November 2008 Cases Impacting Houston Appellate Lawyers

Presented November 20, 2008 at the HBA Appellate Section Luncheon
by Brent E. Dyer, Looper Reed & McGraw, P.C.




October 16, 2008 – November 19, 2008

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SSP Partners and Metro Novelties, Inc. v. Gladstrong Investments (USA) Corp., No. 05-0721 (November 14, 2008) (Justice Hecht)

Significance: A domestic importer of a product manufactured overseas generally has no statutory-indemnification obligations and very limited common-law indemnity obligations under Texas law.

Holding: Statutory indemnification under Texas product liability law (Chapter 82 of the Civil Practices and Remedies Code) only applies to manufacturers or others who are actively involved in the creation of the product. Importers—even if they are very closely related to the manufacturer—are not obligated by the statute to indemnify downstream sellers from product liability claims. Importers also cannot be subjected common-law liability solely because they are responsible for “facilitating entry of the product into this country.” Simply bringing a product into the country—even a defective product—is not an independent basis for liability.

Relevant facts: A five-year-old boy was killed in a house fire that resulted when the child safety feature of a lighter failed. The parents sued the convenience store where they bought the lighter. The store sued its distributor and the importer—Gladstrong—for indemnity. Gladstrong is the wholly owned subsidiary of a Hong Kong corporation that designed and manufactured the lighters. The store and distributor argued that an importer effectively acts as the “producer” of products that are manufactured overseas and should be required to indemnify downstream sellers under Texas product-liability statutes. They also argued that Gladstrong and its Hong Kong parent are so closely related that they are a single business enterprise and should be held liable for each other’s legal obligations under product-liability law. Finally, they asserted that common-law indemnity applied to the importer. The trial court granted summary judgment in favor of Gladstrong on both statutory and common-law indemnity claims, and the court of appeals affirmed. The Supreme Court affirmed summary judgment with regard to statutory indemnity, holding that the single-business-enterprise doctrine did not make related entities responsible for each other’s obligations. The Supreme Court remanded the common-law indemnity claims to the trial court, however, for a factual determination of whether the importer engaged in any affirmative wrongdoing that could create common-law indemnity.

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Perry v. Cohen, No. 07-0301 (November 14, 2008) (per curiam)

Significance: Appellate issues related to interlocutory orders do not necessarily have to be explicitly raised in the statement of issues in a brief to be preserved on appeal.

Holding: Even if an interlocutory order is not specifically referenced in an appellant’s statement of issues, error with regard to the interlocutory order is not waived if the final judgment flows from the interlocutory order and the argument portion of the brief raises and discusses potential errors regarding the interlocutory order.

Relevant facts: After a corporation filed for bankruptcy, several shareholders sued that corporation’s lawyers, alleging that the lawyers fraudulently induced them to continue to hold their shares and buy additional shares. The lawyers specially excepted to the original petition and the shareholders filed two amended petitions in response. When the lawyers reasserted their special exceptions, the trial court ordered the shareholders to amend one last time to state viable claims or suffer dismissal with prejudice. The shareholders filed a third amended petition, which the trial court again deemed insufficient and dismissed their claims with prejudice. The shareholders appealed the dismissal, but did not specifically list the trial court’s interlocutory ruling on the special exceptions as an issue on appeal in their brief. The court of appeals affirmed the dismissal, holding that the shareholders had waived any complaint about the interlocutory ruling on the special exceptions. The supreme court reversed and remanded to the court of appeals for reconsideration because, even though the ruling on special exceptions was not expressly enumerated as an appellate issue, it was clearly discussed in the brief and should not be considered waived on appeal.

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In re Union Carbide Corp., No. 07-0987 (November 14, 2008) (per curiam)

Significance: A trial court cannot cure an improper application to intervene by severing out the intervenors’ claims. Further, actions by a trial court that create an appearance of unfairness in the judicial process may be subject to mandamus.

Holding: When a party seeking to intervene in an existing lawsuit fails to show the necessary requirements for intervention, the only appropriate course of action is to strike the plea in intervention and dismiss the claims. The trial court does not have the option to sever the claims because “interventions by uninvited participants have potential for disrupting pending suits,” and a failure to strike an improperly filed intervention is subject to mandamus.

Relevant facts: In January of 2006, Kenneth Moffett filed a personal-injury lawsuit against Union Carbide and others claiming that exposure to toxic chemicals caused him to develop leukemia. In March of 2007, the survivors of John Hall sought to intervene in Moffett’s lawsuit, alleging that Hall had died from similar injuries as the result of exposure to chemicals that was caused by some of the same defendants. Union Carbide opposed the intervention and filed a motion to strike. Instead of ruling on the motion to strike, the trial court severed the Hall claims into a separate cause that was maintained in the trial court’s docket. Union Carbide filed for writ of mandamus, which was denied by the court of appeals. The Supreme Court overruled the court of appeals and conditionally granted the writ, explaining that the trial court’s actions threatened the integrity of the legal system by circumventing random assignment of cases.

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Ross v. Nicon Construction, Inc., No. 01-08-00228-CV (November 6, 2008) (Chief Justice Radack)

Significance: Minimum contacts under the Texas long-arm statute may not be as easy to establish as previously thought, especially if a forum selection clause specifies that litigation will take place in another state.

Holding: In-person meeting in Texas between a prospective employee and a prospective employer’s representative who did not have authority to extend an offer or negotiate employment terms did not create jurisdiction over subsequent litigation in Texas. Telephone negotiations between prospective employee in Texas and the prospective employer’s president in Florida did not create jurisdiction either because the employer did not purposefully avail itself of Texas law given that the employment agreement was governed by Florida law and designated Florida as the exclusive forum for disputes.

Relevant facts: Nicon Construction needed estimators to help submit bids to insurance companies for hurricane reconstruction in Florida. It asked an employee–Gearhart–who owned a house in Texas and who had construction contacts in Texas to call people whom he knew about coming to work for Nicon in Florida. Gearhart contacted Ross and met with him in person in Texas on at least two occasions. During these discussions, Gearhart made it clear to Ross that he did not have authority to offer him a job or negotiate terms of employment. Ross subsequently engaged in telephone negotiations with Nicon’s president in Florida and ultimately signed an employment agreement that specified Florida as the forum for any disputes under the agreement. In deciding that there was no jurisdiction under the Texas long-arm statute, the First District noted that it was “merely fortuitous” that Nicon had an employee with Texas contacts and that Nicon clearly did not mean to avail itself of the benefit of Texas law when Ross’s employment agreement specified that it was governed by Florida law.

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Cramer v. State Farm Mutual Automobile Insurance Co., No. 01-08-00270-CV (November 6, 2008) (Justice Jennings)

Significance: The power of county courts at law to review decisions by justices of the peace (“JPs”) covers all aspects of the case and is not limited to the merits of the claims.

Holding: Parties appealing a decision by a JP have the right to reurge a motion to transfer venue in the county court at law as part of the de novo appeal. The county court at law may not restrict its review of the justice-court decision to the merits of the claims.

Relevant facts: State Farm sued the Cramers in justice court to recover an alleged double payment on an insurance claim. The Cramers filed a motion to transfer venue from McLennan County to Dallas County, which was denied by the JP. After the JP entered judgment against them, the Cramers filed an appeal to the county court at law and a new motion to transfer venue. State Farm argued that a party may only file one motion to transfer venue and, because a motion had been denied by the JP, the Cramers could not raise the issue again in the county court at law. The county court at law agreed, denied the motion to transfer venue, and affirmed the judgment by the justice court. The First Court of Appeals reversed, explaining that de novo appeal of justice-court cases to county courts at law encompasses all aspects of the case and requires an independent determination without regard to anything previously decided by the justice court.

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Hahn v. Love, No. 01-07-00096-CV (November 6, 2008) (Justice Keyes)

Significance: Purchaser of real property in a fraudulent transfer action cannot obtain summary judgment as bona fide, good faith purchaser when suspicious circumstances surrounding the sale are reflected in the chain of title.

Holding: Purchaser of real property from a judgment debtor could not win summary judgment declaring him to be a bona fide purchaser under the Fraudulent Transfer Act when he had actual and constructive notice of suspicious documents in the chain of title and other suspicious circumstances related to the property.

Relevant facts: In 1988, Hahn obtained a judgment against Sessions. In 1992, Hahn properly filed an abstract of judgment. In August of 2001, Sessions acquired a parcel of real property, which automatically become subject to a judgment lien by virtue of the abstract of judgment. In 2002, ten days after the judgment lien expired, Sessions purported to transfer the property to his family-owned business entity via defective a deed that did contain a metes and bounds description. In late 2003, Sessions signed a contract of sale with Love regarding the property. About the same time, Hahn filed a motion to revive his judgment lien against Sessions. Two days before the hearing to revive the judgment, Sessions filed the 2002 deed. Later, after the judgment lien was revived and a new abstract of judgment was filed, Sessions filed a correction deed on the property containing a metes and bounds description. A month later, Love closed on his purchase of the property. When Hahn sought to invalidate the transfer under the Fraudulent Transfer Act, Love claimed that he was protected as a bona fide purchaser because he was not aware that Sessions was trying to avoid the judgment lien when he transferred the property to the family-owned entity via the 2002 deed. The trial court granted summary judgment in Love’s favor. The First Court of Appeals reversed the summary judgment, holding that timing of the various liens and transfers in the deed records was enough to create an inference that Love was aware that Sessions might be trying to defraud his creditors through the sale of the property.

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C/S Solutions, Inc. v. Energy Maintenance Services Group LLC, Nos. 01-05-01020-CV, 01-07-00168-CV, 01-07-01054-CV (October 30, 2008) (Justice Nuchia)

Significance: Parties cannot dismiss claims to avoid summary judgment and then refile in a different court.

Holding: When summary judgment briefing is complete, the trial court has the discretion to prevent dismissal of the claims subject to the motion until after the court has ruled on summary judgment.

Relevant facts: C/S Solutions brought suit against Energy Maintenance Services (“EMS”) in county court in Harris County for breach of contract, fraud and other claims. EMS filed a no-evidence motion for summary judgment with regard to all of the claims except breach of contract. After summary-judgment briefing was completed and the court held a hearing—but before the court ruled on the motion, C/S Solutions filed a nonsuit of all of its claims, except the breach of contract claims, and refiled those claims in district court in Fort Bend County. At EMS’s urging, the county court refused to accept the nonsuit of the fraud claims and granted summary judgment in EMS’s favor. C/S Solutions appealed, arguing that it had the absolute right to nonsuit its claims at any time and the trial court had to recognize the nonsuit and forego ruling on summary judgment. The First Court of Appeals explained that a nonsuit involves the dismissal of a party from a lawsuit and not individual claims, which are abandoned by the filing of an amended petition. The summary-judgment hearing had already been held, so amendment of pleadings was governed by Rule 63 and required leave of court. Because C/S Solutions did not ask for leave of leave to amend, the court properly refused to acknowledge the dismissal characterized as a nonsuit of the claims.

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State v. Bhalesha, No. 14-08-00098-CV (November 6, 2008) (Justice Yates)

Significance: An inverse condemnation claim requires a showing of more than a detrimental effect on access to a business.

Holding: A change in street layout that makes access to a business more inconvenient for some customers, but still allows access along the same roadways, does not constitute inverse condemnation.

Relevant facts: The Bhaleshas own a supermarket on Avenue G in Rosenberg. To alleviate traffic at a nearby railroad crossing, the state elevated the nearest cross street into an overpass. While access to the supermarket’s parking lot from Avenue G remained unchanged, traffic traveling west on Avenue G had to travel a more circuitous route (one or two more blocks) to reach the parking lot after the construction because of the street reconfiguration. The Bhaleshas sued for inverse condemnation. The state filed a plea to the jurisdiction, arguing that simple impairment of access for some customers does not constitute a taking for which the state must provide compensation. The trial court denied the plea, and the state appealed. The Fourteenth Court of Appeals reversed and rendered judgment dismissing the action. It so doing, the court distinguished the Bhaleshas’ situation from cases where a change in street layout completely blocked at least one street that had previously provided access to a business.

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Ashworth v. Brzoska, No. 14-07-00239-CV (November 4, 2008) (Justice Brown)

Significance: The standard notice-of-trial setting from the court clerk may not protect a plaintiff from a new trial after obtaining a default judgment.

Holding: A party was entitled to a new trial following a post-answer default judgment for failure to appear at trial when no evidence was presented showing that the trial notice was sent by certified mail and the party seeking a new trial claimed not to have received notice.

Relevant facts: Brzoska sued his employer, Ashworth, for breach of employment contract, fraud, and Texas Deceptive Trade Practices Act violations. Initially, Ashworth was represented by counsel, but his counsel withdrew a few months after filing a general denial, and Ashworth proceeded pro se. Ashworth did not appear for trial, and the trial court entered a default judgment against him. Ashworth subsequently filed a motion for new trial, asserting that he had failed to pay the rent on his P.O. Box and, as a result, he had not received notice of the trial setting. The trial court denied the new trial, concluding that any failure to receive trial notice was Ashworth’s fault because he had changed his mailing address and did not inform the court. The Fourteenth Court of Appeals reversed because the evidence showed that Ashworth’s failure to inform the court of his new address was not the result of conscious indifference, which Brzoska was required to show under the Craddock test, as Ashworth believed, based on what his attorney told him, that the case had been dismissed. Accordingly, the trial court was required to grant a new trial because there was no evidence that Ashworth actually received notice of the trial setting. If the evidence had showed that the notice of trial setting had been sent to Ashworth via certified or registered mail, there would have been a presumption that it was received under Rule 21a. Without that evidence, however, the trial court should have granted a new trial.