FSA Class Action Filings Through 2019
TCJL has filed an amicus curiae brief in a mandamus case before the Texas Supreme Court arising from HB 274 from the 2011 legislative session, In re Southwestern Energy Company, et al. (No. 20-0197). As you may recall, HB 274 was spearheaded by then-Governor Rick Perry, who proposed a “loser pays” rule as part of an early dismissal mechanism similar to Federal Rule 12(b)(6). This rule enables a party to make a motion to dismiss a lawsuit (or counter- or cross-claim) that has no basis in law or fact. As finally passed, HB 274 included a legislative directive to the Texas Supreme Court to adopt such a rule with cost-shifting effect. This directive resulted in Rule 91a, which is one of the central issues in this case.
Unfortunately, the cost-shifting provision had the inadvertent effect of deterring defendants from making Rule 91a motions to dismiss (and probably some plaintiffs seeking to dismiss meritless counterclaims and affirmative defenses as well). To correct this unintended consequence, the 2019 Legislature amended §22.004 to drop mandatory cost-shifting and leave it to the court’s discretion to award attorney’s fees and costs to the prevailing party. The current Rule 91a thus tracks Rule 12(b)(6) even more closely.
In re Southwestern Energy Company, et al. involves a putative class action brought under the Federal Securities Act (FSA) against Southwestern Energy and 28 financial institutions that underwrote Southwestern’s preferred-stock offering. After the U.S. Supreme Court ruled that class actions asserting only Securities Act claims were non-removable from state to federal court, the case was remanded to a Harris County district court. Then Southwestern moved to dismiss under Rule 91a, the plaintiffs amended their petition to add new claims, none of which constitute a valid basis of liability under the FSA (those new claims are also time-barred under the 3-year FSA statute of repose). When Southwestern against moved for dismissal, the trial court denied the motion. Southwestern sought a writ of mandamus, which the First Court of Appeals (Houston) denied. Southwestern now seeks mandamus from the Texas Supreme Court.
The appeal puts a question that the Court has not yet considered: how, if at all, does Rule 91a interact with Texas’ notice pleading standard? As we write in our brief, TCJL and other advocates of HB 274 “never thought the enactment of H.B. 274 even begged the question.” The notice pleading standard requires courts to “assess the sufficiency of pleadings by determining whether an opposing party can ascertain from the pleading the nature, basic issues, and the type of evidence that might be relevant to the controversy.” Low v. Henry, 221 S.W. 609, 612 (Tex. 2007). We contend that “there is no conflict between Rule 91a and notice pleading,” and that by directing the Court to adopt the rule, “the Legislature made it clear that claims with no basis in law or fact should not be entertained by our courts. The Legislature did not add: ‘except when a pleading gives notice by which the opposing party may ascertain the nature, basic issues, and type of evidence that might be relevant to the controversy.’ Such a reading would negate Rule 91a altogether and violate the both the plain language and intent of HB 274.
The Court has asked for full briefing on the merits. The plaintiffs’ brief on the merits is due on January 14, and Southwestern’s reply brief will follow two weeks after that, unless extended.
