed the court of appeals and remanded to the trial court for a new trial on June 16, 2023.
8. Jesus Virlar, M.D. and GMG Health Systems Associates, P.A., a/k/a and d/b/a Gonzaba Medical Group v. Jo Ann Puente(No. 20-0923)
TCJL’s brief concentrated on a single issue of overriding concern to the Texas business and health care community: the application of the settlement credit when the “claimant” includes both the injured party and another person seeking recovery based on the harm to the injured party (i.e., a derivative claim) (see § 33.011(1), CPRC).
The issue arose out of a medical malpractice case involving a patient who suffered complications from gastric bypass surgery that left her with serious brain dysfunction requiring 24-hour long term care. The plaintiff and her mother (as guardian for the plaintiff’s minor daughter) sued the physicians (Virlar, Patel, and Martinez), their employer (Gonzaba), and other providers for negligence seeking damages for physical pain, mental anguish, loss of earnings, loss of future earning capacity, and past and future medical expenses. The plaintiff’s minor daughter alleged past and future damages for loss of parental consortium, emotional trauma, and loss of care, maintenance, companionship and other damages. The plaintiff’s mother alleged separate damages for loss of services resulting from her daughter’s injury.
Prior to trial, the plaintiff’s mother settled and nonsuited both her own and the minor child’s claims with all defendants, including those against the doctors and the employer. The plaintiff settled with or nonsuited her claims against all defendants except the doctors and the employer. The jury assigned responsibility to Virlar (60%) and Patel (40%) and awarded the plaintiff $133,202 for past loss of earnings, $888,429 for future loss of earning capacity, and $13,263,874.86 for future medical expenses. The defendants filed a motion to apply a settlement credit for the plaintiff’s, plaintiff’s mother, and minor child’s settlements with the other defendants, as well as for an order for periodic payments of the future medical expenses. The trial court denied both motions and entered judgment against Virlar and Gonzaba for $14,109.349.02.
The defendants appealed to the San Antonio Court of Appeals. In a split decision, with Chief Justice Marion and Justice Alvarez filing separate concurring and dissenting opinions, the court of appeals upheld the judgment, subject to ordering a remittitur of $8,000 on the future loss of earning capacity award. The court of appeals rejected the plaintiff’s motion to remit the total award by $434,000 to cure potential error from the trial court’s denial of the defendants’ motion for settlement credit. The defendants appealed to the Texas Supreme Court, where the case is now in the merits briefing stage.
The court of appeals’ majority opinion has several aspects, some more troubling than others. First, the court upheld the trial court’s exclusion of expert testimony that the defendants argued was relevant to responsible third parties. The defendants sought to designate 26 different providers as RTPs based on the expert’s testimony that every provider who had a share in the plaintiff’s care failed to properly diagnose the plaintiff’s acute thiamine deficiency, which eventually caused her brain damage. The court of appeals concluded that the trial court correctly excluded the testimony because it did not constitute legally sufficient evidence that each of the 26 defendants’ negligence proximately caused the plaintiff’s injury to the level of “reasonable medical probability.” That ruling left the defendants as the only parties on the jury submission form. Second, the court of appeals held that the trial court did not abuse its discretion when it permitted the plaintiff’s attorney to question Virlar about his loss of admitting privileges at the hospital and a prior lawsuit in which he had admitted not reviewing the medical records, and even if there was error, it was harmless (hard to see how that kind of testimony is not incredibly prejudicial). The third issue—the legal and factual sufficiency to support the jury’s award for loss of future earning capacity—turned on validity the model used by the plaintiff’s expert, an economist, to calculate that loss. Here the court found the evidence legally and factually sufficient but ordered an $8,000 remittitur because the jury’s award exceeded the economist’s projection by that amount.
The fourth issue—and the one we take up in our brief—asked whether the trial court abused its discretion by refusing to apply the settlement credit on the basis that “her daughter’s settlement for her daughter’s independent damages should not reduce her award for injuries she suffered as a result of Dr. Virlar and Gonzaba’s negligence.” The court of appeals acknowledged that under §33.012(c), CPRC, the defendants were entitled to a settlement credit. The court likewise agreed that the definition of “claimant” in §33.011(1) includes a derivative claimant, as the plaintiff’s mother and daughter are here. But rather than simply applying the plain language of the statute (as the dissenters Chief Justice Marion and Justice Alvarez would have done), the majority held that to the extent these sections reduced the plaintiff’s award of economic damages (noneconomic damages are of course capped in health care liability actions), they violate the Open Courts provision of the Texas Constitution (Art. 1, §13). The majority relies heavily, indeed almost exclusively, on SCOTX’s holding in Lucas v. United States, 757 S.W.2d 687 (Tex. 1988), which struck down Texas’ then-statutory cap on damages in health care liability cases as violating open courts. Setting aside whether this decision, handed down by a notoriously activist court dominated by the plaintiff’s bar, is still good law in Texas, we believe that the court of appeals’ reliance on this case is misplaced and inapposite. As our brief argued:
TCJL only adds its voice to question the court of appeals’ premise that the definition of “claimant” in § 33.011(1), Tex. Civ. Prac. & Rem. Code, “restricts a common law cause of action” and thus triggers an Open Courts analysis to begin with. Virlar, 613 S.W.3d at 694. How does defining a “claimant” to include derivative claims arising from the underlying plaintiff’s injury “restrict a common law cause of action”? The statute does not limit causes of action in any way. The entirety of the court of appeals’ analysis of the question appropriates this Court’s reasoning in Lucas v. United States, 757 S.W.2d 687 (Tex. 1988) without the slightest attempt to examine whether Lucas is even apposite in this case (assuming that Lucas remains good law).
Specifically, Chapter 33 has nothing to do, as the court of appeals seems to think, with “impos[ing] the burden of supporting the medical care industry solely upon those persons who are the most severely injured and therefore most in need of compensation.” Vilar, 613 S.W.3d at 690. Chapter 33 establishes a comprehensive scheme for implementing the Legislature’s policy decision, first taken in 1987 and extended in 1995, to adopt a proportionate liability system and to limit a defendant’s joint and several liability. See § 33.013(b)(1), Tex. Civ. Prac. & Rem. Code. In 2003 the Legislature took the additional step of allowing a defendant to designate any responsible third party, including the claimant’s employer in a worker’s compensation and a debtor in bankruptcy. See Acts 2003, 78th Leg., ch. 204, Sec. 4.10(2). These legislative policy decisions, along with others (including the settlement credit and, for example, the paid or incurred rule) could all in some way effect the amount of economic damages recoverable by a claimant when compared to prior law. If the court of appeals’ analysis is permitted to stand, we can expect to see similar Open Courts attacks all up and down the line.
The purpose of the Chapter 33 reforms was simply to bring all potentially responsible parties into the lawsuit so that the finder of fact could assess each party’s percentage of fault and require a liable defendant to pay only for the portion of damages attributed to that defendant. The court of appeals’ commentary on the “one-satisfaction rule” entirely misses the point. The ultimate test has to do with the fairness of the system as a whole, not its effect on individual parties in individual lawsuits. Therein lies the problem with the court of appeals’ whole premise.
The Texas Association of Defense Counsel, Texas Alliance for Patient Access, Texas Medical Association, Texas Osteopathic Medical Association, and Texas Hospital Association have also filed a joint amicus brief that arguing the settlement credit and periodic payment issues.
SCOTX overturned the court of appeals’ majority opinion in two respects: the application of the settlement credit and whether the trial court should have awarded some of the future damages in periodic payments. As to the settlement credit, the court of appeals acknowledged that under §33.012(c), CPRC, the defendants were entitled to a credit. The court likewise agreed that the definition of “claimant” in §33.011(1) includes a derivative claimant, as the plaintiff’s mother and daughter were here. But rather than simply applying the plain language of the statute (as the dissenters Chief Justice Marion and Justice Alvarez would have done), the majority held that to the extent these sections reduced the plaintiff’s award of economic damages (noneconomic damages are of course capped in health care liability actions), they violated the Open Courts provision of the Texas Constitution (Art. 1, §13). The majority relied heavily, indeed almost exclusively, on SCOTX’s holding in Lucas v. United States, 757 S.W.2d 687 (Tex. 1988), which struck down Texas’ then-statutory cap on damages in health care liability cases as violating open courts.
In an opinion by Justice Busby, SCOTX rejected the majority opinion’s Open Courts ruling “[b]ecause [plaintiff] has not lost a common-law remedy.” First, the Court addressed plaintiff’s argument that her daughter’s settlement should not be credited against her mother’s damages. The Court disagreed on the basis of the plain language of § 33.011(1)(B), which defines “claimant” as “any person who is seeking . . . recovery of damages for the injury . . . of [another] person.” Here plaintiff’s daughter sought recovery for her mother’s injury. Consequently, the Court stated, “the claimant here is [the daughter] as well as [the mother], and Chapter 33 requires that the total damages awarded to [the mother] be reduced by the dollar amount of [the daughter’s] settlement with [the hospital]: $3.3 million.”
Next, the Court determined that the application of the dollar-for-dollar credit to plaintiff’s recovery did not run afoul of the Open Courts provision, which “is implicated when the Legislature ‘withdraw[s] common-law remedies for well established common-law causes of action” [citing Lebohm v. City of Galveston, 275 S.W.2d 951, 955 (Tex. 1955)]. If the Legislature does withdraw such remedies, it must be “reasonable in substituting other remedies, or when it is [a] reasonable exercise of the police power in the interest of the general welfare” (additional citations omitted). Here the court of appeals neglected to analyze the first part of the Lebohm test. As the Court explained, “the legal principles addressing settlement credits and contribution—whether common-law or statutory—aim to vindicate the one-satisfaction rule and prevent collusion in settlements. Under common-law principles, [plaintiff] would recover less than she can recover under Chapter 33. Thus, the application of Chapter 33 here does not withdraw a remedy.” Here is how that works. Under common law, a plaintiff who settled with one defendant could only recover half of its damages against the remaining defendant (citations omitted). If the common law still applied, consequently, plaintiff could have only recovered $7 million, not the $10.8 million she would recover after application of the settlement credit. Following Duncan v. Cessna Aircraft Co., 665 S.w.2d 414, 430 (Tex. 1984), when Texas moved to a pure comparative fault system, plaintiff would have had her recovery reduced by the percentage of responsibility assigned to Dr. Virlar and Gonzaba, 60%, thus reducing her recovery to $8.5 million. In either case, Chapter 33 gives plaintiff a greater recovery than she would have had at common law and cannot be said to have lost a common-law remedy.
As to the periodic payments issue, the Court made several important holdings. First, plaintiff argued that Gonzaba and Dr. Virlar never pleaded for periodic payments and thus lost their opportunity to make a motion after trial. The statute, however, states that the periodic payments provision of Chapter 74, Subchapter K, does not become operative until the jury renders a verdict in excess of $100,000. § 74.502, CPRC. At that point, the trial court, not the jury, has the discretion to receive additional evidence for the purpose of structuring the award into periodic payments or a lump sum. “For these reasons,” the Court concluded, “we hold that a defendant may request periodic payments post-trial and that petitioners’ motion was timely.” Second, plaintiff asserted that Dr. Virlar could not make the required showing of financial responsibility necessary to assure full payment of the damages and could not rely on his employer’s assurance. But, the Court disagreed, “[b]ecause Gonzaba is vicariously liable for the full damages awarded against Dr. Virlar, he can rely on Gonzaba’s assurance of payment.” In other words, where respondeat superior, or vicarious liability, is present, both the employer and the employee “constitute a single defendant for purposes of applying section 74.505(a) [the financial responsibility requirement].” The rule would be different, however, if the joint tortfeasors were not related.
Finally, the Court found that Gonzaba provided sufficient evidence for the trial court to craft an award that complied with Chapter 74. The trial court held two post-verdict hearings on the matter. Plaintiff wanted its costs and attorney’s fees paid immediately. Defendants asserted that the plaintiff’s life care expert presented a plan for the projected future cost of plaintiff’s medical care, which “the trial court could have relief on” to determine “the dollar amount, timing, and number of periodic payments that would compensate [plaintiff] for her future damages.” Defendants further offered to purchase “an annuity with an interest rate sufficient to ensure the amounts paid in later years would grow to meet [plaintiff’s] needs. The use of such annuities is contemplated by Chapter 74” (citing § 74.505(b)(1)). The Court distinguished its holding in Regent Care of San Antonio, L.P. v. Detrick, 610 S.W.3d 830 (Tex. 2020), which upheld a trial court order dividing the award of future damages between a lump sum payment and periodic payments over the defendant’s objection that a larger share of the damages should have been payable periodically. Here, the Court noted, the trial court did not order any periodic payments, so “the question is simply whether there was evidence to support the findings required by section 74.503, thereby triggering the court’s obligation to order periodic payments in whole or in part.”
This decision is very significant, both for vindicating the settlement credit against an Open Courts challenge and for enforcing the crucially important Chapter 74 provision requiring at least some future damages to be paid periodically. It is worth pointing out that for all the criticism of the Legislature’s tort reform efforts over the past three decades, the statutes work the way they were intended to. And, as the Court observed, the settlement credit for which tort reform proponents advocated actually produced a more generous award in this case than the old common law would have done. Sometimes the law works better for one side, and sometimes for the other. The point is that the reforms achieve just results when considered at the systemic level, the level that determines whether Texas has a predictable and stable tort system or not. Judging by our state’s record of success in attracting new business and investment and enhancing access to health care, the verdict is clear. Still, as this case demonstrates, two decades after the 2003 reforms, our courts are still adding to the jurisprudence around those reforms. As long as that’s the case, our work on those reforms is never finished.
The Court denied plaintiff’s motion for rehearing.
9. Hlavinka v. HSC Pipeline Partnership, LLC (No. 20-0567)
TCJL filed an amicus brief asking the Texas Supreme Court to take another look at its decision in Hlavinka v. HSC Pipeline Partnership, LLC (No. 20-0567). Although the Court reversed a Houston [1st] Court of Appeals decision holding that evidence of a common carrier pipeline’s contract with an unaffiliated third-party for the transportation of the third party’s product to its manufacturing facility does not as a matter of law establish public use for purposes of the pipeline’s eminent domain authority, it agreed with the court of appeals that the property owner’s testimony regarding valuation of the pipeline easement, which the trial court had excluded, is relevant to establishing market value. SCOTX remanded the case to the trial court for a new trial to determine the market value of the easement.
In an opinion by Justice Bland, the Court reasoned that “[S]ales of easements on this property to other pipeline companies, combined with the existence of pipelines running parallel and adjacent to HSC’s pipeline, provide some evidence from which a factfinder reasonably could conclude that the Hlavinkas could have sold to another the easement that they instead were compelled to sell to HSC.” Justice Bland distinguished this case from both Exxon Pipeline Co. v. Zwahr and Enbridge G&P v. Samford, in which similar landowner testimony was excluded. In Exxon, the landowner argued that the pipeline itself enhanced the value of the land, which the Court held violated the project enhancement rule. Here SCOTX ruled that Hlavinka’s testimony was based on the value of the easement to HSC’s competitors due to its “intrinsic qualities,” i.e. suitability as a pipeline corridor. In Enbridge, there was no evidence that the landowner could have sold the easement to another pipeline company, as there was here. (Note: TCJL filed an amicus brief in the court of appeals, as did Texas Farm Bureau and other landowner groups.)
HSC filed a motion for rehearing on the valuation issue. In its amicus brief, the Texas Pipeline Association takes issue with the Court’s distinction between Exxon Pipeline and this case. According to TPA, the Court’s opinion “is flatly inconsistent with Zwahr, which, again, confirms that a partial taking must be valued with reference to the value and use of the whole, unless the part is proven to be a separate economic unit. . . . The Court’s complete silence on this issue may be construed as a fundamental change to the long-standing before-and-after method this Court affirmed in Zwahr. There is no rationale for changing the method at all, much less without any explanation.”
TCJL’s brief points out that the 2017 Legislature explicitly rejected a proposal to allow special commissioners to admit evidence of privately negotiated pipeline easements and that the negotiations conducted by CCI, landowner groups, and legislators, which ultimately produced HB 2730, preserved pre-HSC law. We also asked the Court to consider the anomalous situation created by the opinion in which property appraised at productivity value for ad valorem tax purposes is valued at a vastly inflated “market” value for a partial easement. As we say in our brief, this results “in a tax-free windfall for landowners fortunate enough to have multiple pipeline easements on some part of the property they represent to local taxing units as devoted to ‘agricultural use.’” One simply cannot have it both ways. Finally, our brief urges the Court to defer to the Legislature for such a significant policy change. Chapter 21, Property Code, is a delicately balanced compromise. Any changes to it should be thoroughly vetted through the legislative process, not the courts.
The Court denied both parties’ motions for rehearing.
10. Terence J. Hlavinka, Kenneth Hlavinka, Texas Bayou Farms, LP, and Terrence Hlavinka Cattle Company v. HSC Pipeline Parntership LLP (01-19-00092-CV)
This case involved an effort to expand the Texas Supreme Court’s holding in Denbury to all common carrier pipelines, not just carbon dioxide pipelines.
Our brief argued that if the Denbury holding was going to be expanded, the Texas Legislature should do it, not the courts. In similar cases, the Beaumont, Texarkana, Waco, and Eastland courts of appeals all recognized this principle and deferred to the Legislature.
As we state in the brief:
Despite the assertions of amici Texas Farm Bureau and Texas and Southwest Cattle Raisers, Texas entities with the power of eminent domain exercise such power judiciously and in strict accordance with the law. Of course, any law can be and is sometimes abused, but the fact that Texas has built and continues to expand one of the largest energy infrastructure networks in the world with so few documented cases of abuse of eminent domain authority attests to the fact that in the vast majority of cases, landowners and entities with eminent domain authority view their relationship as a mutually beneficial partnership and conduct themselves as such. It bears repeating that all takings in Texas must be for a constitutionally required public use. More than a century of legal precedent stands behind the courts’ role in safeguarding this constitutional requirement. Additionally, the Texas Legislature does not easily dispense the power of eminent domain. If the eminent domain process were truly “running amok,” as amici Texas Farm Bureau and Texas and Southwestern Cattle Raisers proclaim, or if any entity were engaged in systematic abuses of eminent domain authority, the Legislature would undoubtedly intervene, as it should. The courts are neither designed nor equipped to determine complex and multifarious policy questions such as those presented here.
The court of appeals held hat evidence of a common carrier pipeline’s contract with an unaffiliated third-party for the transportation of the third party’s product to its manufacturing facility does not as a matter of law establish public use for purposes of the pipeline’s eminent domain authority. The court of appeals also determined that the property owner’s testimony regarding valuation of the pipeline easement, which the trial court had excluded, is relevant to establishing market value because: (1) some evidence existed that the property owner valued the easement as part of a “pipeline corridor”; and (2) the property owner’s use of comparable sales of private pipeline easements on his property could show the price at which a willing seller might purchase the easement in a voluntary sale.
SCOTX accepted review, affirmed in part and reversed in part as noted above).
11. Toyota Motor Corporation v. Reavis (No. 21-0575)
This case exemplified the deployment of reptile theory trial tactics to achieve a nuclear verdict. It arose from a 2002 accident on North Central Expressway in Dallas. While stopped in traffic, plaintiffs’ Toyota Lexus was struck from behind by a Honda SUV traveling at between 45 and 48 m.p.h. The collision pushed the plaintiff’s vehicle into the vehicle in front, before the Honda struck the Lexus again at a slower speed. During the chain reaction, the plaintiffs’ seatbacks deformed, causing the plaintiffs to slip up and back into the back seats, a response to a rear-end collision called “ramping.” The plaintiffs’ heads collided with the heads of their 5 and 3-year-old children, who were secured in car seats. As a result, the children sustained severe traumatic brain injuries, though their parents suffered only minor injuries.
The plaintiffs brought suit on behalf of their minor children against Toyota, the Toyota dealer that sold them the vehicle, and the driver of the Honda SUV. They alleged design and marketing defect claims against Toyota and the dealer, negligence against the driver, and gross negligence against all defendants. After a three-week trial, the jury found Toyota liable on the design and marketing claims, the dealer liable on the marketing claim, and the driver liable for negligence. It awarded more than $98 million in actual damages (including future medical) and apportioned 90% of the fault to Toyota. It also found Toyota and the dealer grossly negligent and awarded punitive damages of nearly $110 million, $95.4 million of which charged to Toyota. Plaintiffs settled with the driver during jury deliberations, so these amounts reflect the application of the settlement credit. The trial court denied Toyota’s motions for a directed verdict, a verdict JNOV, and a new trial. The Dallas Court of Appeals, in an opinion we believe rife with reversible error, affirmed.
TCJL’s brief focused on two issues: (1) the court of appeals’ ruling on the specificity of evidence required to rebut the presumption of non-liability if a product complies with applicable government safety standards (§82.008, CPRC); and (2) the court of appeals’ explicit approval of reptile theory trial tactics that sought to demonize a corporate defendant using highly prejudicial, inflammatory, and irrelevant evidence.
With respect to the first issue, the court of appeals effectively gutted §82.008 by allowing the plaintiff to rebut the presumption of non-liability by relying primarily on the accident itself to show that the relevant standards were “inadequate.” The whole point of §82.008, which was adopted as part of HB 4 in 2003, was to give extraordinary deference to federal safety regulations that take years of testing, studies, and documentation to promulgate. The provision recognizes the distinct roles of regulatory agencies charged with ensuring public safety and steeped in experience and expertise, and the courts charged with ensuring fairness and impartiality in the resolution of private disputes. Absent compelling, specific, and detailed evidence that clearly shows the inadequacy of a federal safety standard, courts should not be in the business of second-guessing federal regulators. The court of appeals’ opinion, in our view, opens up every product liability claim to such second-guessing because it dispenses with any evidentiary standard whatsoever.
The second issue involves the other ground for rebutting the presumption of non-liability—that a product manufacturer withheld or misrepresented information or material relevant to the government’s determination of the adequacy of the standards or regulations at issue in the case. The court of appeals enthusiastically approved of the trial court’s allowance of incredibly prejudicial and irrelevant evidence related to the corporate defendant’s government affairs efforts, the membership dues it paid to trade and industry associations that routinely lobby the federal government, and past regulatory issues that had nothing whatever to do with the alleged product defect in this case. This is exactly the problem with the reptile theory and the nuclear verdicts it produces. Instead of focusing on the accident, this trial focused on making the corporate defendant out to be a malign actor out to undermine federal safety regulations. In several recent product liability decisions, SCOTX has made it clear that this kind of evidence is improper and cannot but taint the jury. We urged the Court to accept review and apply its precedents.
The case settled before the petition for review was granted. The Court granted the petition, vacated the judgments of the court of appeals and trial court, and dismissed the case.
12. USAA Casualty Insurance Company v. Sunny Letot, Individually and On Behalf of All Others Similarly Situated (No. 22-0238)
In a somewhat puzzling case, the Dallas Court of Appeals affirmed a trial court order certifying a class action against USAA under Rule 42, TRCP. We say “puzzling” because the court of appeals’ opinion does not refer to the law governing USAA’s standard operating procedure that is at issue in the litigation. The opinion thus leaves the impression—at least to us—that something is going on behind the scenes to transform what appears to be a one-off case with small damages into a class action with hundreds or even thousands of potential claimants.
The case, USAA Casualty Insurance Company v. Sunny Letot, Individually and On Behalf Of All Others Similarly Situated (No. 05-20-01019-CV), arose from a 2009 collision between Letot and USAA’s insured that, according to USAA’s adjuster, damaged Letot’s 1983 Mercedes. USAA’s adjuster determined that while the value of the vehicle was $2728, the cost of repair came to $8859. USAA declared the vehicle a “total loss” and tendered Letot checks totaling $2738.02 to Letot. Letot objected to the vehicle valuation, and her lawyer returned the checks and demanded that USAA pay $10,700 in damages. USAA declined to do so.
As its standard practice when totaling a vehicle, within 3 days of tendering payment of Letot’s claim, USAA filed an owner retained report with TXDOT pursuant to 43 TAC § 217.83(c), which prescribes a procedure by which an owner of a salvage or non-repairable vehicle retains the vehicle. Under § 217.83(a), a vehicle is deemed salvage or non-repairable if the cost of repairs exceeds the market value of the vehicle. Market value is determined from publications commonly recognized by the automotive or insurance industries to establish values, or, if the entity determining the value is an insurance company, by any other procedure recognized by the insurance industry, including market surveys, that is applied in a uniform manner. Similarly, cost of repairs must be determined using a manual of repair costs or other instrument generally recognized and used in the automotive repair industry, or an estimate of actual cost of the repair parts and labor costs by using hourly rate and time allocations that are reasonable and commonly assessed in the repair industry in the community in which the repairs are performed.
From what we can tell from the recital of facts in the opinion, USAA followed this procedure, declared the vehicle unsalvageable, and sent Letot a check. Since USAA did not acquire ownership or possession of the vehicle (in which case USAA would have to apply for a non-repairable or salvage vehicle title), it filed an owner retained report as required by § 217.83(c). This subsection provides that when an insurance company pays a claim on a non-repairable or salvage vehicle and does not acquire ownership, the company shall submit to TXDOT before the 31st day after the date of the payment of the claim, a report stating that the company has paid a claim and has not acquired ownership or possession of the vehicle. When it receives the report, TXDOT places a notation on the vehicle record to prevent registration and transfer of ownership prior to the issuance of a salvage or non-repairable vehicle title. All of that happened in this case as prescribed by law, as nearly as we can ascertain from the court of appeals’ opinion.
As we say in our brief: At the outset, we feel compelled to express our astonishment that the court of appeals’ opinion does not even refer to the law governing USAA’s standard operating procedure that is at issue in the litigation. The opinion thus leaves us baffled as to how what appears to be a one-off case with small damages blossomed into a class action with hundreds or even thousands of potential claimants. If the court of appeals had conducted at least a cursory analysis of the legal basis for USAA’s standard procedure, however, it would have found that USAA followed the law precisely as the Legislature wrote it and the Texas Department of Motor Vehicles administers it. That being the case, we suppose that the law and USAA’s punctilious compliance therewith posed an inconvenient impediment to the court’s final destination in this case.
Be that as it may, the class representative alleges that USAA (1) failed to notify her that it filed owner retained reports subsequent to paying claims for non-repairable or salvage vehicles, (2) failed to notify her of the consequences that an owner retained report would have on her title, (3) improperly filed an owner retained report before Letot had accepted payment of the claim, and (4) illegally converted her title in the vehicle by filing the report. She further sought class certification for all similarly situated vehicle owners for which USAA had filed owner retained reports within 3 days of paying claims. The trial court certified the class on the basis of a common issue of whether “USAA’s uniform practice of filing Owner Retained Reports prior to paying claims improperly meant it improperly and intentionally asserted rights in Letot’s property.” But nowhere in the court of appeals’ opinion do we find any discussion of what was “improper” about USAA’s conduct in the first place or what “rights in Letot’s property” USAA asserted. The court of appeals focused solely on the propriety of USAA’s “uniform practice” of filing owner retained reports on totaled vehicles as justifying class certification, brushing aside USAA’s argument that at best each conversion claim should be tried individually because in every case except Letot’s nobody has ever complained about it.
Which brings us back to the mystery: why are we even here? This litigation was commenced in 2009. The total damages in dispute in the representative’s case are around $8,000. The vehicle no longer exists, having been cannibalized for parts by other owners of old Mercedes vehicles. The class representative’s most recent amended petition—the seventh of a series—added a claim for injunctive relief, which had never been requested before. At this point, the only financial benefit to anyone appears to be the attorney’s fees. Undoubtedly, if the class certification holds up, it will put the company under intense pressure to settle the case, but it is hard to see why it would change standard practice when nothing in the law appears to prohibit it. If one of the purposes of a class action lawsuit is to punish bad behavior, we are at a loss to understand what that behavior might be.
If the problem here is the law upon which USAA’s procedures are based, then the obvious remedy is to ask the Legislature to change it. This lawsuit seeks to use the leverage of class action certification to force the company to fork over a hefty sum, while leaving the company clueless about what it should have done differently to comply with the statute. In short, the court of appeals issued a results-oriented decision bereft of legal analysis or reasoning. It cannot be permitted to stand.
The petition is at the merits briefing stage.
13. In re Owen J. Merrell and Jeanna East (No. 22-0556)
This case arose from a personal injury lawsuit resulting from an auto accident. The trial court ordered the parties to a remote jury trial, to which both sides objected. The trial court denied their joint motion for an in-person trial. The parties sought a writ of mandamus from the Houston [1st] Court of Appeals, which denied the petition. They are now requesting mandamus relief from the SCOTX.
TCJL’s brief takes the same line of argument as our legislative intervention in 2021 and more recent comments to the Supreme Court Advisory Committee (SCAC), which is considering amendments to the Texas Rules of Civil Procedure regarding remote proceedings. Our views can be summarized as follows:
- Compelling litigants to conduct adversarial proceedings, including jury trials, implicates the constitutional rights to due process and trial by jury. When the Legislature rejected broad judicial authority to order remote proceedings, it did so in part because of these implications. While remote proceeds can enhance access and efficiency in uncontested matters, adversarial proceedings are a different matter altogether. Taxpayers and litigants pay for the courts and should have the absolute right to avail themselves of themselves of in-person proceedings when their life, liberty, and property are at stake.
- We are very appreciative of the deliberative approach being taken by the SCAC on the rule changes. We believe, however, that sweeping changes should require a broad consensus among the stakeholders, including the legislators who were involved in the legislation last session. In any event, trial courts should not be able to change the rules one case at a time.
- It is critical for SCOTX to weigh in and provide guidance to the courts and litigants as soon as possible. Otherwise, more courts will go down this road on their own without at least reasonable standards and the opportunity for interlocutory review. Major policy changes should not be made this way.
The Texas Association of Defense Counsel, Texas Trial Lawyers, and Texas Chapters of The American Board of Trial Advocates have likewise filed briefs in this case. As you recall, TCJL joined with these organizations in submitting comments to the SCAC last spring. We don’t agree on everything, to be sure, but we are all of one mind on this.
SCOTX conditionally granted a writ of mandamus.
14. In re Uber Technologies, Inc. (No. 22-0453)
TCJL filed an amicus curiae brief requesting that the Texas Supreme Court reconsider a late 1980s decision that opened the door to broad discovery sharing in Texas tort litigation. The case arose from an alleged sexual assault on a passenger in a vehicle drive by a person who had used the Uber app. Plaintiff sought discovery of all reports or complaints of sexual assault involving Uber drivers in Texas for the preceding five years. The trial court denied Uber’s objection to the request and granted Plaintiff’s motion to compel production. The trial court’s order likewise included a provision allowing Plaintiff to share the information with attorneys with similar cases against Uber. The Houston [14th] Court of Appeals denied Uber’s petition for writ of mandamus. Uber now seeks mandamus review from SCOTX.
Uber’s petition urges SCOTX to reconsider its decision in Garcia v. Peeples, 734 S.W.2d 343 (Tex. 1987). In an opinion by Justice William Kilgarlin (over a dissent from Chief Justice John Hill), the Court struck down a protective order that prohibited Plaintiff from sharing discovery in a product liability case with other plaintiff’s attorneys. Basing its decision on promoting “efficiency” and “full and fair disclosure,” the Court permitted broad discovery sharing (with some level of protection for confidential trade secrets). Justice Kilgarlin’s analysis, however, is shot through with assumptions about corporate defendants’ “lack of candor” and desire to obfuscate the truth in discovery responses. This language marks the case as part and parcel of the “Justice for Sale” era in which so many of the Court’s opinions evidenced clear and unmistakable bias in favor of plaintiffs.
TCJL’s brief supports Uber’s request that the Court revisit Garcia, particularly in light of the greatly heightened risk of the theft and abuse of confidential data in the digital age. As we state in the brief:
As this Court well knows, by 1987 the tort litigation landscape had undergone such a dramatic transformation in such a short period of time that the Legislature, first in 1987 and again in 1995, felt compelled to respond in the interest of restoring predictability and stability to the law. Beginning in the early 1990s, this Court answered the call as well and ever since then has built a strong and distinguished record of legal scholarship that in no small part has contributed to balancing the scales and making Texas the most attractive state in the country for life and work.
The Garcia case is a product of the 1980s and the litigation environment of that time. According to Justice Kilgarlin:
- “The truth about relevant matters is often kept submerged beneath the surface of glossy denials and formal challenges to requests until an opponent unknowingly utters some magic phrase to cause the facts to rise. Courts across the nation have commented on the lack of candor during discovery in complicated litigation.” 734 S.W.2d at 347.
- “Shared discovery is an effective means to insure full and fair disclosure. Parties subject to a number of suits concerning the same subject matter are forced to be consistent in their responses by the knowledge that their opponents can compare those responses.” Id.
- “Benefiting from restrictions on discovery, one party facing a number of adversaries can require his opponents to duplicate another’s discovery efforts, even though the opponents share similar discovery needs and will litigate similar issues. Discovery costs are no small part of overall trial expense.” Id.
We certainly do not disagree with Justice Kilgarlin that promoting efficiency, avoiding duplication, and reducing costs benefit litigants in particular and the civil justice system in general. We do not deny that, as Justice Kilgarlin suggests, gamesmanship can and does occur in the discovery process, though we take issue with his thinly-veiled characterization of defendant product manufacturers as either disingenuous or discovery abusers interested only in hiding the “truth.”
But in endorsing broad discovery sharing in the interest of “efficiency” and “full disclosure,” the Garcia court overdid it, using a case alleging a specific product defect in a specific vehicle make and model to announce a sweeping doctrine affecting not only product liability but general civil litigation as well. In fairness to that court, Justice Kilgarlin and the seven others who joined the opinion could not have foreseen the digital revolution in the economy and the reshaping of the discovery landscape that have occurred since Garcia. They had no conception that digital records containing sensitive and confidential personal and business information would be created for myriad purposes and become such a valuable asset that organizations ranging from governments to private businesses would have to spend immense amounts of money just to protect the data.
These costs are real and substantial, and every disclosure of the information significantly enhances the risk that it will be appropriated and exploited for whatever purpose the appropriator may have. Whereas Justice Kilgarlin at least acknowledges that a business’s confidential and proprietary information should, at least to some extent, be protected from the prying eyes of its competitors, the actual holding of Garcia, in our view, does not even accomplish that, requiring only that the lawyers who got the information to promise they would not share it with “competitors or others who would exploit it for their own economic gain.” 734 S.W.2d at 348. Setting aside who those “others” might be, this approach is at best antiquated and at worst an invitation to use or misuse sensitive and confidential information for purposes that have nothing to do with the litigation for which it was produced.
Whether Garcia can be preserved in some form or fashion is obviously not for us to decide, but in our mind there can be no doubt that the case is an echo from a bygone era. It is part and parcel of a moment in Texas tort jurisprudence when all bets were off and professors in first-year torts classes learned the new law at the same time as their students. That does not mean that some of the broad policy statements in the opinion are invalid. The question is whether that court’s decision, which has its roots in a mindset and understanding of the world that may no longer be entirely valid, should be reviewed and modified to reflect new realities that shape discovery issues in contemporary litigation. We think it should and that this is the case to do it.
As we have reported previously, SCOTX overruled its own precedent in Edward James Mitschke, Jr., Individually and as a Representative of Cody Mitschke, Deceased v. Marida Faiva del Core Borromeo and Blackjack Ranch, L.L.E. (No. 21-0326). In that opinion Justice Young opined that a decision to overrule a binding precedent requires a determination of whether the precedent any longer serves the policy purposes of the rule, which are to promote efficiency, fairness, and legitimacy. In view of the fact that SCOTX has demonstrated interest in revisiting Garcia at least four times (each case settled before oral arguments), we believe that this case gives the Court another opportunity to apply Justice Young’s analysis.
The Court denied the petition for writ of mandamus on June 2, 2023.
15. Texas Department of Insurance and Cassie Brown, In Her Official Capacity as Commissioner of the Texas Department of Insurance v. Stonewater Roofing, Ltd. Co. (No. 22-0427; 07-21-00016-CV)
In the wake of a series of 2003 hailstorms that resulted in a huge spike in roof claims (not to mention litigation against insurers), the Texas Legislature passed a bill requiring licensing of public adjusters and prohibiting roofing contractors from adjusting insurance claims without a license for the owner who contracts with them (Chapter 4102, Insurance Code). This legislation aimed to eliminate the inherent conflict-of-interest arising from a roofer acting as both adjuster and contractor (and being paid) on the same job. The Amarillo Court of Appeals has thrown a spanner into the works, reversing a trial court’s order dismissing a constitutional challenge to the statute under Rule 91a (claim with no basis in law or in fact) and remanding for trial. The State is now seeking review from the Texas Supreme Court
The case arose out a suit filed by a customer against the roofing company (Stonewater) for a violation of Chapter 4102 based on certain statements on the company’s website offering assistance in settling insurance claims. Stonewater responded by filing suit against TDI alleging that 4102’s regulation of commercial speech was unconstitutionally vague and violated the First and Fourteenth Amendments of the U.S. Constitution a seeking a declaration that 4102 is invalid on its face and as applied to the company. TDI moved to dismiss under Rule 91a on the basis that Stonewater’s claim had no basis in law. The trial court granted the motion, and Stonewater appealed.
The court of appeals held that Stonewater alleged a sufficient legal claim that 4102 restricts a broad range of commercial speech and facially regulates speech based on both content (insurance claims) and speaker (roofing contractors). Rejecting the state’s argument that 4102 regulates conduct (unlicensed practice of public claims adjustment), not speech, and thus should be reviewed under a rational basis test, the court held the “business of public adjusting necessarily and inextricably involves speech . . . Here, Stonewater’s statements and discussions consisted of communicating and of gathering and disseminating information . . .,” which “involves speech, not conduct.” It further held that the statute prohibits certain speech based on its content and speaker, requiring a court to apply a strict scrutiny, under which TDI would have to “present evidence to show that the prohibited communication had a direct causal relationship to the State’s compelling interest.” Moreover, even if a court could find that 4102 only incidentally burdens speech in the regulation of non-expressive professional conduct, it would still have to conduct an intermediate level of scrutiny under Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S 557, 561 (1980). The court of appeals likewise reinstated Stonewater’s Fourteenth Amendment due process claim on the basis that Stonewater’s claim that the statute did not “clearly proscribe” the prohibited speech, leaving the company with no reason to believe that the statements published on its website violated the law.
The State’s petition for review, in our judgment, does excellent work in demolishing the roofing company’s constitutional arguments and the court of appeals’ construction of First Amendment jurisprudence. TCJL’s brief focuses on the public policy objectives of Section 4102. As w argue:
Following those 2003 storms, often before the skies even cleared, came legions of out-of-state roofing contractors eager to get their share of record-breaking insurance payouts. It was not uncommon for these contractors to make the same representations that Stonewater does on its website, promising to handle the insurance claims process on behalf of the policyholder while simultaneously pocketing the proceeds. Sometimes the hybrid public adjuster/contractors did a perfectly good job settling a claim and repairing the roof, but sometimes they did not. Some took the money and did a shoddy job on the roof repair, while others took the money and made no repairs at all. This is why the 2005 Legislature felt compelled to do something to protect the public, requiring public adjusters to be licensed and comply with professional and ethical standards, just like any other licensed professionals. It is also the reason that roofing contractors can no longer do what Stonewater represents itself as doing.
There is absolutely nothing unusual about Texas’ public adjuster licensing law. It shares many of the same provisions of the NAIC model law that informs many similar state laws nationwide.[1] To our knowledge, no court in any state with such a law has struck it down on any basis, much less on a First Amendment argument. The Texas Department of Insurance’s petition thoroughly explains the risk posed by the court of appeals’ decision to professional licensing statutes generally. From a public policy perspective, the decision could set in train a burst of litigation aimed at knocking out the ethical standards that the Legislature has deemed necessary to protect consumers from bad actors because such standards allegedly “implicate” speech. Even if the decision does not spread beyond Section 4102, it will still gut the Legislature’s well-founded policy response to clear and documented abusive conduct.
There is another aspect of Section 4102 that should be considered. Just as the statute is designed to address unethical practices in the practice of public adjusting, it establishes standards that not only protect the public but also professional public adjusters and roofing contractors that do business the right way. We have no reason to think that Stonewater, a Texas company, conducts its business in anything other than an honorable and above-board fashion. But that is not the issue. Stonewater, like every other roofing contractor that does business in Texas, benefits from Section 4102’s protections. The law shields them from unfair competition by out-of-state contractors that rush in after hailstorms and rush out with insureds’ money in their pockets. Furthermore, by helping to ensure that property owners get their roofs fixed properly in the most efficient and cost-effective manner, the law contributes to the maintenance of affordable and accessible insurance for everyone, including Stonewater. In other words, Section 4102 benefits their business by making sure that unscrupulous contractors cannot run wild in our state.
As the case challenges the constitutionality of a statute, we feel confident that SCOTX will accept review. We will keep you posted.
This case is at the merits briefing stage.
16. Exxon Mobil Corporation v. National Union Fire Insurance Company of Pittsburgh, P.A. and Starr Indemnity & Liability Insurance Company (No. 21-0936)
As we have previously reported, the First Court of Appeals [Houston] handed down a decision in a coverage dispute between an additional insured and CGL carriers that flatly contravenes recent SCOTX precedent. In the related appeals National Union Fire Insurance Company of Pittsburgh, PA. v. Exxon Mobil Corporation and Starr Indemnity & Liability Insurance Company and Exxon Mobil Corporation v. Starr Indemnity & Liability Insurance Company (No. 01-19-00852-CV; Opinion issued September 21, 2021), the court of appeals reversed a summary judgment in favor of the additional insured, Exxon, for reimbursement of damages and attorney’s fees under its contractor’s CGL coverage. Yesterday TCJL filed an amicus curiae brief in support of Exxon Mobil’s petition for review to the Texas Supreme Court.
The underlying litigation commenced in 2013. Exxon contracted with Savage Refinery Services, LLC for construction services at its Baytown Refinery. As is standard practice, Exxon required Savage to carry “its normal and customary” CGL for injury, death, or property damage and to cover Exxon as an additional insured. While performing services at the plant, two Savage employees were injured by a release of hot water and steam. One of the employees filed a lawsuit against Exxon, while the other sought payment of damages outside of litigation. Exxon ultimately settled with both for about $22 million. It then sought reimbursement of the settlement amount and attorney’s fees from Savage’s CGL and umbrella policy carriers, AIG Europe Limited, National Union, and Starr. AIG paid its limit, but National Union and Starr denied coverage. Exxon filed breach of contract claims against both companies, as well as a declaratory judgment claim. The trial court granted summary judgment for Exxon against National Union. It also granted summary judgment for Starr against Exxon on the basis that the Starr policy covered marine risks and was not a CGL policy. Everybody appealed.
This is the second time the same issue had come through the Houston courts of appeals in a matter arising from the same accident. In this second round, the First Court looked almost exclusively to the Service Agreement to bootstrap Exxon out from under the plain language of the CGL policy, which covers additional insureds like Exxon. The court of appeals also concocted an interpretation of “commercial general liability” coverage that allowed it to sidestep SCOTX’s clear holding in State of Pennsylvania, Deepwater Horizon, and other cases that an insurance policy must explicitly incorporate extrinsic documents. If the policy does not do that, then a court may only look to the extrinsic document to determine the contractor’s insurance obligations to the additional insured. Exxon’s contract with Savage dictates that Savage cover Exxon for the very occurrences that happened in this case. That should be the end of the story, but it appears that SCOTX will have to tell the First Court that they really meant it the first time.
As referred to above, in 2019, SCOTX handed down an opinion in Exxon Mobil Corporation v. The Insurance Company of the State of Pennsylvania (No. 17-0200), in which TCJL likewise participated as amicus curiae. That case involved the carrier’s attempt to recover from Exxon the workers’ compensation benefits paid to Savage’s employees under a subrogation provision in its policy with Savage. Exxon argued that the carrier had waived its subrogation right in the policy. The carrier argued that Exxon’s service contract with Savage limited Savage’s obligation to indemnify Exxon for Exxon’s tort liability and that Savage could not therefore waive subrogation for liability it did not assume under that contract. SCOTX agreed with Exxon that the language of the policy controls and that extrinsic documents, such as service contracts, should only be consulted if explicitly incorporated by reference into the policy. The Court only referred to the service contract to determine whether Savage was required to provide Exxon with a waiver of subrogation, which Savage was. Absent an explicit provision in the carrier’s endorsement, therefore, the carrier was not entitled to subrogation from Exxon. As Justice Guzman wrote, “Mere reference to a constitutional obligation to provide the waiver does not import extrinsic limits on the waiver’s application.”
TCJL’s brief in the current case recapitulates our arguments in State of Pennsylvania that the court of appeals’ erroneous incorporation of a service agreement into the primary insurance policy deprives the additional insured of coverage it bargained and paid for. It also confers a windfall on the insurer, which reaped the benefit of selling the policy and then sought to avoid its indemnity obligation under the policy. We believe that SCOTX’s insistence that a contract must explicitly incorporate extrinsic documents provides a bright line rule that businesses clearly understand and upon which they can confidently rely. The court of appeals’ decision undermines that policy and introduces significant uncertainty into carefully negotiated agreements to allocate risk in construction contracts. We urge SCOTX to accept review and remind the court of appeals of the Court’s prior opinions on the issue.
17. American Honda Motor Co., Inc. v. Milburn (No. 21-1097)
The presumption of nonliability for products manufactured to meet or exceed mandatory federal safety standards, § 82.008, CPRC, is one of the cornerstones of the 2003 tort reform effort. This provision has come under repeated attack in product liability litigation around the state, especially in the context of motor vehicle accidents. In order to over to overcome the presumption, the plaintiff must that the specific standard governing the product at issue is inadequate and exposes the public to an unreasonable risk of harm. In general, plaintiffs have to produce an expert qualified under Rule of Evidence 702 to give an opinion detailing the inadequacy of the federal standards. Some trial courts are better than others at enforcing Rule 702 and properly applying the Robinson standards. Others have allowed evidence of corporate lobbying of Congress and federal agencies to argue that the defendant made material misrepresentations about their products to water down the pertinent regulations. Still others have let the jury hear evidence relating to dissimilar products or other safety issues to show inadequacy. Some of these cases have produced megaverdicts on highly questionable evidentiary grounds.
This case arose from a collision between a Honda Odyssey, driven by an rideshare driver, and a pick-up truck. One of the passengers in the Uber was sitting in the middle seat of a fold-down third row. This particular seat design, which is common in a variety of SUVs, has a federally approved safety design which requires the lap belt to be anchored to the seat (otherwise the seat does not fold flat). The manufacturer specifically instructs and warns owners to make sure the belt is anchored before passengers sit there. The driver did not do this, and the plaintiff was injured when he ran a red light and hit the truck. At trial, the plaintiff’s seatbelt expert admitted that the seatbelt in question met the standard. There was also no evidence that any other injuries involving the seatbelt had been reported and no recalls have ever been made.
The plaintiff, however, offered a second expert who opined that the federal standard was inadequate because Honda could foresee that a passenger in that seat would not know about the seatbelt design or whether it was properly anchored. She made this conclusion based on a test designed and performed by plaintiff’s counsel (with no representative of the defendant present), in which several dozen people were asked to sit in that seat and fasten the seatbelt, which was unanchored. Predictably, no one knew or asked about it, but simply assumed the belt was operating properly. This is called “human factors” testing, and the “expert” admitted that it was both contrived and unscientific. Incredibly, the trial judge let the testimony in over Honda’s objection. The trial judge also excluded evidence that the driver had a criminal record, assaulted a passenger, and been involved in another accident while speeding. Even more incredibly, the trial court refused to allow Honda to submit the fault of a settling party—the driver—to the jury on the basis that he was an “employee” of the rideshare company. The jury awarded the plaintiff more than $30 million.
The court of appeals affirmed. In an opinion notably bereft of legal analysis, the court found that the trial court did not abuse its discretion in admitting the plaintiff’s bogus study or excluding evidence of the driver’s fault. It likewise let stand the trial court’s decision to keep the jury from assigning fault to the driver. I wish I could give you a reasoned justification for this holding, but alas I cannot. Honda has filed a petition for review with SCOTX challenging both the validity of the “human factors” test and the exclusion of the driver’s fault. TCJL filed an amicus curiae brief in support.
Our brief argues that both the trial and appellate courts failed in their duty as gatekeepers to throw out “junk science” expert testimony. By not applying Rule 702 to the plaintiff’s “human factors” expert, these courts have opened the door to whatever “study” a plaintiff’s counsel can cook up in order to rebut the presumption of nonliability, so much so that the presumption will become a dead letter. We also take the courts to task for flat out violating Chapter 33, CPRC, by blocking submission of the negligent driver’s fault. In our view, this case demonstrates how a result-oriented court can use evidentiary rulings to subvert legislative policy decisions about tort law. Unfortunately, we have to ask SCOTX once more to intervene and correct an egregious abuse of discretion and erroneous appellate decision.
The Court granted the petition for review on June 2, 2023.
18. Rosetta Resources Operating, LP v. Kevin Martin, Jamie Martin, and Ashley Lusk (No. 20-0898)
TCJL filed an amicus curiae brief urging SCOTX to accept review because, in our view, the court of appeals’ interpretation of the clause imposed a new, unprecedented, and expansive extracontractual duty on the operator to protect undrilled land against all drainage whenever a well is drilling either on that land or any adjoining property, regardless of which well may be causing the drainage. There was also an important evidentiary question in the case involving whether drainage had actually occurred on the lease.
The facts of the case are somewhat peculiar and suggest that the court of appeals adopted a novel view of the offset well clause in order to revive the appellees’ otherwise time-barred claim. As our brief argues:
The Martins urged the Court of Appeals to disregard the plain the language of the clause in order to bootstrap the non-adjacent and non-proximate Simmons well into their lease. The Court of Appeals responded by reading the clause as splitting one well into two, dropping the clause’s proximity limitation altogether, and creating a “general duty” where only a limited duty existed under the lease. And it did all of this without any finding that drainage was actually occurring, viewed from the perspective of a reasonably prudent operator. Despite Rosetta’s repeated assertions that no drainage was occurring, and the Martins’ failure to adduce any qualifying opinion to the contrary, the Court of Appeals swept these considerations aside in a rush to give the Martins’ claim new life. Its opinion not only creates a uniquely bad legal precedent, but the summary method of its reasoning cries out for review and correction. In short, the Court of Appeals has constructed new law upon an exceedingly shaky foundation of factual and legal justification.
In an opinion by Justice Busby, SCOTX reversed the court of appeals and reinstated the trial court’s grant of summary judgment on plaintiffs’ tort and statutory claims. It remanded to the trial court for further proceedings on the interpretation of the offset clause, which it found ambiguous (and poorly drafted).
The motion for rehearing was denied and mandate issued.
19. Exxon Mobil Corp. The City of San Francisco, et al. (No. 20-0558)
This case arose from a lawsuit filed in a California state court against Exxon Mobil, ConocoPhillips, Shell, and 15 other Texas-based oil and gas producers. The plaintiffs, several California municipalities and counties headed by the City of San Francisco, seek billions of dollars of relief from the industry for future rises in sea levels allegedly caused by climate change, although their bond disclosures state that the future effects of climate change are uncertain.
In response to the lawsuit, Exxon Mobil commenced a proceeding under Rule 202, Texas Rules of Civil Procedure, in a Midland state court seeking limited pre-suit depositions of the individual plaintiffs and document production from the municipal and individual plaintiffs to preserve evidence for potential tort litigation against the plaintiffs for viewpoint discrimination against Exxon Mobil and the other producers. Exxon Mobil contends that the plaintiffs’ have engaged in intentional tortious conduct and abuse of process to chill or affect its speech in violation of the U.S. and Texas Constitutions. The trial court found that the defendants were subject to personal jurisdiction in Texas and ordered limited discovery pursuant to Rule 202. The Fort Worth Court of Appeals reversed, holding that the defendants did not have sufficient minimum contacts with Texas so that Texas courts could exercise personal jurisdiction, though the court of appeals pointedly commented that the defendants have engaged in “lawfare” by attempting to regulate an industry through litigation rather than legislation.
The California lawsuit is part of a national effort to recruit local governments and state attorneys general to sue major energy producers led by Boston-area attorney Matthew F. Pawa, a partner in the Seattle-based firm of Hagens Berman. The firm’s website describes Pawa, a former state’s attorney in Chittenden County, Vermont, as follows:
Prior to joining Hagens Berman, Mr. Pawa was the president of Pawa Law Group P.C. where he was the founder and leader of the litigation firm specializing in major environmental cases. He handled jury trials, bench trials and argued appeals in state and federal courts in Massachusetts and across the nation and collaborated with state attorneys general and non-profit clients on a major global warming case that went to the U.S. Supreme Court. Mr. Pawa forged the small law firm into a nationally known entity with a reputation for successfully litigating against some of the country’s largest corporations.
The court of appeals described in great detail Pawa’s involvement in recruiting plaintiffs for the lawsuit, providing an anatomy of an orchestrated and premediated lawfare campaign:
In June 2012, Pawa, a climate-change litigator, attended the “Workshop on Climate Accountability, Public Opinion, and Legal Strategies” in La Jolla, California. Among the conference organizers was Peter Frumhoff, the Director of Science and Policy for the Union of Concerned Scientists.
At the conference, Pawa spoke about one of his pending cases against the energy industry seeking damages for coastal flooding allegedly caused by anthropogenic climate change. According to him, “Exxon and the other defendants [in that case] distorted the truth.” Pawa also stated that litigation is not only a remedy for those suffering the effects of climate change but also “a potentially powerful means to change corporate behavior.”
Conference participants discussed strategies for getting energy companies’ internal documents and concluded that law- enforcement powers and civil litigation could be used to pressure the energy industry to support legislative and regulatory responses to climate change. Participants also planned to enlist state attorneys general to launch investigations into climate change that could bring “key internal documents to light.”
In March 2015, Pawa sent a memorandum to NextGen America—a nonprofit group funded by Tom Steyer, the California billionaire hedge-fund manager, environmental activist, and erstwhile candidate in the 2020 Democratic presidential primary —summarizing Pawa’s legal strategy against fossil-fuel companies “for their contributions to California’s injuries from global warming.” The memo stated that “certain fossil[-]fuel companies (most notoriously Exxon Mobil), have engaged in a campaign and conspiracy of deception and denial on global warming.” Pawa further stated that “[a] global warming case would be grounded in the doctrine of public nuisance” and noted that “simply proceeding to the discovery phase would be significant” and that “obtaining industry documents would be a remarkable achievement that would advance the case and the cause.”
Early the following year, in January 2016, Pawa and others met at the Rockefeller Family Fund offices in New York City to discuss the goals of an “Exxon campaign.” According to the meeting’s draft agenda, the goals included (1) establishing in the public’s mind that “Exxon is a corrupt institution that has pushed humanity (and all creation) toward climate chaos and grave harm”; (2) delegitimizing Exxon as a political actor; (3) driving divestment from Exxon; and (4) forcing “officials to disassociate themselves from Exxon, their money, and their historic opposition to climate progress, for example by refusing campaign donations, refusing to take meetings, calling for a price on carbon, etc.” As “main avenues for legal actions [and] related campaigns,” the participants identified “AGs” and tort suits. The participants planned to use these avenues to obtain discovery and create scandal.
TCJL’s brief called out this outrageous behavior for what it is: a concerted effort to use the courts to destroy the oil and gas industry wherever it is. At the same time, this litigation is a naked power grab aimed to subverting Texas sovereignty and the right of all Texans—not just the oil and gas defendants themselves—from exercising their freedom of speech and association in connection with ongoing public policy debates surrounding climate change. Consequently, the plaintiffs can reasonably expect to be haled into a Texas court to answer for their conduct. As we stated in our brief:
The court of appeals wrestled with the question of whether the Respondents’ activities rose to the level of potentially tortious conduct in this state. Exxon Mobil argues that the whole point of the litigation is to repress the First Amendment right of the company to engage in a national (and indeed international) policy discussion about the causes and impacts of climate change. TCJL would add that the Respondents’ attempt to establish such policy through litigation, as opposed to the ballot box, constitutes a direct attack on the sovereignty of this state. Aiming to use its own courts to regulate the political conduct and business activities of Texas residents, the Respondents seek to chill the speech rights of all Texans in a policy area of existential importance to their personal and community well-being. From TCJL’s perspective, Respondents, having acted at the behest of a private lawyer who actively (and presumably profitably) orchestrates lawfare campaigns across the country, should fully expect to be haled before a Texas court to answer for their conduct. By endeavoring to legislate for Texas by litigating in California, they have caused and plan to cause injury to Texas residents and have provoked Texas residents to seek the protection of our courts. As Justice Guzman, quoting the United States Supreme Court, observed in Moncrief Oil:
A state has an especial interest in exercising judicial jurisdiction over those who commit torts within its territory. This is because torts involve wrongful conduct which a state seeks to deter, and against which it attempts to afford protection, by providing that a tortfeasor shall be liable for damages which are the proximate result of his tort. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 776, 104 S.Ct. 1473, 79 L.Ed. 790 (1984). See Moncrief Oil at 152.
Respondents commit wrongful conduct in Texas by conducting a public smear campaign against our residents under the cloak of the judicial process. Their whole purpose is to cause reputational and financial harm to our residents by crippling the energy industry in furtherance of their political agenda. There can be no question that Texas has an “especial interest in exercising judicial jurisdiction” over those who seek to do such widespread and indiscriminate injury to so many.
SCOTX denied review.
20. Plaquemines Parish v. Riverwood Production Co., Inc., et al.; No. 19-30492 (United States Court of Appeals for the Fifth Circuit)
Several Louisiana parishes, joined by the State of Louisiana, sued Chevron and dozens of oil and gas producers in Louisiana state courts, claiming that the Companies have violated the Louisiana State and Local Coastal Zone Management Act of 1978 (“SLCRMA”) by failing to obtain permits in accordance with the Act. The parishes claim damages relating back to producers’ conduct performed at the direction and control of the federal government during World War II.
During the War, Congress suspended antitrust laws the industry, allowing the federal government to gather the producers’ predecessors into a consolidated exploration and production engine under the supervision and control of a new agency, the Petroleum Administration for War (“PAW”). The PAW micromanaged oil and gas operations, telling the producers where and how to drill, rationing the use of steel and materials for roads, and setting statewide quotas for the production of oil and gas to produce the high octane fuel necessary for the war effort. The parishes claim that the producers should have followed certain “prudent practices,” many of which conflict directly with federal mandates that they were directed to follow during the war. The parishes particularly target pre-1980 dredging activities exclusively governed by federal law prior to the SLCRMA, raising substantial federal issues that the producers are seeking the Fifth Circuit to review.
Chevron and the other producers removed the cases to federal court under 28 U.S.C. § 1442, which permits removal of cases involving a federal officer, or those acting under the direction of a federal officer, and 28 U.S.C. § 1331, which grants federal jurisdiction to cases involving a federal question. Plaintiffs moved to remand. Two district courts took up the remand motions first, one granting remand because it found removal was untimely, and the other denying remand, finding that the allegations in the petition were insufficient to trigger the removal clock. The cases were consolidated on appeal, and, in a cursory opinion, the panel held that the producers’ removal based on the expert report was untimely. The panel concluded that a list of serial numbers of wells, attached as an exhibit to the petitions, gave the producers notice that World War II activity was at issue sufficient to trigger the deadline to remove. The panel’s opinion does not address the timeliness of the federal question ground for removal, which, as the arishes themselves conceded, raised timeliness issues distinct from the federal officer removal.
TCJL’s brief urges the Fifth Circuit to review the panel’s decision en banc and consider the federal question ground for removal raised by Chevron and the producers. As stated in the brief:
“Remanding this case to state court without careful en banc review raises the ominous prospect of the energy industry—arguably the primary engine of economic growth in these sister states—facing civil liability for damages, fines, abatement or mitigation costs, and administrative penalties up to a maximum of $12,000 per violation. See La. Stat. Ann. § 49:214.36(E), (F), (I). Even if this litigation were confined solely to the approximately 40-year period between the commencement of World War II and the passage of the State and Local Resources Management Act in 1978, the full extent of the potential liability could easily reach the hundreds of billions of dollars, even dwarfing the largest civil litigation settlement in American history, the 1998 Tobacco Master Settlement Agreement involving 46 states. [citation] TCJL urges this Court to take another look at this case to make sure that it does not implicate federal law before letting it run its course in state court. The stakes are simply too high not to deal with these issues before the Defendants-Appellants, the rest of the industry, and the American economy are confronted with the potentially catastrophic impact of this litigation.
“No business can operate in a legal and regulatory environment that could have this result. If one state can use its courts to reach into the past in order to extend its regulation of an essential industry in this fashion, what is to prevent similarly inclined states to do the same? Who will ever trust enough in the stability and predictability of the legal and regulatory environment to invest in this industry? What could this litigation end up costing the people who depend on this industry for their livelihoods? What will it cost the businesses and families who need this industry’s products and services to prosper in their own endeavors? While this Court cannot and, indeed, should not address these questions, it can and should address whether the Defendants-Appellants had a fair opportunity to remove this litigation to federal court and resolve the federal questions in the appropriate forum.”
The Fifth Circuit affirmed in part, holding that the case presents no federal question jurisdiction. It reversed and remanded, however, for reconsideration of whether federal jurisdiction exists on federal officer grounds, having held that Chevron’s removal motion was timely.
21. Signature Industrial Services, LLC and Jeffry Ogden v. International Paper Company (No. 20-0396)
This contractual damages case arose from a $775,000 construction contract for the installation of machinery at a paper mill in Orange County. The contractor submitted numerous change orders without adequate backup, which the owner disputed. After the contractor rejected the owner’s offer to settle the dispute, the contractor filed suit in a Jefferson County district court. The jury awarded the contractor $122 million, including $36 million in emotional distress damages. The owner’s appeal was transferred to the Corpus Christi Court of Appeals under the case equalization order. The Corpus Court reduced the damage award, including striking the emotional distress damages altogether, but allowed more than $14 million in consequential damages based on the unrealized book value of the contractor to stand. Both parties petitioned SCOTX for review. The contractor contends that the Corpus Christi court of appeals cut the damages too much, while the owner argues that the consequential damages award contradicts precedent established by SCOTX and every other Texas court of appeals.
In our brief, we argued that the problem with the Court of Appeals’ decision is that it recognizes a wildly speculative measure of damages—an unrealized decrease in a company’s book value (in this case offered by an “expert” with minimal qualifications at best)—that will now be put to use to leverage settlements at a much higher value than the case should have based on the actual losses involved. If any garden variety contract dispute can be converted into a multi-million-dollar lawsuit by alleging that a breach caused an unrealized decline in the paper value of a claimant’s business, such a change will incentivize lawsuits with artificially inflated damages claims. TCJL’s experience over the past 35 years tells us that creating or expanding the availability of speculative damages inevitably destabilizes the judicial process by making every lawsuit a lottery ticket. Further, court of appeals’ decision effects a major expansion of liability for the Texas businesses community by creating a loophole around this Court’s precedents and permitting plaintiffs to recover speculative measures of damages. This decision should be closely scrutinized—and promptly rejected—by the Supreme Court. Allowed to stand, the decision threatens to trammel not only the substantial, growing, and dynamic business activity in South Texas but also the fair and efficient civil justice system across the state, which has enabled the remarkable economic growth that Texas has experienced over the last quarter-century.
In an opinion by Justice Blacklock, SCOTX reversed the court of appeals’ decision to uphold the jury award of $12.4 in consequential damages to the contractor based on a loss of book value subsequent to the breach. In order to recover consequential damages in Texas, Justice Blacklock wrote, “Texas law requires consequential damages be both (1) foreseeable at the time of contracting, and (2) calculable with reasonable certainty” (citations omitted). SCOTX concluded that both the jury’s award of $56.3 million for loss of market value nor and 12.4 million award failed both prongs of the test. First, IP did not and could not have foreseen that the contractor’s proposed sale of his company would fall through as a consequence of the alleged breach of contract. To establish foreseeability, the contractor had to prove that “IP ‘contemplated at the time’ it agreed to the slaker contract that a catastrophic collapse in SIS’s market value far outpacing the 2.4 million IP refused to pay ‘would be the probable result of the breach’” (citations omitted). Justice Blacklock noted that the contractor did not pursue a conventional lost profits claim (based on the profits it lost due to IP’s breach) but instead asserted “a novel damages model premised on a decline in the company’s overall market value as an asset.” He declined to break new ground here, reasoning that “companies often do not understand the buying and selling companies like themselves, much less companies in other lines of work. As a result, specialized bankers and consultants are frequently hired when companies have reason to explore either their own market value or that of other companies.”
SCOTX thus declined to impose a new duty on parties to a contract to investigate “how their actions will affect the counterparty’s market valuation” and held that “[A]s a general rule, neither the counterparty’s market value nor the impact of breach on that value will be reasonably foreseeable at the time of contracting.” This is true even if the counterparty is otherwise familiar with the plaintiff’s business or has knowledge of the plaintiff’s financial position. Again, the contractor could have sought lost profits but chose not to do so (probably, we think, because they didn’t think they could establish them). Moreover, imposing such a duty “would encourage parties to contract only with large, established companies. Few rational parties would contract with a fledgling company for whom a $2.4 million non-payment might one day be worth $56 million in ‘company value’ damages.” (We made this point in our brief.)
SCOTX likewise rejected the loss of “book value” method of computing consequential damages because they, like the loss of market value, could not “be proved with reasonable certainty.” Noting that book value is an accounting concept and does not at all reflect market value, “a decline in book value . . . does not prove any actual losses—with reasonable certainty or otherwise.” Here the contractor attempted to use book value as a proxy for market value, a tactic that Texas courts have repeatedly rejected. As Justice Blacklock put it, “[Book value] tells the jury nothing about the underlying losses actually suffered by the company that contributed to the drop in book value, and it tells the jury nothing about the overall decline in the market value of the company as an asset.” Accordingly, the Court reversed the $12.4 million award as well.
The only fragment of the original $100 million verdict that survived was about $1.8 million in direct damages based on one of two unpaid invoices. The Court threw out one of the invoices—for about $622,000—because it was not authorized by the contract. With respect to the remaining invoice, the Court found legally sufficient evidence to support the jury’s award. Additionally, the Court held that IP was not entitled to indemnification from the contractor because §151.102, Insurance Code, bars indemnity in breach of contract cases. Finally, the Court tossed the individual claims of the contractor’s president, who alleged identical breach of contract and fraud theories and to whom the jury awarded the same $67 million it gave the contractor. SCOTX held that the president was not a party to the contract nor had privity with a party. The contract forbad assignment, so the Court rejected that argument. In response to the president’s claim to be an “agent” with an “interest” in the contract, giving him standing to sue for breach, the Court found that the president’s “hope that SIS would be paid and would in turn pay off tax debt as he had guaranteed is not a legally cognizable ‘interest in the subject-matter of the contract’ sufficient to authorize [him] to sue in his personal capacity for injuries to the company. . . . To hold that he can sue for breach of SIS’s contracts in his personal capacity would collapse the distinction between corporate entities and their individual owners or officers.” As Justice Blacklock notes, such a result would also result in “duplicative litigation and double recovery.”
We are pleased that SCOTX has taken such a strong and clear position on the contractor’s attempt to stretch the concept of consequential damages to encompass speculative and unverifiable measures such as “loss of book value” and “loss of market value” in breach of contract cases. This decision reaffirms the Court’s consistent view that contracts mean what they say and contract damages must be foreseeable and proven with reasonable certainty.
SCOTX affirmed in part and reversed in part.
22. In re Academy, Ltd. d/b/a Academy Sports + Outdoors (No. 19-0497)
This case arose from the Sutherland Springs church shooting in 2017. It implicates not only the jurisprudence of this state, but the contours of federal-state relations, the reach of federal immunity for retailers of firearms, and the use of litigation to regulate lawful commerce. Here the Real Parties asked this Court to: (1) interpret federal law to defeat Congress’s policy decision to grant immunity to innocent sellers, (2) subject a Texas business to liability for an alleged violation of a Colorado criminal statute (requiring a further judicial interpretation of Colorado law); (3) make a Texas business the guarantor of the accuracy of the national system for vetting the background of a purchaser of firearms, and (4) create a cause of action previously unrecognized in Texas law. Deciding any one of these issues would be a tall order for the Court, but for the Real Parties to obtain the relief they have requested, the Court will have to address each of them, as well as step off into one of the most divisive and contentious policy debates of our time. Should the Court find, however, that federal immunity bars the Real Parties’ cause of action against the Relator, it need not reach any of these thorny questions. The Relator has argued this issue thoroughly, so there is no need for us to belabor the point, but suffice it to say that the Real Parties’ characterization of PLCAA as providing a “federal affirmative defense” has no basis in federal appellate decisions interpreting PLCAA immunity, cancels out the statutory bar of “causes of action,” and defeats the purpose of the statute.
The Real Parties’ argument that Colorado law creates an exception to federal immunity is equally unfounded. The question is not whether the buyer acquired a firearm in Texas that he could not get in Colorado, but whether Colorado magazine law has anything to do with this case in the first place. Section 922(b)(3) requires compliance with the laws of both Texas and the state of the purchaser’s residence in buying a rifle or a shotgun, but not in buying a magazine because a magazine is not a “firearm.” See 18 U.S.C. 921(a)(3) (defining “firearm”).
We should not expect our businesses to insure against failures of a criminal background check system built and operated by the federal government for just this purpose. The Relator complied with its duty to have the purchaser complete Form 4473 and conduct a background check, but in this instance the U.S. Air Force catastrophically failed to let anybody know that this particular buyer had a criminal record that would have disqualified him from buying a firearm from a licensed seller in the first place. It is reasonable for the Relator to rely on the federal government to do its job. In fact, a former distinguished member of this Court, Senator John Cornyn, last year authored the Fix NICS Act in response to the terrible event that led to this litigation. That law aims to ensure that federal agencies, including the Air Force, upload information to the national background check system in a timely fashion to prevent exactly what occurred here. The Justice Department’s position naming Academy as a potentially responsible third party, particularly in light of the specific circumstances in this case, is wrong and destructive, both to Texas (and every other state’s) businesses and Second Amendment privileges in general. This Court should not validate this disastrous failure by shifting responsibility to a seller that has no choice but to rely on the accuracy of that system.
The Real Parties’ argument concerning whether a firearm includes the magazine if they come packaged together in the same box defies both statutory construction and common sense. The statute does not say that, nor should it have to. Texas law, in fact, recognizes that a firearm and ammunition are separate products. Section 82.006, Tex. Civ. P. & R. Code, governs a products liability action against “the manufacturer or seller of a firearm or ammunition” (emphasis added). The statute requires a claimant to prove an actual design defect in the “firearm or ammunition” that is the producing cause of the injury. Similarly, Congress could have specified that for purposes of PLCAA, the definition of “firearm” included “ammunition.” This is simply not the case.
Finally, a very long time has passed since this Court created a new common law cause of action out of whole cloth, but that is exactly what the Real Parties propose. Extending a negligent entrustment cause of action to the sale of goods would open up a vast new lawsuit industry in which every sale of a good that ended up involved in criminal activity might be subject to such a claim. If we are going to change public policy that dramatically, the Legislature should do it, not the courts, particularly in the Second Amendment context. Indeed, in the wake of the Midland/Odessa and El Paso shootings late last summer, House Speaker Dennis Bonnen appointed the House Select Committee on Mass Violence Prevention and Community Safety to study, among other things, background checks and “red-flag” laws. The existence of this inquiry emphatically affirms that the policy ramifications of the gun violence issue are of critical importance and must be fought out in public debate in the legislative process.
Academy did not violate federal law, so its conduct could not be the proximate cause of this tragedy. The trial court erred and abused its discretion twice: denying summary judgment, and then denying a permissive interlocutory appeal to get an answer on the underlying issues. Mandamus is the only available avenue to prevent a substantial waste of Texas judicial resources in a policy area best left to the Legislature. The events that led to this case are horrific and tragic in the extreme. There may indeed be a role for the courts, but if so, it lies in the direction of an action against the federal government pursuant to the Federal Tort Claims Act, not here.
SCOTX conditionally granted mandamus.
