Case Updates for January to March 2015

By John BarnesBaker, Donelson, Bearman, Caldwell & Berkowitz, PC, and Andrew Nelson, Wright & Close, LLP

FIRST COURT OF APPEALS

Tesco Corp. v. Steadfast Ins. Co., No. 01-13-00091-CV, 2015 WL 456466 (Tex. App.—Houston [1st Dist.] Feb. 3, 2015)

A declaratory-judgment suit is rendered moot when a judgment from another state that forms the basis for the suit is reversed.

A pleaded request for attorneys’ fees under the Declaratory Judgments Act will not prevent the dismissal of a case that was rendered moot while on appeal of a summary judgment when the summary-judgment ruling did not involve a request for attorneys’ fees.

Tesco—an operator of drilling rigs—was sued in Colorado by a worker claiming personal injuries resulting from Tesco’s negligence. Steadfast—Tesco’s insurer—provided a defense to Tesco. The jury found against Tesco, awarding, among other things, $1.5 million in punitive damages to the plaintiff. Steadfast informed Tesco that Colorado law does not allow punitive damages to be covered under a policy of insurance.

Tesco then filed a declaratory judgment action in Texas, asserting that Texas law applied to the policies at issue, and that under Texas law, Steadfast was liable to pay the punitive damages on its behalf. Tesco filed a motion for partial summary judgment on the coverage issue. Steadfast filed a cross-motion for summary judgment. The trial court granted Steadfast’s motion and denied Tesco’s, declaring that Colorado law applied to the policies. Tesco appealed, and the First Court reversed and remanded.

Following the First Court’s reversal, Steadfast filed a motion for rehearing in which it brought to the court’s attention a ruling by the United States Court of Appeals for the Tenth Circuit reversing the award to the plaintiff in that case. Tesco and the plaintiff entered into a stipulation that the plaintiff would no longer pursue a claim for damages against Tesco.

The First Court held that the controversy between the parties was rendered moot by the Tenth Circuit’s opinion and the parties’ stipulation. Because the plaintiff in the underlying case would never be able to collect punitive damages from Tesco, the declaratory judgment suit no longer presented a live controversy between the parties.

Tesco argued that a live controversy remained because of Tesco’s claim for attorneys’ fees. The court acknowledged that a remaining dispute over attorneys’ fees can prevent a case from being moot in some circumstances. However, Tesco did not seek attorneys’ fees in its motion for partial summary judgment, expressly leaving that issue aside to be considered later. Thus, the court held, no live controversy existed as to attorneys’ fees. The court vacated the trial court’s judgment and dismissed the case for want of jurisdiction.

Ahmed v. Shah, No. 01-13-00995-CV, 2015 WL 222171 (Tex. App.—Houston [1st Dist.] Jan. 15, 2015

Parties may join a co-party’s motion pursuant to Rule 58 of the Texas Rules of Civil Procedure so long as they share “a community of interest and identical defenses to [the opposing parties’] claims.”


The dispute at issue arose from failed investments in a medical clinic. A number of doctors sued another group of doctors for fraud, conspiracy, and several other causes of action. One of the defendant doctors filed several motions for summary judgment. Four of his co-defendants joined the motions pursuant to Rule 58. The trial court granted the motions.

On appeal, the appellant doctors (plaintiffs below) argued that the trial court improperly allowed the other defendants to join the summary judgment motions of the defendant who filed the motions. The appellants asserted that the joining defendants needed to establish that they were in a position identical to that of the moving party, which they did not. The First Court rejected that argument, noting that the petition alleged common facts and claims against the defendants as a group, creating a community of interest among the defendants. The court held that it was not necessary for the joining defendants to establish that they were in a position identical to that of the moving party before employing Rule 58 to join the motions.

Thielemann v. Blinn Bd. Of Trustees, No. 01-14-00595-CV, 2015 WL 1247018 (Tex. App.—Houston [1st Dist.], Mar. 17, 2015)

The court reversed an award of sanctions because it determined the plaintiff’s petition had an arguable basis in law and, therefore, was not sanctionable.

A pro se plaintiff filed suit against the Blinn Board of Trustees, alleging that the board violated a Texas Education Code provision when it set out-of-district tuition rates, because the rates caused the taxpayers of Washington County to shoulder a disproportionate amount of the cost. The board filed a motion to dismiss for lack of jurisdiction on the grounds that no private cause of action existed for violation of the Texas Education Code. After the court granted the board’s motion, it entertained the board’s motion for sanctions against the plaintiff. The trial court awarded $9,055.50 in attorneys’ fees to the board.

The plaintiff challenged the award of attorneys’ fees on appeal. The court began by noting that “sanctions are reserved for those egregious situations where the worst of the bar uses our honored system for ill motive without regard to reason and the guiding principles of the law.” The court further noted that the court cannot base an award of sanctions on the legal merit of a pleading or motion. Instead, the trial court must examine all facts available to the litigant and the circumstances at the time of the filing of the motion.

In the case before it, the court noted that a public community college like Blinn is protected by governmental immunity. However, governmental immunity does not bar suits seeking to require officials to comply with statutory or constitutional provisions. The court noted that while the plaintiff’s claims for monetary damages were barred by governmental immunity, his attempt to force the board to comply with the statute arguably was not. Further, the plaintiff’s allegations, though not artfully pleaded, were sufficient to arguably plead a cause of action. Therefore, the court could not say that his suit lacked a reasonable basis in law.

The court further noted that the board did not present any evidence at the sanctions hearing, but rather presented only motions and arguments of counsel, which do not constitute evidence for purposes of a sanctions proceeding. This, combined with the fact that the plaintiff’s claim arguably had a reasonable basis in law, made the award of sanctions inappropriate. The court reversed the award of sanctions and rendered a take-nothing judgment.



FOURTEENTH COURT OF APPEALS

In re Mark Athans, et al., No. 14-14-00699-CV, 2015 WL 673416 (Tex. App.—Houston [14th Dist.] Feb. 13, 2015)

Where, on the basis of factual insufficiency, a relator seeks mandamus relief from the granting of a motion for new trial, the relator fails to establish his right to mandamus relief if he does not provide the entire trial record.

American Surgical Assistants, Inc. ("ASA") sued relators Mark Athans, Omar Martinez, and Prestige Surgical Assistants, LLC (collectively, "Relators") for various causes of action, including breach of fiduciary duty and aiding-and-abetting a such a breach. At trial, the jury failed to find a breach and, therefore, did not answer the questions concerning the aiding-and-abetting count. The court granted a new trial for ASA on three grounds: (1) the jury's failure to find a breach was against the great weight and sufficiency of the evidence; (2) the jury should have been instructed on the meaning of the term "solicit" in the charge, which is a question of law; and (3) defense counsel violated the trial court's instructions not to discuss the details of the evidence or argue the case during voir dire. Concerning the sufficiency ground, the trial court pointed to the testimony of witnesses Mark Athans, Monica Ellington, Omar Martinez and Eleazar Flores (collectively, the "Witnesses"). The court likewise pointed to the differing definitions of "solicit" argued by counsel in closing.

Relators filed a mandamus petition, to which they attached excerpts of the transcripts from the voir dire and from the trial, which excerpts contained the testimony of the Witnesses and the arguments and statements of counsel at issue. Relators did not include any exhibits from the trial in their mandamus record.

The Court of Appeals denied Relators' petition, holding that, in order to review the granting of a new trial on factual insufficiency grounds, it would be necessary to review the entire trial record, including, but not limited to the exhibits from the trial. Because they had only included excerpts from the transcript, Relators failed to provide all relevant and material portions of the record under Tex. R. App. 52.7, which precluded consideration of the merits of their petition.

Justice Busby dissented, noting that the only relevant and material portions of the record were those that went to the specific grounds relied upon by the trial court in granting ASA's motion. Hence, because the trial court relied upon the testimony of the Witnesses and specific statements and arguments of counsel, all of which were included in the excerpted portions of the voir dire and trial transcripts included in Relators' mandamus record, Justice Busby would have held that the record was sufficient under Rule 52.7.

Gary Aaronii et al. v. Directory Distributing Assocs., Inc., et al., No. 14-13-00784-CV, 2015 WL 971357 (Tex. App.—Houston [14th Dist.] Feb. 26, 2015)

The collective action provisions of the federal Fair Labor Standards Act (FLSA), 29 U.S.C. § 216(b), do not preempt the venue provisions of Texas law under Texas Civil Practice and Remedies Code (CPRC) section 15.003 (entitled "Multiple Plaintiffs and Intervening Plaintiffs"). Therefore, out-of-state plaintiffs may be dismissed from a collective action brought in Texas state court under the FLSA unless they can individually establish that venue is proper as to each of them.

Various Harris County residents who delivered telephone directories for AT&T (the "Named Plaintiffs") brought suit against AT&T, Directory Distributing Associates, Inc., and five natural persons (collectively, the "Defendants") under the FLSA, alleging that Defendants had violated the FLSA by engaging in a pattern and practice of identifying individuals as independent contractors in order to evade the minimum and overtime wage requirements under the FLSA. The Named Plaintiffs made allegations seeking to invoke the collective action provisions of the FLSA, and the trial court certified a collective action and ordered that notice be sent to all current and former individuals hired by Directory Distributing Associates, Inc. ("DDA") during a specified period who were classified by DDA as independent contractors and hired to deliver telephone directories. The notice allowed these individuals to "opt in" to the collective action by filing written consents. Thousands of individuals, from at least thirty-eight states, "opted in" (the "Opt-In Plaintiffs").

Defendants filed a motion to dismiss approximately 15,000 of the Opt-In Plaintiffs, including all Opt-In Plaintiffs who neither resided in Texas nor delivered directories in Texas (collectively, the "Non-Texas Opt-In Plaintiffs"). Defendants asserted that no Texas county is a proper venue for the claims of these plaintiffs and that, under CPRC section 15.003, each of the Non-Texas Opt-In Plaintiffs were required to independently establish proper venue to avoid dismissal. The Non-Texas Opt-In Plaintiffs asserted that the collective action provisions of the FLSA preempted section 15.003. The trial court granted Defendants' motion, and the Non-Texas Opt-In Plaintiffs filed an interlocutory appeal.

The Court of Appeals affirmed, holding, in a case of first impression, that the Non-Texas Opt-In Plaintiffs were required to independently establish the propriety of venue for their claims because the FLSA neither expressly nor impliedly preempted state law, as the operation of section 15,003 did not conflict with the purposes of the collective action provisions of the FLSA. In particular, the Court noted that "opt-in" plaintiffs in a collective action have party status even though they are not individually named, as opposed to unnamed plaintiffs in a class action. The Court further concluded that, although the collective action provisions of the FLSA allow such an action to be brought in any state or federal court of competent jurisdiction, they do not, consistent with the principles of federalism, mandate that states create such courts. Finally, the Court concluded that the Privileges and Immunities Clause of the U.S. Constitution did not apply because the record contained no evidence that the Non-Texas Opt-In Plaintiffs were actually unable to independently establish venue. Therefore, the dismissal was appropriate.

The Williard Law Firm, L.P. v. Sewell, No. 14-14-00621-CV, 2015 WL 1456995 (Tex. App.—Houston [14th Dist.] Mar. 26, 2015)

The discovery rule does not toll limitations on a fiduciary duty claim when the plaintiff has failed to use reasonable diligence, even when the evidence establishes that the plaintiff lacks formal education and is physically unable to read the documents forming the basis of the claim.

Appellant John Sewell ("Sewell") retained Appellee Williard Law Firm, L.P. ("Williard") to prosecute a wrongful foreclosure claim against Panola Building Co. ("Panola") regarding Sewell's property on Surratt Drive in Houston (the "Surratt Property"). Williard's principal, Stephen M. Williard, prepared a contingent fee legal representation agreement (the "Agreement"), which was signed by Sewell. Under the terms of the Agreement, Sewell was to pay all litigation expenses; the contingent fee included half of any net property settlement or recovery made; and Sewell agreed to hold title to the property with Williard as tenants in common.

The suit against Panola settled with Panola agreeing to transfer the Surratt Property back to Sewell and pay Sewell $19,500.00 in cash. Sewell eventually received $8,740.15, which represented the settlement amount minus the litigation expenses and Williard's fifty percent. At the same time, a warranty deed transferred a fifty percent interest in the Surratt Property from Sewell to Williard; a second warranty deed conveyed the same interest back to Sewell; and a deed of trust created a vendor's lien favoring Williard to secure a $28.951.60 promissory note (at 10% interest) from Sewell to Williard. On October 11, 2007, Sewell began paying the note, and he continued to make payments until March 2011, but sometimes made them late. Williard sent a foreclosure notice in November 2010 and foreclosed in December 2010.

Sewell learned of the foreclosure in March 2011 and consulted with new counsel. On April 2, 2012, Sewell filed suit for various claims, including breach of fiduciary duty. Williard plead the four-year statute of limitations, among other defenses.

At trial, evidence was presented that Sewell was unable to read or understand the various documents put in front of him by Williard for his signature, due to a lack of formal education and eye defects that made him unable to read them. Although the jury found that Williard had breached its fiduciary duty, it also found that Sewell, in the exercise of reasonable diligence, should have discovered the breach by October 11, 2007 – more than four years before he filed suit. Williard moved for judgment based on limitations, Sewell moved for JNOV, asking the trial court to disregard the jury's discovery date. The trial court granted Sewell's motion and awarded him judgment. Williard appealed.

The Court of Appeals reversed and rendered, holding that, despite any educational or physical infirmity on the part of Sewell, the evidence was factually sufficient for the jury to conclude that he should have been aware of his injury no later than the date of his first payment on the promissory note to Williard, i.e. October 11, 2007. Therefore, the limitations period began to run on that date, and his 2012 suit was time-barred.

Galveston Central Appraisal District v. Valero Refining-Texas L.P., No. 14-13-00434-CV, 2015 WL 1501761 (Tex. App.—Houston [14th Dist.] Mar. 31, 2015)

Even if appropriate comparables are used, an appraisal expert's conclusions concerning the valuation of commercial industrial property will be legally and factually insufficient to support a judgment where the expert's testimony fails to provide an explanation as to why significant fixtures and equipment were not included in the expert's calculations.


Appellee Valero Refining-Texas L.P. ("Valero") owns a refinery in Texas City (the "Valero Refinery"). The Valero Refinery comprises five tax accounts, all appraised on an annual basis by appellant Galveston Central Appraisal District ("GCAD"). Valero filed a petition for review of its 2011 property taxes, which Valero had paid before the delinquency date, arguing that GCAD had appraised the Valero Refinery unequally, and that the appraised value should be reduced under section 42.26 of the Texas Tax Code and the excess tax payment be refunded. GCAD filed a plea to the jurisdiction, challenging Valero's petition for failure to state the amount of taxes that it proposed to pay. The trial court denied GCAD's plea.

Valero's suit initially challenged each of the five tax accounts associated with the Valero Refinery, but Valero subsequently amended its petition to drop two of those accounts and proceed only as to the remaining three. After Valero amended its petition, GCAD filed a second motion challenging jurisdiction, this time on the grounds that, by dropping two of the tax accounts, Valero was no longer asserting a challenge to the valuation of the Valero Refinery as a whole. Again, the trial court denied GCAD's motion.

At trial, Valero offered the testimony of two experts to establish the unequal appraisal and the proper valuation. Valero's experts compared the valuations of comparable portions of the two other refineries in Galveston County, one owned by BP Products (NA), Inc. (the "BP Refinery") and the other by Marathon Petroleum Company (the "Marathon Refinery"), against the valuation of the applicable portions of the Valero Refinery, to determine a median valuation, to which Valero argued GCAD's appraisal should be reduced. This calculation involved using Equivalent Distillation Capacity (EDC) to compare the three refineries, calculated by taking the Nelson Complexity Factor for each processing unit in each refinery and multiplying that number by the capacity of the unit. Valero's experts then performed additional calculations using the resulting EDC to arrive at their conclusions regarding the median value of the Valero Refinery. Valero's experts did not include the pollution control equipment at each of the refineries in their calculation of EDC, though their testimony, as well as that of GCAD's appraiser, showed that the pollution control equipment was an integral part of the overall refinery, without which it could not operate. No explanation was given as to why the pollution control equipment had been omitted from the final calculations. There was evidence, however, that, in the process of preparing their report, Valero's experts had conducted two series of calculations, one with and one without the pollution control equipment, ultimately used the latter set of calculations that yielded a markedly lower valuation. Following trial, a jury found that the portions of the Valero Refinery at issue had been unequally appraised and made determinations concerning the equal and uniform value of the Valero Refinery. The trial court entered judgment, and GCAD appealed.

On appeal, GCAD argued that the trial court lacked jurisdiction because (a) Valero did not challenge the valuation of the Valero Refinery as a whole, and (b) Valero did not state the amount of taxes that it proposed to pay. GCAD further asserted that the evidence supporting the jury's determination of value was legally and factually insufficient. Specifically, GCAD argued that (i) the BP Refinery and the Marathon Refinery were not valid comparables, as there were sizable differences in production capacity and resulting value due to differences in the age, sophistication, and type of refining equipment in the three refineries; and (ii) Valero's experts failed to address why they had omitted the valuation of the pollution control equipment.

The Court of Appeals reversed and remanded, finding that the trial court had jurisdiction but that the evidence supporting the verdict was insufficient. The Court concluded that there was no merit to GCAD's jurisdictional challenge because (a) the requirement to state the amount of tax to be paid only applies where the property owner proposes to pay only the amount of taxes not in dispute, and Valero had paid the entire tax bill and was seeking a refund; and (b) though Valero's suit focused on only portions of the Valero Refinery, it asserted that the valuation of the whole of the property was unequal due to the unequal appraisal of the challenged portions, thus satisfying the statute. The Court similarly disposed of GCAD's argument concerning the differing characteristics of the various refineries, concluding that the properties were sufficiently similar that any differences could be accounted for through an appropriate adjustment to value. But the Court agreed with GCAD as to the omission of the pollution control equipment, finding that the evidence was insufficient to support the verdict in light of the testimony that the equipment was an essential part of the processing units of each refinery, and there was no explanation for omitting that equipment from the calculation of EDC. The Court therefore reversed and remanded for a new trial on the related issues of unequal appraisal and the equal and uniform value of the Valero Refinery.