Features for June 2013

Welcome to the June 2013 edition of the Appellate Lawyer --
the newsletter of the HBA Appellate Section.

TEXAS SUPREME COURT CLARIFIES SUPERSEDEAS RULES
J. Stephen Barrick discusses the most recent Texas Supreme Court case on what must be included in a supersedeas bond.

REWRITE THIS SENTENCE
Justice Bill Boyce, 14th Court of Appeals, announces the winner of the "Most Powerful Word in Appellate Advocacy" award. (Spoiler alert: it's not "clearly.")

DID YOU KNOW . . . ?
by JoAnn Storey

APPELLATECH
Derek D. Bauman explains how to use auto-correct to quickly and easily add citations to a brief.

CASE UPDATES FOR FEBRUARY TO MAY 2013
Case updates for the First and Fourteenth Courts of Appeals
by John Barnes, Attorney at Law, and Andrew Nelson, Wright & Close, LLP

Texas Supreme Court Clarifies Supersedeas Rules

by J. Stephen Barrick, Hicks Thomas LLP

It just got cheaper for many judgment debtors to supersede a judgment in Texas.

On May 17, the Texas Supreme Court unanimously held that under section 52.006(a) of the Texas Civil Practice and Remedies Code, a judgment debtor need not post security for attorney’s fees or pre-judgment interest awarded in the judgment. See In re Nalle Plastics Family Ltd. P'ship, 56 Tex. Sup. Ct. J. 580, 2013 WL 2150717 (Tex. May 17, 2013). To suspend enforcement of a money judgment pending appeal, the judgment debtor need only post security for the actual damages awarded in the judgment, meaning damages that were awarded to compensate the plaintiff on the underlying cause of action, plus court costs and post-judgment interest for the estimated duration of the appeal. Attorney’s fees need only be included in the supersedeas bond when they are an element of actual damages.

The supreme court’s ruling settles a clear split among the appellate courts over whether attorney’s fees must be included in the bond and clarifies how the statute, enacted as part of House Bill 4 in 2003, is to be applied. Section 52.006(a) of the Texas Civil Practice and Remedies Code and Rule 24(a)(1) of the Texas Rules of Appellate Procedure (which is based on the statute) both provide that the amount required to suspend enforcement of a money judgment pending appeal “must equal the sum of compensatory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs awarded in the judgment.” None of these terms are expressly defined, which led to differing opinions about what is included in “compensatory damages” and “costs awarded in the judgment.”

Both Houston appellate courts, beginning with the Fourteenth court’s per curiam opinion in Clearview Props., L.P. v. Property Texas SC One Corp., 228 S.W.3d 262 (Tex. App.—Houston [14th Dist.] 2007, mand. denied), held that attorney’s fees were either a type of “compensatory damages” or were in the nature of “costs” that the Legislature did not intend to exempt from the bond requirement. Id. at 264; Fairways Offshore Explor., Inc. v. Patterson Servs., Inc., 355 S.W.3d 296, 301-03 (Tex. App.—Houston [1st Dist.] 2011, no pet.). The Eighth and Thirteenth courts agreed. See Nalle Plastics Fam. Ltd. P’ship v. Porter, Rogers, Dahlman & Gordon, P.C., No. 13-11-00525-CV, 2013 WL 1683618 (Tex. App.—Corpus Christi Apr. 18, 2013, mand. granted); Corral-Lerma v. Border Demolition & Environmental, Inc., No. 08-11-00134-CV, 2012 WL 1943763 (Tex. App.—El Paso May 30, 2012, mand. pending).

The Third and Fifth courts disagreed, holding that neither “compensatory damages” nor “costs awarded in the judgment” includes attorney’s fees. See Shook v. Walden, 304 S.W.3d 910, 923, 926 (Tex. App.—Austin 2010, no pet.); Imagine Automotive Group, Inc. v. Boardwalk Motor Cars, LLC, 356 S.W.3d 716 (Tex. App.—Dallas 2011, no pet.); PopCap Games, Inc. v. MumboJumbo, LLC, 317 S.W.3d 913, 914 (Tex. App.—Dallas 2010, no pet.). Imagine Automotive had expressly disagreed with the First court’s opinion in Fairways, which itself had expressly disagreed with the Third court’s opinion in Shook, demonstrating a deep division among the appellate courts.

What no appellate court appeared to disagree about, however, was whether pre-judgment interest must be included in the supersedeas bond. In fact, the two courts that most disagreed with each other on attorney's fees – the First and the Third – agreed that pre-judgment interest was a compensatory award that was included in “compensatory damages.” Shook, 304 S.W.3d at 928; Fairways, 355 S.W.3d at 303-04. In Nalle Plastics, however, the supreme court dismissed this reasoning, saying: “Like attorney’s fees, court costs make a claimant whole, as does pre-judgment interest. Yet it is clear that neither costs nor interest qualify as compensatory damages.” 2012 WL 2150717, at *5. The statute otherwise requires that a supersedeas bond include “interest for the estimated duration of the appeal,” i.e., post-judgment interest, but it does not require security for the amount of pre-judgment interest. Thus, while the court did not explicitly hold that pre-judgment interest is excluded from the bonding requirement (pre-judgment interest was not before the court), that is clearly implied from the court’s opinion.

The supreme court’s decision in Nalle Plastics makes it easier – and in some cases, downright cheap – for a judgment debtor to suspend a judgment pending appeal. For instance, in DTPA cases where the plaintiff may recover actual damages, treble damages, pre-judgment interest and attorney’s fees, the judgment debtor will only have to post security covering the amount of actual damages, court costs, and post-judgment interest for the estimated duration of the appeal. In many cases, that amount will be only a fraction of the overall award. Similarly, in a declaratory judgment action where the plaintiff prevails and recovers a substantial award of attorney’s fees, the judgment debtor may have virtually no bonding requirement because there were no compensatory damages awarded (though the court can impose other conditions under Rule 24.2).

The types of cases most likely to be impacted by Nalle Plastics are contract cases and statutory cases where the prevailing plaintiffs may recover pre-judgment interest and attorney’s fees. Although the plaintiffs in those cases are entitled to recover these amounts, the judgment debtor has no obligation to post any security for them to suspend enforcement of the judgment during an appeal. According to the supreme court, this is part of the “new balance” reached by the Legislature “between the judgment creditor’s right in the judgment and the dissipation of the judgment debtor’s assets during the appeal against the judgment debtor’s right to meaningful and easier access to appellate review.” Nalle Plastics, 2012 WL 2150717, at *2 (quoting Elaine A. Carlson, Reshuffling the Deck: Enforcing and Superseding Civil Judgments on Appeal after House Bill 4, 46 S. Tex. L. Rev. 1035, 1038 (2005)).

Rewrite This Sentence

by Justice Bill Boyce, Fourteenth Court of Appeals

In the category of "Most Powerful Word in Appellate Advocacy," I respectfully submit the following nomination.  This being a made-up competition over which I have unfettered control, I also get to pick my nominee as the winner.

And the winner is:  "Because."

Why, you may ask, does a pedestrian term such as "because" merit such recognition?  Let's answer that question by unpacking this deceptively simple word.

"Because" is the winner because "because" requires the author to make explicit that which often is implicit in briefs and opinions. 

In other words, using "because" in key sentences, headings, and issues signals more than just the argument's destination.  This word tells the reader how the destination was reached.  More importantly, the legal writer who includes "because" in crucial portions of the document is compelled to confront a sometimes challenging question:  Why exactly does the conclusion I want flow from the facts and the law governing this particular case?

If you can't satisfactorily explain the "because" to yourself, then something is wrong with the argument.

Consider Justice Kagan's use of "because" at critical junctures in Bowman v. Monsanto Co., No. 11-796, 2013 WL 1942397 (U.S. May 13, 2013).

Bowman addressed whether the doctrine of patent exhaustion allows a farmer who buys patented seeds to reproduce them through planting and harvesting without the patent holder's permission.  A unanimous Supreme Court said no.

The farmer in question, Vernon Bowman, bought Roundup Ready soybean seeds from Monsanto for his first crop of the season under a licensing agreement that prevented him from saving any harvested seeds for replanting or supplying them to anyone else for that purpose.  The seeds are unique because they have been genetically engineered to survive exposure to certain herbicides.  This feature allows farmers to kill weeds among the soybean plants without killing the plants themselves.

Displaying the grit, determination, and ingenuity for which farmers are justly celebrated, Vernon tried to beat the licensing agreement.  Each year he dutifully bought seeds from Monsanto for his first crop of the season, planted them, harvested the soybeans, and sold them to a grain elevator.  So far, so good.

For his second crop of the season, Vernon went to his local grain elevator and bought already harvested "commodity soybeans" intended for human or animal consumption.  Most of these soybeans came from fellow farmers who also used Monsanto's genetically modified seeds under a licensing agreement.  The second planting thus produced seeds with the same desirable genetic quality, which Vernon saved for use as his second crop the following season.  Monsanto discovered the practice and sued Vernon for patent infringement.

"Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans because they were the subject of a prior authorized sale (from local farmers to the grain elevator)."  Id. at *3.  The district court rejected this defense and signed a judgment awarding damages.  The Federal Circuit affirmed, and the Supreme Court affirmed the affirmance.

Under the patent exhaustion doctrine, the initial authorized sale of a patented item terminates the patentee's right to control what the purchaser can do with the item.  The Supreme Court concluded that this defense does not extend so far as to let a farmer to make additional patented soybeans without Monsanto's express or implied permission.  Id. at *4-*5.  Vernon impermissibly made a new product when he obtained soybeans from the grain elevator, planted them, and harvested more soybeans than he started with.  Id.

Said the Court:  "Because Bowman thus reproduced Monsanto's patented invention, the exhaustion doctrine does not protect him."  Id. at *4.

The Court added that the exhaustion doctrine always has excluded reproduction of a patented article even though such reproduction could be considered to be a "use" of the product in a broad sense.  Id. at *5.  "That is because, once again, if simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention."  Id.

Bowman is worth the read if only because it manages to talk about technical aspects of patent law and genetically modified soybean seeds in an accessible, conversational, and largely jargon-free manner. It stands as proof that an opinion addressing patent issues need not hide behind lengthy quotes and impenetrable terminology.

But the main takeaway for present purposes is that the opinion's clarity stems in part from its use of a simple but powerful tool.  At crucial points in explaining the result, the opinion does not merely make a pronouncement.  It makes a pronouncement combined with a short statement of the reason for the pronouncement.  Developing the discipline to join conclusions with a "because" followed by reasons leads to more clear and more emphatic writing.  Look for opportunities to insert a "because" -- in headings, in issues, in openings, and in conclusions.

Because it's the right thing to do for better legal writing.

Did You Know . . . ?

by JoAnn Storey

A lawyer's statements during closing argument do not constitute evidence. Kellmann v. Workstation Integrations, Inc., 322 S.W.3d 679, 685 (Tex.App.-Houston [14th Dist.], no pet); see also McCain v. NME Hosps., Inc., 856 S.W.2d 751, 757 (Tex.App.-Dallas 1993, no writ) ("Motions and arguments of counsel are not evidence."); Mood v. Kronos Prods., Inc., 245 S.W.3d 8, 11 (Tex.App.-Dallas 2007, pet. denied) (holding monetary figure provided by counsel during cross-examination of witness, apparently derived from invoices, was "no evidence to support the jury's lost profit award.").

Elementary, yes. But, nice to have at your fingertips when briefing a no-evidence issue under these circumstances.

AppellaTech: Using AutoCorrect for Quick Citations

While I agree that, generally, discretion is the better part of valor, there are times in everyone's life where they just have to be blunt and to the point. This is one of those times for me, so I'm not going to mince words. If you aren't using auto-correct to enter citations in your briefs, you're doing it wrong. Horribly, embarrassingly wrong.

Consider this your tough love introduction into saving yourself a lot of time in brief writing.

First, for those who don't even know what I mean when I refer to auto-correct, let me explain. You know when you're in Word punching out another stellar brief and you quote a statute, but when you type "(c)" Word unexpectedly and annoyingly changes it to the copyright symbol? That's auto-correct, but it's auto-correct at its worst. You can easily remove that, and then you can add new entries to auto-correct that will save you a lot of time.

As for why you should use auto-correct for citations, let me first ask you to answer this off the top of your head: how do you correctly cite to the Special District Local Laws Code? For those of you who don't know, I propose that is why auto-correct can be so useful. For those of you who do know (and we all know there are some), I would propose that storing that piece of information in your head might be taking up space better suited for storing some other, more immediate piece of information, like your anniversary date or what that key that's been sitting in your desk drawer for months now goes to.

The main selling point for using auto-correct is how quickly it can enter the basic parts of citations for you, especially statute citations. Everyone knows how tedious and time consuming it can be correctly typing out the abbreviation for a statute and then formatting it correctly (for the die-hards who still use small-caps, of which I am one). Auto-correct will shorten that process to a few keystrokes.

You're only going to learn this by doing. So open up a new document in Word. (For those of you who persist in using WordPerfect, your instructions are further down.) Now type in the the citation for a code (omit the chapter and section entry, but include the section symbol). For example:

Tex. Gov't Code Ann. §

Highlight the text you've just created. Now type in sequence (do not hold any key down): Alt, t, a. You should get this:


The portion that matters is this:


You'll need to do two things. First, type in the short string of text that you will use to tell Word to insert the citation. It can be anything you want, but it should not already be a word. For example, if your shortcut for the Texas Rules of Appellate Procedure were "trap" then Word would insert the citation into places where you were trying to talk about an actual trap.  To avoid this trouble, I use a backslash for each of my shortcuts. For the Government Code, I use "\gov". To be honest, I have it in auto-correct twice. The second one is "\govt" because I kept forgetting which one was the right shortcut.

Also, you need to select the button next to "Formatted text". You only need to do this if you're using small caps in your citations. So now the screen should look like this:


Click on the Add button, then click on the OK button. Now create a couple of new lines, and test out your creation. Type "\gov" (or whichever shortcut you created) and press space or enter. Voila! Auto-citation. Yes, you still need to enter the statute chapter and section and the West/Vernon portion of the citation. But this goes a long way in getting you started.

Yes, you will need to do this for every citation you use. But that is a one-time cost. Once you do this, you will not have to do this again. Plus, once you know it's right, you know all of your future citations will be right.

Here are some ideas for citations other than statutes:
  • Use "s3" as a shortcut for "S.W.3d"
  • Use "\h1" as a shortcut for "(Tex. App.—Houston [1st Dist.]"
  • Use two dashes as a shortcut for an en-dash
  • Use one en-dash and one dash as a shortcut for an em-dash
  • Use three periods as a shortcut to three periods with hard spaces in between.)
Also, if you have a client or opposing party whose name is easy to misspell or difficult type out, auto-correct is your friend. Create a shortcut for their name in auto-correct, and you will not embarrass yourself by misspelling your own client's name.

I have prepared a list of citation segments for auto-correct. If you would like to use it to fill in auto-correct, you can access it here. (To save the file to your computer, select Download under the File menu.)

Now for you WordPerfect users, I just want to say I'm sorry. The life choices that you have made that have led to your use of WordPerfect in 2013 are ones that I find too difficult to contemplate. Given that, you may not be in a healthy enough mindset to even bother with matters such as auto-correct for citations. But if you are bravely fighting on in what must be a dire situation, I am here to help.

I should start by breaking the news to you that WordPerfect will not store formatting settings in quick correct (its version of auto-correct). So you can use quick correct to enter correctly abbreviated statute citations, but you will need to add small caps (if you still use it) to each citation. Nevertheless, it still saves time and reduces errors by not having to look up and type out the statute names.

Go ahead and create a new document in WordPerfect. Now type in the the citation for a code (omit the chapter and section entry, but include the section symbol). For example:

Tex. Gov't Code Ann. §

Highlight the text you've just created. Now select Quick Correct under the Tools menu. You should get this pop-up:


The portion that matters is this:


Now, type in the short string of text that you will use to tell WordPerfect to insert the citation. As stated above, it can be anything you want, but it should not already be a word. For the Government Code, I use "\gov" (and "\govt").

Click on the Add Entry button, then click on the OK button. Now create a couple of new lines, and test out your creation. Type "\gov" (or whichever shortcut you created) and press space or enter. Voila! Quick Correct. Yes, you still need to enter the statute chapter and section and the West/Vernon portion of the citation. But this goes a long way in getting you started. For further ideas on how to use quick correct, see the portion about Word, above.

For the document that lists citation segments for quick correct, you can access it here.  (To save the file to your computer, select Download under the File menu.)

Next column: Marking your citations in Word to create a table of authorities. (If it can be done in WordPerfect, I don't know how.)

Derek Bauman
Staff attorney, First Court of Appeals

Comments, questions, and useful information are always welcome (and desperately sought). Please send them to: submissions@hbaappellatelawyer.org.

Case Updates for February 2013 to May 2013

By John Barnes, Attorney at Law, and Andrew Nelson ,Wright & Close, LLP

What constitutes the “law of the case” for purposes of future proceedings in that case?

Harris Cty. Flood Ctrl. Dist. v. Kerr, No. 01-11-00014-CV, 2013 WL 842652 (Tex. App—Houston [1st Dist. Mar. 7, 2013, no pet. h.)

Issue Presented: Under what circumstances do the rulings of an appellate court not constitute the law of the case for purposes of future proceedings in that case?

Relevant Facts: Over 200 plaintiffs filed suit against the Texas Department of Transportation (“TxDOT”), several municipal utility districts, and other private entities for flood damage that occurred in their homes as a result of the rains from Tropical Storm Frances in 1998 and Tropical Storm Allison in 2001. The plaintiffs claimed that the defendants inadequately designed and implemented flood control devices along a bayou, and in doing so failed to protect their homes from the flooding.

TxDOT filed a plea to the jurisdiction on sovereign immunity grounds. The trial court granted the plea. The First Court reversed that grant of the plea to the jurisdiction because the plaintiffs’ pleadings sufficiently alleged the elements of a taking by TxDOT. (“Kerr I”)

After remand, the Plaintiffs settled with all defendants except the Harris County entities. Those entities filed motions for summary judgment based on sovereign immunity, which the trial court granted. The First Court reversed the granting of the summary judgment, finding that the plaintiffs had raised a fact issue regarding the potential liability of the Harris County entities. (“Kerr II”) However, on rehearing, the First Court superseded that opinion with a new opinion reversing on jurisdictional grounds, because the suit had been brought in a district court instead of a county court at law.

After remand from the second appeal, the plaintiffs re-filed their suit in a county court at law. The county court at law denied the Harris County entities’ plea to the jurisdiction on the grounds that the First Court’s Kerr I and Kerr II opinions compelled such a result, as they constituted the law of the case.

Legal Summary: The “law of the case” doctrine provides that a question of law decided on appeal to an appellate court governs the case throughout its subsequent stages. The doctrine does not apply, however, where the issues or facts presented in the later appeal are not “substantially the same” as the issues or facts addressed in the prior appeal.

The court addressed separately whether each of the Kerr decisions constituted the law of the case. First, the court determined that Kerr I did not constitute the law of the case, as the defendant in that appeal was no longer a party to the case, the Harris County entities were not parties to that appeal, and the factual allegations raised against the Harris County entities were different that those asserted in Kerr I.

Likewise, the court found that Kerr II also did not constitute the law of the case, because it was withdrawn and superseded by another opinion. Although Kerr II was withdrawn on jurisdictional grounds, the First Court still found that the reasoning put forth therein for denying the Harris County entities’ motions for summary judgment did not constitute the law of the case. Therefore, the trial court erred by denying the Harris County entities’ pleas to the jurisdiction on the grounds that the law of the case compelled it to do so.


Waiver of arbitration by substantially invoking the judicial process

Enterprise Field Servs., LLC v. TOC-Rocky Mtn., Inc., No. 01-12-00345-CV, 2013 WL 744006 (Tex. App.—Houston [1st Dist.] Feb. 28, 2013, pet. filed)

Issue Presented: Where a plaintiff filed suit against a defendant, then moved to compel arbitration of the defendant’s counterclaim, did the plaintiff waive its right to arbitration by substantially invoking the judicial process?

Relevant Facts: Enterprise sued Conoco and TOC-Rocky Mountain, Inc. (“TOC”), seeking a declaratory judgment regarding its rights under a natural gas gathering and delivery agreement (the “Straddle Agreement”). TOC counterclaimed for a declaratory judgment of its own, seeking a declaration as to the validity of the Straddle Agreement and the parties later Gathering Agreement. The Gathering Agreement contained a mandatory arbitration clause, while the Straddle Agreement did not.

Based on the arbitration provision in the Gathering Agreement, Enterprise filed a motion to compel arbitration of TOC’s counterclaims. The trial court permitted TOC to amend its pleadings, and TOC removed any request for a declaratory judgment under the Gathering Agreement. The trial court then denied Enterprise’s motion to compel arbitration.

Legal Summary: As an initial matter, the First Court dealt with the question of whether TOC’s claims were arbitrable. The court concluded that any claims for breach under the Straddle Agreement would necessarily involve the interpretation of provisions of the Gathering Agreement. Because the Gathering Agreement was closely related to the Straddle Agreement and was an important part of the parties’ course of dealing, the court held that TOC’s claims were subject to the arbitration provision in the Gathering Agreement.

Next, TOC argued that Enterprise waived the arbitration clause by filing suit for a declaratory judgment under the Straddle Agreement. The court began by noting that there is a strong presumption against finding waiver of a right to arbitrate, and that all doubts will be resolved in favor of arbitration. Further, waiver must be intentional. In determining whether a party has waived its right to demand arbitration, courts consider the following non-exclusive factors:
(1) whether the movant for arbitration was the plaintiff (who chose to file in court) or the defendant (who merely responded), (2) when the movant learned of the arbitration clause and how long the movant delayed before seeking arbitration, (3) the amount of pretrial activity related to the merits rather than arbitrability or jurisdiction, (4) the amount of discovery conducted, and (5) whether the movant sought judgment on the merits.
Id. at *7.

In the case before it, the court found that Enterprise had not waived its right to demand arbitration. Enterprise’s initial suit primarily asserted claims against Conoco and involved only the interpretation of the Straddle Agreement—Enterprise only added TOC as a potentially necessary party to those proceedings. Enterprise moved quickly to demand arbitration after TOC added its counterclaims. Further, discovery conducted in the case had been minimal, and Enterprise did not seek judgment on the merits. As such, Enterprise did not waive its right to demand arbitration, even though it initiated the suit.

Finally, TOC argued that if its claims were arbitrable, Enterprise’s claims must be arbitrable as well. However, TOC never moved to compel Enterprise’s claim to arbitration. The court held that “without affirmative conduct in opposition to arbitration, there is an absence of affirmative conduct that indicates an intention to waive the right to demand it.” As a result, the fact that Enterprise still intended to pursue its claims against TOC in state court did not amount to a waiver of its right to demand arbitration of TOC’s claims against it.


Declaratory judgments: the fine line between justiciable and non-justiciable

Board of Trustees of the Galveston Wharves v. O’Rourke, No. 01-10-01115-CV, 2013 WL 2364139 (Tex. App.—Houston [1st Dist.] May 30, 2013, no pet. h.)

Issue Presented: Under what circumstances does a declaratory judgment present a non-justiciable controversy?

Relevant Facts: The case arose out of an altercation between E.L. O’Rourke and an officer with the Port Police in Galveston, as well as the subsequent investigation thereof. O’Rourke sued the Board of Trustees of the Galveston Wharves (“Board”) for invasion of privacy, civil conspiracy, as well as declaratory and injunctive relief. Specifically, O’Rourke sought a declaratory judgment that “Defendants falsified evidence and knowingly presented false testimony before the Wharves Board, which is a violation of the due course of law under Art. I, section 19 of the Texas Constitution.” The trial court permitted O’Rourke to pursue a declaratory judgment on this ground.

Legal Summary: The First Court of Appeals held that O’Rourke was not entitled to pursue a declaratory judgment on the quoted ground. “A declaratory judgment is appropriate only if a justiciable controversy exists as to the rights and status of the parties and if the controversy will be resolved by the declaration sought.” Id. at *6. A controversy will cease to exist when the issues presented by the case are no longer “live” or the parties to the case lack a legally cognizable interest in the outcome. Id. When a controversy ceases to exist, the case becomes moot, causing a plaintiff to lose standing to bring his claims. Id.

After outlining those general principles, the court considered whether O’Rourke’s request for declaratory judgment was appropriate. The court first noted that any falsification of evidence or false testimony occurred in the past—there was no indication that the conduct would recur. Further, O’Rourke did not seek monetary damages or claim that the conduct in question impacted his reputation in any way. Accordingly, a declaratory judgment regarding the conduct would have no practical effect and would not resolve any controversy between the parties. Therefore, the court held that the declaratory judgment O’Rourke sought was moot.


Challenging a ruling on a motion to compel arbitration: appeal or mandamus?

In re Santander Consumer USA, Inc., No. 01-12-00728-CV, 2013 WL 652721 (Tex. App.—Houston [1st Dist.] Feb. 21, 2013, orig. proceeding)

Issue presented: Given that §51.016 of the Texas Civil Practice and Remedies Code (“CPRC”) permits the interlocutory appeal of a motion to compel arbitration, may a litigant also challenge the trial court’s ruling via a petition for writ of mandamus?

Relevant Facts: Santander purchased a retail installment contract from a mobile home retailer. After Santander attempted to collect amounts due from the consumer, the consumer sued Santander, alleging he was not liable on the contract. Santander moved to compel arbitration, citing an arbitration provision in the contract. The trial court denied Santander’s motion to compel arbitration. Over two months after the trial court’s denial of the motion to compel arbitration, Santander filed a petition for writ of mandamus challenging the ruling.

Legal Summary: Santander, citing several Texas Supreme Court cases from the mid-2000’s argued that mandamus was the appropriate remedy for the wrongful denial of a motion to compel arbitration pursuant to the Federal Arbitration Act. The consumer, on the other hand, argued that §51.016 of the CPRC provides the exclusive avenue for immediate review of a trial court’s ruling on a motion to compel arbitration.

The First Court began by examining the history of challenges to arbitration rulings under Texas law. The court noted that for many years, Texas law did not provide for an interlocutory appeal from a trial court’s order on a motion to compel arbitration. Thus, courts permitted mandamus to issue to correct erroneous rulings by the trial court as a “statutory gap-filler.”

However, in 2009, the Texas Legislature passed §51.016, which provide for interlocutory appeal of trial court rulings on arbitration under the FAA. Santander—citing the Supreme Court case of Hernandez v. Ebrom, 289 S.W.3d 316, 318-19 (Tex. 2009), which interpreted similar language in a different statute—contended that this section was permissive, rather than mandatory, because it provided that a party “may” bring an interlocutory appeal of the trial court’s order. The court responded to this point by noting that the permissive statutory language simply protects a party’s right to assert its complaint at some point in time, such as a usual appeal from a final judgment. The permissive statutory language does not speak to whether a party may seek immediate review of the trial court’s ruling via a petition for writ of mandamus.

The court differentiated the case before it from cases that were decided prior to the enactment of §51.016. Unlike the parties seeking mandamus relief prior to the passage of §51.016, Santander had an immediate appellate remedy. This, of course, impacts the court’s analysis of whether an adequate appellate remedy exists, one of the key considerations in determining whether mandamus relief is appropriate. In fact, the court noted that the case before it could raise the issue of whether Santander’s petition must be categorically denied, because §51.016 provides an adequate remedy by appeal as a matter of law.

However, rather than announce a broadly-applicable rule that mandamus relief is never appropriate following the passage of §51.016, the court confined its decision to the facts before it in Santander. Based on the facts before it, the court determined that Santander did not meet its burden to demonstrate that a timely filed, accelerated appeal would not have afforded it an adequate appellate remedy. Thus, the court refused Santander’s petition for writ of mandamus.

In a concurring opinion, Justice Keyes indicated that she would have gone farther than the majority by announcing a broadly applicable rule, rather than limiting the holding to the facts of the case. In Justice Keyes’ opinion, “[t]he real question is whether section 51.016 provides an adequate and complete remedy by appeal when a trial court has denied a motion to compel arbitration under the FAA. The answer is ‘yes.’” Id. at *10. Thus, Justice Keyes would have dismissed Santander’s petition for writ of mandamus on the ground that §51.016 provides an adequate remedy by appeal.



National City Bank of Indiana and National City Home Loan Services, Inc. v. Albert Ortiz, No. 14-10-01125-CV (Tex.App.—Houston [14th Dist.] May 16, 2013); In re Albert Ortiz, No. 14-10-01262-CV (Tex.App.—Houston [14th Dist.] May 16, 2013)

Issue Presented: Though several issues were presented the core issue upon which all others turned was whether language contained in two letter agreements sent by a borrower's counsel to employees of the mortgage servicer while litigation was pending, and which bypassed the servicer's attorney of record, operated to waive the lender's right to pursue foreclosure of its lien on the borrower's property.

Relevant Facts: The borrower, Albert Ortiz ("Ortiz"), sued National City Bank of Indiana (the "Bank") and National City Home loan Services, Inc. (the "Servicer") (collectively, the "Bank Parties"), alleging a variety of claims, including wrongful foreclosure, breach of contract, negligence, trespass to real property, trespass to personalty, and conversion. The Bank counterclaimed to recover on the note and judicially foreclose the deed of trust lien. As a defense to the counterclaims, Ortiz asserted that the Bank's representative had signed letter agreements waiving and releasing the Bank's claims.

In March 2004, Ortiz purchased a house (the "Birdsall Property"), and financed it by executing a promissory note (the "Note") in the original principal amount of $472,000.00 secured by a deed of trust (the "Deed of Trust"). At all material times, the Bank was the owner and holder of the Note and the beneficiary of the Deed of Trust. Following various payment disputes and defaults by Ortiz, the Bank elected to accelerate the loan and foreclose on the Birdsall Property. The Servicer sent Ortiz a notices of intent to accelerate and of acceleration in November and December 2005, respectively; however, these were misaddressed. The foreclosure sale was rescheduled several times, and the Birdsall Property was eventually posted for sale on June 6, 2006. Ortiz filed a suit to enjoin the sale, but his request for a TRO was denied, and the property went to sale, at which it was purchased by the Bank.

Less than three weeks later, Ortiz's attorney bypassed the Bank Parties' attorney and contacted an employee of the Servicer directly, asking the employee to execute a letter agreement (the "First Letter") prepared by Ortiz's attorney. The employee was not an attorney, and he forwarded the First Letter to another non-attorney employee who executed it as "authorized representative" the Servicer and the Bank's predecessor-in-interest. The First Letter read in pertinent part as follows:
This Agreement shall confirm that Lender has completed and will file an Internal Revenue Service Form 1099-A in connection with its foreclosure on the above-referenced property. as a result, it does not intend to and shall not file or pursue any lawsuit or other legal proceeding against Borrower for any deficiency or otherwise. Lender agrees to and does fully release Borrower from any and all obligations and liability that Borrower may have or may have had to Lender, and Lender waives any and all demands and claims regarding any such obligation or liability. it is agreed that no further sums will be made or owed by Borrower, and no further sums will be demanded or litigated by Lender.
Ortiz's attorney subsequently sent a second letter agreement (the "Second Letter") to the signatory of the First Letter, asking him to sign it. The Second Letter referenced the Bank and provided in pertinent part as follows:
Out of an abundance of caution, I am requesting that you please confirm, by signing where indicated below, that all of the terms and conditions of the June 26, 2006 letter agreement [the First Letter] also apply to [the Bank], as the Lender, and that [the Bank] also releases and waives any and all actual and potential demands and claims regarding any obligations or liabilities of the Borrower, Albert Ortiz, in connection with the above-referenced property, including the note and deed of trust associated with such property.
The signatory of the First Letter likewise signed and returned the Second Letter, this time as the authorized representative of the Bank, and the first suit was dismissed. Thereafter, Ortiz filed a second suit against the Bank Parties, alleging the same claims he had previously, as well as seeking a declaratory judgment that the First Letter and the Second Letter (together, the "Letter Agreements") did not fail for lack of consideration, and, taken together, waived the debt and absolved Ortiz of any obligation or liability either to the Bank or on the Note and Deed of Trust. The Bank asserted various defenses and counterclaims, including a request for declaratory judgment voiding the Letter Agreements since they were sent in violation of the Texas Disciplinary Rules and authorizing the Bank to proceed with foreclosure. As noted by the Court of Appeals, Ortiz had never repaid any portion of the principal amount of the Note.

After a lengthy procedural history and a trial, at which a jury found that the Letter Agreements were invalid as to the debt or ownership of the Birdsall Property, the trial court disregarded the jury's findings, and entered summary judgment in favor of Ortiz, pursuant to which it declared that the Letter Agreements were a valid waiver of the debt and the lien. Both Ortiz and the Bank Parties appealed alleging a number of points of error. Ortiz also filed a petition for writ of mandamus as to certain relief not awarded by the trial court's judgment. The Court of Appeals subsequently consolidated the cross-appeals and the mandamus proceeding.

Outcome/Holding: The Court held that the Letter Agreements were ambiguous and, consequently, any such ambiguity had to be construed against the drafter, Ortiz. In finding the Letter Agreements to be ambiguous, the Court relied upon (a) the express reference in the First Letter to the IRS Form 1099-A; (b) the Letter Agreements' use of the words and phrases "as a result," "further," "out of an abundance of caution" and "confirm" (which the Court held weighed in favor of a narrow interpretation), in contrast to the Letter Agreements' use of the words and phrases "for any deficiency or otherwise" and "all of the terms and conditions" (which the Court found mitigated in favor of a more broad interpretation). Having found the Letter Agreements to be ambiguous, the Court, relying upon Burton v. Nat'l Bank of Commerce of Dallas, 679 S.W.2d 115, 118 (Tex.App.--Dallas 1984, no writ), concluded that summary judgment was improper as determining the parties intent with respect to the Letter Agreements was a question of fact for the jury. The Court further found that the trial court erred in disregarding the findings of the jury and, in conjunction with its determinations as to the other points of error asserted, reversed and remanded.

Justice Kem Thompson Frost dissented, arguing that the language of the Letter Agreements was clear, unequivocal, and susceptible to only one reasonable interpretation, that being that the Bank had waived its rights under the Note and Deed of Trust, and therefore had no claims or rights with respect to either Ortiz or the Birdsall Property. Justice Frost also argued that the majority's holding had serious negative public policy implications, insofar as the release language contained in the Letter Agreements was of a standard form commonly used to resolve litigation, and the holding of the Court would operate to dissuade parties from employing such tools to resolve disputes, thereby increasing the likelihood that pending litigation would not settle and would continue to burden the dockets of Texas courts.

Ortiz subsequently filed a motion to extend the time to file a motion for rehearing, which was granted.


Patrick O'Brien Murphy, et al. v. Wells Fargo Bank, N.A. and HSBC Bank USA, No. 14-11-00560-CV (Tex.App.—Houston [14th Dist.] February 12, 2013)

Issue Presented: This appeal presented, among other issues, the question of whether a lender may recover attorneys' fees against a borrower under the Texas Declaratory Judgments Act, where the subject in dispute is a Texas Home Equity Loan.

Relevant Facts: Appellants Patrick O'Brien Murphy and his wife, Beverly (collectively, "the Murphys") refinanced their pre-existing mortgage in 2006, obtaining a Texas home equity loan from Appellee Wells Fargo Bank, N.A. ("Wells Fargo"). On May 29, 2008, the Murphys' note and deed of trust were assigned to Appellee HSBC Bank USA ("HSBC"), as trustee for a securitized trust, with Wells Fargo being retained as the servicer. The Murphys ceased making their payments in March 2008, and Wells Fargo subsequently initiated foreclosure proceedings.

The Murphys filed suit against Wells Fargo and HSBC on November 14, 2008, alleging the breach of an oral contract to refinance the mortgage. Wells Fargo and HSBC each answered, and Wells Fargo filed a counterclaim for declaratory relief, seeking a declaration that the Murphys were in default. Thereafter, Wells Fargo and HSBC jointly filed a motion for summary judgment on both no-evidence and traditional grounds. The trial court granted the motion, disposing of the Murphys' claims, entering declaratory judgment in favor of Wells Fargo, and awarding Wells Fargo attorneys' fees and costs in the amount of $116,505.75 against the Murphys personally. The Murphys appealed as to the judgment in favor of Wells Fargo, but did not raise any error as regard the judgment in favor of HSBC.

Outcome/Holding: The Court affirmed the trial court's judgment as to the dismissal of the Murphys' claims and the declaratory relief sought by Wells Fargo, but reversed and remanded as to the award of fees and costs. Visiting Justice Margaret Mirabal, writing for the majority, held that Wells Fargo's request for declaratory relief could not change the basic character of the suit; to wit, a dispute over a Texas home equity loan as to which personal liability is prohibited under Section 50(a)(6)(C) of the Texas constitution. As such, Wells Fargo could potentially obtain judgment for the attorneys' fees and costs against the property subject to the lien, but was barred from obtaining any award for which the Murphys might be personally liable.

Justice Kem Thompson Frost dissented. In her dissent, Justice Frost reasoned that the Texas Declaratory Judgments Act created an independent basis for liability, separate and apart from the home equity loan. As such, the Texas constitution did not bar personal liability and, since Wells Fargo had met the requirements for recovery of attorneys' fees under the statute, it was entitled to recover them.


Marathon Machine Tools, Inc. v. Davis-Lynch, Inc., No. 14-11-00794-CV (Tex.App.—Houston [14th Dist.] April 9, 2013)

Issue Presented: What is the relative priority of the perfected security interest of the seller of chattel, in relation to the constructive trust imposed in favor of a third-party, whose funds were embezzled and used to purchase the chattel?

Relevant Facts: In June 2009, Appellant Marathon Machine Tools, Inc. ("Marathon") agreed to sell a lathe and accessories to Hanna-Skye, Inc. ("Hanna-Skye") for $299,825.00. Using stolen funds, Hanna Skye paid 25% of the purchase price at the time of the order and 40% upon delivery of the lathe. Hanna-Skye owed a final 35% payment due by November 30, 2009, which was never paid. Marathon filed a financing statement to perfect its security interest in the lathe on February 4, 2010.

On January 8, 2010, Appellee Davis-Lynch, Inc. ("DLI") filed suit in the Southern District of Texas against several former employees and various related individuals and entities, including Hanna-Skye. Among other allegations, DLI contended that the former employees misappropriated several million dollars from DLI, which they then used to fund their own company, Hanna-Skye. In May 2010, DLI moved for the imposition of a constructive trust upon any and all equipment purchased by Hanna-Skye with the stolen funds, including the subject lathe. The federal court granted the motion in June 2010, entering an order compelling Hanna-Skye to surrender possession of the Lathe to DLI. On November 23, 2010, the federal court rendered final judgment in favor of DLI.

While this was occurring, Marathon filed an action in Texas state court alleging that it had a superior security interest in the lathe. The parties filed cross-motions for summary judgment. The trial court denied Marathon's motion and granted DLI's motion, rendering final judgment that Marathon take nothing.

Outcome/Holding: The court held that DLI's rights as a lien creditor were superior to those of Marathon, basing its decision on their determination that the constructive trust in favor of DLI arose in June 2009 when the stolen funds were first used to purchase the lathe, and DLI's interest was therefore first in time.


James & Elizabeth Carlson, et al. v. City of Houston, No. 14-12-00099-CV (Tex.App.—Houston [14th Dist.] May 2, 2013)

Issue Presented: The issue presented in this appeal was whether a municipality is immune from tort liability for the forcible eviction of residents of a condemned property.

Relevant Facts: Appellants own condominium units in the Park Memorial complex in Houston. in July 2008, the complex was inspected by the City of Houston (the "City" and found to be in dangerous disrepair, including, but not limited to, loss of structural integrity of support beams due to water, dry rot and termite infestation. In August 2008, as a result of the inspection report, the City issued an order to the residents of the complex, stating that "use or occupancy … creates a hazard to human life or property" and directing all Park Memorial residents to vacate all Park Memorial units by September 15, 2008. The deadline was eventually extended to October 1, 2008, due to the reduced availability of temporary housing in the Houston area as a consequence of Hurricane Ike.

On October 1, 2008, Appellants filed a petition for writ of certiorari in the 152nd District Court of Harris County, seeking judicial review of the order to vacate, as well as temporary injunctive relief to prevent its immediate enforcement. The City filed a plea to the jurisdiction on October 8, alleging sovereign immunity, which was granted. The trial court also denied and the TRO expired. Appellants appealed in time to stop their eviction.

Outcome/Holding: The Court reversed and remanded. Equating the condominium owners' petition for writ of certiorari to an inverse condemnation claim, the Court determined that the City's action was a compensable taking, which gave rise to an inverse condemnation right of action. Thus, since Article I, Section 17 of the Texas Constitution provides a waiver of immunity for inverse condemnation claims, the Court held that the City's plea to the jurisdiction should have been denied.

Dissenting, Justice Kem Thompson Frost argued that, because Appellants had alleged a violation of procedural due process, they had failed to assert a takings claim, as the latter requires legitimate governmental action in the exercise of lawful authority. As such, she concluded, the City's order was subject to being set aside as void, but the pleadings did not set forth a takings claim and there was no basis for finding a waiver of immunity.


Southwestern Bell Telephone, L.P. d/b/a AT&T Texas v. Ed Emmett, et al., No. 14-11-01115-CV (Tex.App.—Houston [14th Dist.] May 9, 2013)

Issue Presented: The issues presented in this appeal were (a) whether sovereign immunity protects the Harris County Commissioners and the Director of the City of Houston Department of Public Works and Engineering against a suit to determine who must bear the cost of relocating telecommunications equipment located in a public right-of-way and attached to a City-owned bridge that the City of Houston ("the City") has scheduled for demolition; and (b) whether section 49.223 of the Texas Water Code requires the City to bear the cost of relocating the equipment.

Relevant Facts: This appeal arises from a dispute as to who must bear the cost of relocating AT&T's telecommunications equipment, which is located in a public right-of-way and is attached to the Forest Hill Street Bridge in Houston, which spans Brays Bayou near the Ship Channel. The dispute arose due to a plan to demolish the existing City-owned bridge and replace it with a longer, wider one as part of a project to widen Brays Bayou.

On March 9, 2007, the City sent AT&T a letter directing it to relocate its facilities attached to the existing bridge. On April 30, 2007, AT&T sent a response in which it stated that it would agree to do so, provided that the Harris County Flood Control District ("HCFCD") agreed to reimburse it for 100% of the costs of such relocation. The City replied on May 16, 2007, insisting that AT&T had the responsibility to relocate. The City's response also invoked Section 40-397 of Ordinance 2005-371, which authorized the City to perform the relocation itself and recover the cost of the relocation from the owner.

On June 25, 2007, AT&T filed suit, seeking declaratory and injunctive relief. Specifically, AT&T sought a declaration that Section 49.223 of the Water Code took precedence over the City's ordinance, and that, pursuant thereto, (a) the City and HCFCD were barred from relocating the equipment and charging the cost to AT&T; and (b) the Flood Control District was required to bear the cost of AT&T's relocation of the equipment pursuant to Section 49.223(a) of the Water Code. The suit originally named Ed Emmett, El Franco Lee, Sylvia Garcia, Steve Radack, and Jack Eversole, as members of the County Commissioners' Court (collectively, "the County Commissioners"), HCFCD, Michael Marcotte, as Director of the City of Houston Department of Public Works and Engineering ("Marcotte"), and the City as defendants. AT&T subsequently amended its petition to drop HCFCD to avoid subject matter jurisdiction issues. Nevertheless, the County Commissioners subsequently filed a plea to the jurisdiction, alleging sovereign immunity. The County Commissioners, Marcotte and the City (collectively, "Appellees") also filed various traditional and no-evidence motions for summary judgment. AT&T filed a cross-motion for summary judgment, in which AT&T contended that it was entitled to summary judgment in its favor because section 49.223 allegedly (a) applied any time HCFCD made necessary the relocation of any road, bridge, railroad, electric transmission line, telegraph, or telephone properties, facilities or pipelines, and (b) operated to create a statutory duty on the part of HCFCD to bear the expense of relocating AT&T's equipment. The County Commissioners responded that section 49.223 required (a) an action by HCFCD; (b) done in the exercise of a power, not merely a right or function; (c) which made necessary the relocation of property. Because the City, not HCFCD, was the entity mandating the relocation, they argued that the statute did not apply. The City and Marcotte contended that the City made necessary the relocation of the equipment via the exercise of its power under section 311.001 of the Texas Transportation Code, which grants Texas home-rule municipal corporations exclusive control over and under the streets of the municipality. The trial court sustained the County Commissioners' plea to the jurisdiction, as well as Appellees' motions for summary judgment, and denied AT&T's cross-motion.

Outcome/Holding: The Court held that the trial court had erred in sustaining the County Commissioners' plea to the jurisdiction, but had acted properly in granting Appellees' motions for summary judgment as to the merits of AT&T's claims. The Court held that, as to the County Commissioners, AT&T's claim fit within the ultra vires exception to sovereign immunity set forth in City of El Paso v. Heinrich, 284 S.W.3d 366, 371 (Tex.2009) (where a statutory or constitutional provision creates an entitlement to payment, suits seeking to require state officers to comply with the law are not barred by immunity merely because they compel the state to make those payments). However, the Court agreed with the arguments advanced by Appellees as to the applicability of section 49.223. Because it was the City, not HCFCD, in the exercise of its power of exclusive control over the streets of Houston, that required the relocation, HCFCD could not be said to have made necessary the relocation, as required by the statute, even though HCFCD had been involved in the planning for the Brays project. The Court further cast doubt on whether the relocation was "made necessary" at all, citing testimony by the project engineer that the Forest Hill Street Bridge could be left alone. Thus, the relocation costs at issue were not within the scope of section 49.223, and AT&T failed to establish its right to payment.