Case Updates for October 2012 to December 2012

By John Barnes, Attorney at Law, and Andrew Nelson and Bradley Snead,Wright & Close, LLP
Forum Non Conveniens: When Is Texas Residency Not Enough to Maintain Suit in the State?

In re Mantle Oil & Gas, LLC, 01-12-00437-CV, 2012 WL 5323584 (Tex. App.—Houston [1st Dist.] Oct. 25, 2012, no pet.)

Issues Presented: The court examined whether the trial court erred in refusing to dismiss plaintiffs’ claim for forum non conveniens on claims arising out of a well-blow out in Louisiana when another suit involving the same issue was already pending in Louisiana.

Relevant Facts: Twenty-three Louisiana residents (plaintiffs) seeking class certification filed suit against Mantle Oil and Gas LLC (Mantle) in Galveston County, Texas. Plaintiffs’ claims arose out of a Mantle well blow-out in Assumption Parish, Louisiana. The recovery sought by plaintiffs included damages for medical monitoring and punitive damages. Mantle moved to dismiss on the basis of forum non conveniens. Mantle argued that Louisiana was an adequate alternate forum, especially in light of the fact that there was a pending Louisiana action arising out of the same incident involving four-thousand other plaintiffs. Mantle also relied on the fact that (1) the plaintiffs were Louisiana residents (2) the blowout affected Louisiana real property and occurred in Louisiana (3) a Louisiana contractor was working on the well and (4) a majority of witnesses were beyond reach of compulsory process in Texas. The trial court denied Mantle’s motion to dismiss for forum non conveniens and Mantle appealed.

Legal Summary: In response to Mantle’s argument that Louisiana was an adequate forum the plaintiffs alleged that Louisiana was not adequate because (1) the one year statute of limitations would bar any action in Louisiana (2) damages for medical monitoring is unavailable in Louisiana and (3) punitive damages would not be recoverable in Louisiana under these circumstances.

In concluding that Louisiana statute of limitations would not bar the plaintiffs’ claims the court relied on Louisiana Civil Code article 3462 which suspends the prescriptive period in Louisiana when a plaintiff files an action against a defendant in another court of competent jurisdiction and venue. Moreover, the court noted that under Louisiana Code of Civil Procedure article 596, upon dismissal of the suit in Texas, Louisiana provides class action plaintiffs a thirty-day “grace period” to file the claim in Louisiana. Under article 596, the Louisiana prescriptive period does not begin to run until thirty days after mailing or other notice of dismissal of the other suit.

Second, with respect the plaintiffs’ damage allegations, the court noted that there was no evidence that recovery for medical monitoring was not permitted under Louisiana law. The court also stated that even if the plaintiffs could not recover punitive damages, Louisiana allowed some recovery and the inability to recover all requested damages does not render a forum inadequate.

The court further concluded that the substantial injustice to defendant prong of forum non conveniens weighed in favor of dismissal because many witnesses were outside of the court’s compulsory service of process and Mantle was defending a suit in Louisiana arising out of the same facts. The court also concluded that both the public and private interest factors weighed in favor of dismissal. Considering all of the factors in Tex. Civ. Prac. & Rem. Code § 71.051(b), the court held that the trial court erred in denying Mantle’s motion to dismiss for forum non conveniens.

Does the Late Substitution of Counsel Require a Continuance?

McAleer v. McAleer, ---S.W.3d---, 2012 WL 5457459 (Tex. App.—Houston [1st Dist.] Nov. 8, 2012, no pet.)

Issues Presented: When does the late substitution of counsel require a continuance of trial?

Relevant Facts: Stephen McAleer’s (“Stephen”) wife Karen filed for a divorce in April 2010. Stephen answered the divorce suit. Within two months after answering, Stephen had retained and terminated two attorneys. By July 2010, Stephen retained another attorney. The new attorney’s husband unexpectedly died on September 1, 2010.

Stephen retained a new attorney on September 27, 2010. Stephen turned over a number of documents to the new attorney to produce to Karen’s attorney in discovery. The attorney became difficult to contact, did not produce the documents to Karen, and did not give the documents back to Stephen. Stephen’s new attorney had apparently been diagnosed with cancer.

Stephen then hired another attorney, who filed a motion to substitute on December 30, 2010. The new attorney filed a motion for continuance on January 14, 2011, seeking to continue the case from its February 14, 2011, trial setting. The attorney sought the continuance to be able to engage in the discovery that Stephen’s previous attorneys had not been able to conduct. The trial court denied the continuance, finding that Stephen had not properly complied with the discovery process.

Legal Summary: The court began by noting that when a motion for continuance is based on lack of counsel, the moving party must show that his failure to be represented by counsel was not due to his own fault or negligence. The court went on to hold that the fact that Stephen changed counsel five times did not support the denial of the motion for continuance because Stephen had not changed attorneys for a dilatory purpose.
In conducting its analysis of whether the denial of Stephen’s motion for continuance was an abuse of discretion, the court cited the Supreme Court decision of Villegas v. Carter, 711 S.W.2d 624, 626 (Tex. 1986). In Villegas, the Court recognized that the “right to counsel is a valuable right; its unwarranted denial is reversible error.” The Court went on to hold that when a trial court allows one attorney to withdraw and another to enter a case, it must give the party time to secure new counsel and time for the new counsel to investigate the case and prepare for trial. Applying the holding in Villegas to Stephen’s situation, the court held that the denial of Stephen’s motion for continuance was an abuse of discretion. The court noted that for nearly 30 percent of the discovery period, Stephen had an attorney with whom he could not effectively communicate. Moreover, Stephen could not communicate with Karen based on a temporary order, and Karen’s attorney could not communicate with Stephen under the Rules of Professional Conduct. Stephen had effectively been without counsel until just prior to his trial setting.
Next the court addressed Stephen’s additional ground for a continuance—he needed more time to conduct discovery. The court stated that, in considering whether to grant a motion for continuance based on the need for discovery, a court should look to 1) the length of time the case has been on file; 2) the materiality of the discovery sought, and 3) whether due diligence had been exercised in obtaining the discovery. In Stephen’s case, the court held that the discovery sought was material, the case had been on file only eight and one half months, and Stephen had used due diligence in seeking to conduct discovery. Based on Stephen’s attorney’s late substitution and the need to conduct more discovery, the court held that a continuance should have been granted and ordered a new trial.

Does a Mother Hubbard Clause Make a Partial Summary Judgment Final? What Is the Appellate Remedy When the Trial Court Erroneously Fails to Grant Relief for a Litigant’s Spoliation of Evidence?

Miner Dederick Const., LLP v. Gulf Chem. & Metallurgical Corp., No. 01-11-00325-CV, 2012 WL 6082714 (Tex. App.—Houston [1st Dist.] Dec. 6, 2012, no. pet. h.)

Issues Presented: The court examined whether a partial summary judgment was rendered final by the inclusion of a Mother Hubbard clause in the order and whether the trial court erroneously denied relief for spoliation.

Relevant Facts: Gulf Chemical & Metallurgical Corporation hired Miner Dederick Construction LLC as general contractor to construct an expansion of a waste container, including the installment of an expansion joint. Three months after Miner Dederick provided a Certificate of Guaranty to Gulf, oil began to leak from the expansion joint. Pursuant to the Guaranty, Gulf asked Miner Dederick to repair the joint. Miner Dederick responded that it would require additional money because the joint repair was not covered by the Guaranty. Although Gulf did not allow Miner Dederick to make repairs, Miner Dederick asked to review the joint before the repairs were made. Gulf refused, but proceeded to document its own findings and had a third party make repairs that permanently altered the expansion joint. Gulf filed suit against Miner Dederick for breach for contract and warranty in failing to construct the joint and repair. Miner Dederick counterclaimed for breach of contract and further alleged that Gulf spoliated evidence. In support of its spoliation motions, Miner Dederick relied on Gulf’s refusal to allow Miner Dederick to view the joint, failure to notify it of testing and the destruction of the joint in covering it with concrete in the repairs. The trial court granted Gulf’s summary judgment on Miner Dederick’s counterclaims and Gulf’s traditional motion for partial summary judgment on breach of contract. The trial court also denied Miner Dederick’s spoliation request and request for sanctions. After a jury awarded damages to Gulf, the trial court entered a final judgment based on its summary judgment rulings and the verdict and Miner Dederick appealed.

Legal Summary: On appeal, Miner Dederick argued that the trial court lacked jurisdiction to sign the final order. Miner Dederick argued that the language in trial court’s July 16, 2010 order granting summary judgment on Miner Dederick’s counterclaims and the July 2, 2010 order granting Gulf’s partial motion for summary judgment were final appealable orders. As result, the trial court lacked jurisdiction to enter a final judgment after the trial on March 7, 2011. In rejecting this argument the First Court explained that neither the title of the order granting “final” summary judgment nor the language in the order that “all relief not expressly granted herein is denied” made the order a final judgment. The court stated that a Mother Hubbard clause cannot be a determining factor in the finality of a judgment when there had been no trial on the merits. The intent to dispose of all claims must be expressed in the order itself, and in this case additional claims were pending when the trial court signed the order.

In response to Miner Dederick’s claims that the court erroneously granted summary judgment as to its counter claims, the court stated that because the trial court did not state on which grounds it granted summary judgment and Miner Dederick only challenged two of the three grounds presented, the court must uphold the summary judgment because not every ground was challenged on appeal.

With respect to spoliation, the court concluded that Gulf had a duty to preserve evidence. Moreover, the court found it was undisputed that the evidence was material and, because parts of the expansion joint were removed and it was covered in cement, it was altered from its original condition. The court further found that the spoliation prejudiced Miner Dederick by depriving it of the opportunity to gather evidence to re but the evidence offered by Gulf and to develop its affirmative defenses. The court therefore held that the trial court abused its discretion and the judgment must be reversed.

As for the the appropriate remedy, the Court of Appeals decided to remand for further proceedings rather than render a take-nothing judgment because the evidence introduced by Gulf at trial tended to support its right to relief. The appropriate remedy for spoliation, the court held, would be left to the trial court’s discretion on remand.

Are Findings of Fact Accorded Probative Value When They Are Improperly Recited in the Judgment?

James J. Flanagan Shipping Corp. v. Del Monte Fresh Produce N.A., Inc., No. 01-11-00525-CV, 2012 WL 6086936 (Tex. App.—Houston [1st Dist.] Dec. 6, 2012, no pet. h.)

Issues Presented: Whether the trial court’s findings of fact, which were recited in the judgment in violation of Rule 299a rather than a separate document, should be accorded probative value; and whether the trial court properly fond that the plaintiff’s recovery was barred by settlement credits and the economic loss rule.

Relevant Facts: Between 1997 and 2007, Del Monte Fresh Produce hired James J. Flanagan Shipping Corp. to provide stevedoring services with ships importing fresh produce for Del Monte arriving in Galveston. In 2007, Del Monte was unsatisfied with Flanagan’s services and allegedly conspired with a Flanagan employee, Richard Bradford, to provide Flanagan’s confidential cost and price information to a competitor, Pacific Stevedoring, to help that competitor secure the Del Monte contract instead of Flanagan. After Del Monte awarded Pacific the contract in 2008, Flanagan sued Bradford, Del Monte, and others for breach of fiduciary duty, conspiracy, knowing participating in a breach of fiduciary duty, and unfair competition.

All defendants except Del Monte settled, and Flanagan tried its claims against Del Monte to the court. After trial, the court signed a judgment that included the court’s findings of facts and conclusions of law. The court found that Del Monte engaged in unfair competition, knowingly participated in Bradford’s breach of his fiduciary duties, and acted with malice. The court further found that awards of actual and punitive damages were justified. Nevertheless, the trial court entered a take-nothing judgment, holding that the economic loss rule and settlement credits barred any recovery.

Legal Summary: Before addressing the settlement credit and economic loss rule issues, the Court of Appeals examined, as a threshold issue, the propriety of the trial court’s findings of fact, which were recited in the judgment rather than in a separate document. Texas Rule of Civil Procedure 299a provides, in part: “Findings of fact shall not be recited in a judgment. If there is a conflict between findings of fact recited in a judgment . . . and findings of fact pursuant to Rules 297 and 298, the latter findings will control for appellate purposes.”

Del Monte argued that, because the findings of fact were recited in the judgment and not in a separate document, they should be ignored and the court should imply all findings in support of the take-nothing judgment. The court of appeals agreed that the trial court erred by reciting its findings of fact in the judgment. However, because the record contained no other findings of fact, there was nothing with which the trial court’s findings could conflict. Accordingly, in the absence of any conflict, the trial court’s findings would be accorded probative value.

The Court of Appeals then held that the economic loss rule did not apply because Del Monte was found to have violated tort duties that did not arise out of a contract, and that the provisions for settlement credits in Chapter 33 of the Texas Civil Practice and Remedies Code did not apply to awards of punitive damages. Therefore, the court reversed the take-nothing judgment and rendered judgment for the amount of punitive found by the trial court.

An Appraisal Award Under A Commercial Insurance Policy Does Not, By Itself, Support Judgment Against An Insurer.

Security National Insurance Co. v. Waloon Investment, Inc., d/b/a Ramada Limited, No. 14-11-00130-CV (Tex.App.—Houston [14th Dist.] October 9, 2012)

Issue Presented: Does the issuance of an appraisal award support the entry of judgment against an insurer for breach of contract?

Relevant Facts: Appellee Waloon Investment, Inc., d/b/a Ramada Limited (“Waloon”) owned and operated a Ramada Inn located in Houston (“the Property”). Appellant Security National Insurance Co. (“Security”) issued a commercial insurance policy that covered the Property. That policy was in effect when Hurricane Ike struck Houston in September 2008, during which the Property sustained damage. Waloon submitted a proof of loss to Security and invoked the policy’s appraisal provisions. The policy contained two appraisal provisions, under which either party could invoke an appraisal of the loss in the event of a disagreement as to the amount thereof. Under the policy, in the event that an appraisal occurred, Waloon retained its right to bring suit, and Security retained its right to deny the claim. However, the appraisal award would be binding as to the amount of the loss.

Security subsequently filed a declaratory judgment action against Waloon, and Waloon counterclaimed for breach of the policy. After the court ordered the parties to proceed with the appraisal process provided in the policy, Waloon sought a judgment against Security for the amount of the appraisal award. The trial court granted Waloon’s request, entering a judgment against Security for breach of the insurance policy and awarding the amount of the appraisal.

Outcome/Holding: The Court held that the appraisal award, without more, was insufficient to support a judgment against Security for breach of contract. Waloon sought to liken the appraisal award to an arbitration award, but the Court distinguished the two, stating that, while an arbitration award is a finding on the merits of the parties’ claims and/or defenses, an appraisal award is merely a determination of the amount of loss and does not resolve other issues, such as liability. The Court held that the only way to support a judgment under the circumstances was by summary judgment and found that the Waloon had failed to present sufficient evidence to support a summary judgment on liability. Accordingly, it reversed and remanded.

Effect of International Relocation on Orders Affecting the Parent-Child Relationship And the Permissible Scope of Injunctive Relief Under TEX. FAM. CODE Ch. 153.

Sylvia Yolanda Arredondo v. Antonio A. Betancourt, Jr., No. 14-11-00742-CV (Tex.App.—Houston [14th Dist.] October 11, 2012)

Issues Presented: (a) Does TEX. FAM. CODE Ch. 156 authorize the modification of a custodial order where the primary managing conservator moves to a foreign country, taking the child with her?; (b) Does TEX. FAM. CODE CH. 153 authorize the imposition of an injunction barring travel by the parent?; and (c) does a defending party have to object to the trial court’s failure to conduct a jury trial on attorney’s fees to preserve that complaint for appeal?

Relevant Facts: Appellant Sylvia Yolanda Arredondo (“Sylvia”) married Appellee Antonio A. Betancourt, Jr. (“Antonio”) in January 2001, giving birth to their son in April of that year. The couple divorced in September 2002. As part of their agreed divorce decree, Sylvia and Antonio were designated joint managing conservators of their child, though Sylvia was awarded the exclusive right to establish the primary residence of the child without regard to geographic location. She subsequently married Miguel Arredondo (“Miguel”), and the two of them had a son together.

On November 1, 2009, Sylvia drove to Mexico with Miguel and the two boys. Two days later, she sent a text message and e-mail to Antonio, in which she informed him that she and their son were in Mexico. The parties disputed whether this was the first time Antonio was informed that the boy would be taken to Mexico. Thereafter, Sylvia refused to allow the child to travel by plane to Houston because she “didn’t trust the airline.” The evidence showed that this had the effect of denying Antonio his Christmas visitation rights under the divorce decree.

After Sylvia and Miguel returned to Texas, Antonio filed a petition to modify the parent-child relationship, asking that he be awarded the exclusive right to determine the child’s residence, as well as child support from Sylvia, together with a temporary restraining order to compel the return of the child to Harris County. Sylvia returned the child to Harris County and, consistent with interlocutory orders entered by the trial court, voluntarily surrendered both her own passport and the child’s. After a jury trial, the trial court entered a judgment awarding Antonio control over the child’s residence, with a geographic restriction to Harris County, and further enjoined Sylvia from traveling outside the continental United States without Antonio’s prior written consent. The trial court also denied Sylvia’s post-trial motion for the return of her passport and, based on post-trial submissions, awarded Antonio $34,000 in attorney’s fees.

Outcome/Holding: The Court determined that Sylvia’s transport of the child to Mexico, as well as her “disenrollment” of the child from his school in Harris County, without any prior notice to Antonio, coupled with her refusal to allow the child to travel by plane to Houston, constituted a material and substantial change of circumstances, justifying Antonio’s requested modification of the parent-child relationship under TEX. FAM. CODE § 156.101(a)(1)(A). Accordingly, the award of the exclusive right to determine the child’s residence and the geographic restriction to Harris County were affirmed. However, because the trial court’s travel injunction applied to Sylvia, whether or not she traveled with the child, and would have prohibited travel to non-continental regions of the United States (e.g., Hawaii) in addition to foreign countries, the Court held that the injunction was overbroad and violated Sylvia’s constitutional right of interstate travel. Finally, the Court held that Sylvia failed to preserve her complaint on appeal that Antonio failed to present evidence and obtain a jury finding on the amount of his attorney’s fees because the trial court had announced that it would decide the amount of attorney’s fees, not the jury, and she failed to timely object to that ruling. Accordingly, the trial court judgment was affirmed in part and reversed in part, with the injunction dissolved.

It Matters Who Signs: Limiting the Persons Subject To Sanctions Under TEX. R. CIV. P. 13 and Ch. 10, TEX. CIV. PRAC. & REM. CODE.

Citibank N.A. and Allen L. Adkins v. Don M. Estes, No. 14-11-00918-CV (Tex.App.—Houston [14th Dist.] October 30, 2012)

Issues Presented: Is the counsel of record subject to sanctions for motions and pleadings signed and filed, albeit on behalf of his client, by a colleague?

Relevant Facts: Appellant Citibank N.A. (“Citibank”) sued to collect delinquent outstanding balances on two credit card accounts held by Appellee Don M. Estes (“Estes”). Appellant Allen L. Adkins was Citibank’s counsel of record.

After numerous attempts to serve Estes, Citibank moved for an order authorizing substitute service under Tex. R. Civ. P. 106, and submitted a proposed order describing the method of service requested. The trial court granted the 106 motion, but entered its own order.The Court’s order added requirements not contained in Citibank’s proposed order. The process server never obtained a copy of the trial court’s order, and assumed that the trial court had entered the proposed order. Neither Citibank nor Adkins (nor his office) obtained a copy of the Court’s order, so they operated under the same incorrect assumption. As a result, the process server served Estes in accordance with the proposed order, not the Court’s order. This service did not comport with the requirements of the Court’s order.

Thereafter Adkins’ colleague moved for a default judgment on behalf of Citibank. The process server’s affidavit attached to the motion was defective. The trial court denied the motion. Thinking that the defective affidavit was the cause of the trial court’s denial, the process server filed a corrected affidavit, and Adkins’ colleague filed a second motion for default. The trial court again denied the motion, and admonished Citibank to cease filing groundless motions for default or face sanctions. Continuing to believe that the cause of the trial court’s denials was a defect in the supporting affidavit, the process server filed a second corrected affidavit and Adkins’ colleague filed a third motion for default. The trial court again denied the motion, and entered an order dismissing the underlying case and sanctioning Adkins $500.00.

The sanction order did not specify the grounds for the entry of sanctions, nor did it indicate whether lesser sanctions had been attempted first to secure compliance with the trial court’s prior order. Adkins subsequently obtained a copy of the trial court’s Rule 106 order and discovered the defect in the prior service. Citibank and Adkins appealed.

Outcome/Holding: The Court determined that the sanctions were inappropriate, both as to Citibank and as to Adkins. As to Citibank, because neither the trial court’s sanction order nor the remainder of the record indicated that lesser sanctions had been attempted, the “death penalty” sanction of dismissal was not available. The sanctions also were not appropriate as to Adkins because he had not signed any of the offending pleadings. Both TEX. R. CIV. P. 13 and TEX. PRAC. & REM. CODE Ch. 13 provide for sanctions only against the signatory of a groundless or frivolous pleading or motion or his client.

Limitations on the Availability of The Offensive Use Doctrine to Waive Attorney-Client Privilege in Post-Settlement Suits for Indemnification.

In re Exxon Mobil Corporation, Nos. 14-12-00697- CV (Tex.App.—Houston [14th Dist.] November 8, 2012)

Issue Presented: Does the offensive use doctrine waive the attorney-client privilege for purposes of discovery of settlement documents, communications and information in a subsequent suit for indemnification by one of the settling parties?

Relevant Facts: Relator Exxon Mobil Corporation (“Exxon”), f/k/a Exxon Corporation sold certain real property in Louisiana to Trade Exploration Corporation (“TEC”), Duer Wagner, III and James Finley (collectively, “the Wagner Group”) in 1994. As part of the sales agreement, the Wagner Group agreed to defend and indemnify Exxon.

Twelve years later, three property owners sued Exxon in separate actions in Louisiana state court, alleging environmental damage and seeking restoration and remediation of the land. Exxon requested defense and indemnification from the Wagner Group in each of the cases, which the Wagner Group declined to provide. The first of the suits against Exxon to go to trial was M.J. Farms, LTD v. Exxon Mobil Corp., et al. in Louisiana’s Seventh Judicial District Court (“the M.J. Farms case”). The M.J. Farms plaintiffs and Exxon settled during trial, and Exxon then sued the Wagner Group for indemnification in the 189th Judicial District Court in Harris County, Texas.

The Wagner Group subsequently sought production of “all documents relating to Exxon’s or Exxon’s Litigation Counsel’s evaluation of all or part of the [M.J. Farms] litigation”; “all files of Exxon’s Litigation Counsel relating to all or part of the [M.J. Farms] litigation”; all communications with and analyses of jury consultants; and any outlines prepared by Exxon’s counsel for use in connection with witness examinations during the M.J. Farms trial. In support of this discovery, the Wagner Group argued that its defense of the indemnity claim requires production of (a) settlement documents and information relating to the settlement agreement; (b) settlement communications and negotiations; (c) communications between Exxon and its counsel regarding Exxon’s potential liability to the M.J. Farms plaintiffs; (d) the settlement amount; and (e) communications regarding the cost of remediation of the real property, in order to determine whether the M.J. Farms settlement was reasonable and made in good faith.

Exxon objected to the discovery and resisted the subsequent motion to compel by invoking the attorney-client privilege. The Wagner Group argued in response that Exxon waived its privilege under the offensive-use doctrine. Based on Exxon’s privilege log, the documents at issue were communications between Exxon’s in-house counsel and other Exxon attorneys and corporate representatives. After a hearing, the trial court concluded that Exxon had waived the attorney-client privilege by offensive use and ordered the documents produced. Exxon filed a petition for writ of mandamus.

Outcome/Holding: The Court granted Exxon’s petition, concluding that the offensive-use doctrine did not waive Exxon’s privilege in the withheld documents. After reciting the three-prong test for the offensive use doctrine delineated by the Supreme Court in Republic Ins. Co. v. Davis, 856 S.W.2d 158, 163 (Tex. 1993)((1) the party asserting the privilege must be seeking affirmative relief; (2) the privileged information must be such that, if believed by the fact finder, it would probably be outcome determinative of the cause of action asserted; and (3) disclosure of the confidential information must be the only means by which the aggrieved party may obtain the evidence), the Court first focused on the second prong. In particular, the Court analyzed whether the indemnification standard was objective or subjective, in order to determine whether the withheld communications would, solely in and of themselves, have the potential to determine the indemnity claim. Relying primarily upon the Court’s prior holding in Amerada Hess Corp. v. Wood Group Prod. Tech., 30 S.W.3d 5, 11 (Tex.App.—Houston [14th Dist.] 2000, pet. denied), as well as the Southern District’s opinion in Interspan Distrib. Corp. v. Liberty Ins. Underwriters, Inc., CIV.A. H-07-1078, 2009 WL 2605314 at *34 (S.D.Tex. Aug. 21, 2009), the Court held that the reasonableness/good faith standard required for indemnity was objective, rather than subjective, as the trier of fact would necessarily have to rely upon expert testimony as to whether the settlement in the M.J. Farms case was reasonable and made in good faith. Therefore, the communications sought would not be outcome determinative, and the second prong of the offensive use doctrine was not satisfied.

Damage To Real Property Need Not Be Physical In Order to Support Recovery.

Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch, No. 14-10-01006-CV (Tex.App.—Houston [14th Dist.] November 15, 2012)

Issue Presented: Is a party seeking recovery for injury to real property required to demonstrate permanent physical injury to the property in order to prevail or is it enough that a stigma attached to the property because of environmental contamination that was later remediated?

Relevant Facts: Appellant Houston Unlimited, Inc. Metal Processing (“HUI”) operates a metal-processing facility in Washington County, Texas. The facility is across Highway 290 from real property owner by Appellee Mel Acres Ranch (“Mel Acres”). A culvert flows downhill from HUI’s property, under the highway, and into a stock tank (“the large pond”) on Mel Acres’ property. Mel Acres’ property also contains two “background” ponds, which are not hydraulically connected to HUI’s property and could not be affected by HUI’s conduct.

A dispute arose between HUI and Mel Acres concerning alleged contamination of the culvert and the large pond with various chemicals and metals in amounts exceeding state action levels. After numerous examinations of water samples taken from Mel Acres’ property, and complaints filed with the Texas Commission on Environmental Quality (“TCEQ”), Mel Acres sued HUI for trespass, nuisance and negligence, seeking recovery of permanent damage, as measured by diminution in the market value of Mel Acres’ property.

At trial, Mel Acres produced testimony by an environmental expert and a licensed real estate appraiser, both of whom testified to the reduction in market value caused by former, albeit fully remediated, environmental contamination of real property. The jury found that HUI did not create a permanent nuisance on the property or commit trespass. However, the jury did find that HUI’s negligence proximately caused the occurrence or injury in question, i.e. a reduction in the market value of Mel Acres’ property. HUI appealed, arguing that Mel Acres could not recover because it had not shown that HUI had caused permanent physical injury to its property.

Outcome/Holding: A divided panel affirmed the trial court’s judgment. It found no existing authority requiring permanent physical damage as a prerequisite to recovery of lost market value, and declined to make such a holding, as it would deprive property owners of any means of recovery for various types of residual damages to their property. The Court therefore concluded that the creation of a permanent stigma fully satisfied the requirement of a permanent injury.

Dissent: The dissenting justice, Justice Boyce, would not have reached the issues regarding valuation because the expert’s valuation opinion of the property was unreliable.