Case Updates for April, May, and June 2017

By Andrew Nelson, Wright & Close, LLP, and Leslie Gardner, 14th Court of Appeals

FIRST COURT OF APPEALS

Krajca v. Caum, No. 01-16-00057-CV, 2017 WL 2471102 (Tex. App.—Houston [1st Dist.] June 8, 2017, no pet. h.)

A late-filed summary judgment response may still be considered if good cause is shown and no undue prejudice would result from permitting the response to be considered.

Krajca filed an action in probate court seeking to remove Caum as independent executrix of an estate. After the parties conducted initial discovery, Caum filed a no-evidence motion for summary judgment. Krajca timely filed a response to the motion, but it was undisputed that he failed to serve it on Caum timely. Caum filed a motion to strike the late-served response. Krajca filed a response, arguing that his failure to serve his response was the result of an unintentional typographical error and that striking the response would effectively impose an unjust death-penalty sanction.

Krajca explained that he used an e-filing system to file his response. He attempted to enter Caum’s attorney’s email address into the system, but left out one of the letters in her email address. As a result, Caum’s counsel was never served with the filing. Krajca, however, received a receipt indicating that his response had been served. Nevertheless, the trial court effectively struck the response by informing the parties that it was not considered because it was not properly served. The court granted summary judgment. Krajca appealed.
v On appeal, Krajca argued that the trial court erred by not considering his response because the failed service was the result of an unintentional typographical error and that Caum had not been unduly prejudiced by the late service. The court began by noting that although the court did not explicitly rule on the motion to strike his response, its ruling could be implied pursuant to Tex. R. App. P. 33(a)(2)(A).

Next, the court noted that Krajca demonstrated, through undisputed evidence, that the failure to timely serve the response was not the result of intentional or consciously indifferent actions. Because the service would have been completed if Krajca had not mistyped the email address, the court found that good cause existed for serving the summary judgment response late.

The court noted that the overarching policy regarding unintentional errors of counsel is to decide the case on the merits rather than on a procedural default when possible. The court further noted that the Texas Rules of Civil Procedure, specifically Rule 21(f)(6), provide that when a documents is untimely due to a technical failure, the filing party may seek appropriate relief from the court. “The electronic filing and service rules should not become a trap for the unwary when no harm is done.”

The court determined that no harm had been done in the case before it. Therefore, the court reversed the ruling of the trial court and remanded so that the court could consider Krajca’s response.


Ramirez v. Noble Energy, Inc., No. 01-16-00155-CV, 2017 WL 2180719 (Tex. App.—Houston [1st Dist.] May 18, 2017, no pet. h.)

When deemed admissions are merits-preclusive, the deemed admissions should be permitted to be withdrawn unless the party opposing withdrawal can demonstrate that the failure to timely answer the requests resulted from flagrant bad faith or callous disregard for the discovery rules.

Monroy sued Noble for an injury he sustained while unloading a truck on Noble’s premises. Noble served Monroy with requests for admission, and Monroy did not respond. Noble moved to compel responses, and the court ordered that Monroy file responses by November 5, 2015. Monroy did not file his responses until November 6, 2015. Noble filed a motion for summary judgment, arguing that the matters contained within its requests for admission were deemed admitted. The deemed admissions covered a wide range of topics, such as: “Noble is not a proper party to this lawsuit” and “[t]he truck [Monroy] was driving was not Noble’s property.” Monroy responded to the motion and argued that Noble had not demonstrated any harm or prejudice from the allegedly inadequate responses. Monroy also alleged that the late response was the result of turnover in his attorney’s office resulting in the response deadline being overlooked. Several weeks later, Monroy filed a motion to withdraw the deemed admissions, arguing again that the failure to timely respond was not the result of conscious indifference. The trial court granted summary judgment and denied Monroy’s motion to withdraw deemed admissions. Monroy appealed.

The court of appeals first noted that a trial court may permit a deemed admission to be withdrawn if (1) the party shows good cause for the withdrawal, and (2) no undue prejudice will result. A party can establish “good cause” by showing that failure to timely respond was an accident or mistake, not intentional or the result of conscious indifference. Courts have typically found that even a “slight excuse” will suffice when evaluating this standard.

When a party seeks to rely upon deemed admissions to preclude presentation of the merits of the case, it is even more difficult to preclude the withdrawal of deemed admissions. The burden of proof in such situations shifts from the party seeking to have the admission withdrawn to the party seeking to rely on the deemed admissions. And, the party seeking to rely on the deemed admissions must demonstrate “flagrant bad faith or callous disregard for the rules.” This is because, when a party seeks to have deemed admissions treated as merits-preclusive, the deemed admissions implicate due process concerns. Therefore, courts apply the same standard as when a party is seeking death-penalty discovery sanctions.

The court first determined that Noble’s requests for admission were merits-preclusive in nature. Some of Noble’s requests, such as the request to admit that Noble was not a proper party to the suit, were not actually proper requests for admission. Monroy admitted three of the requests in his late-served response, and because those responses were not controverted, those admissions were not merits-preclusive. However, the other admissions were disputed and did not simply involve uncontroverted facts; therefore, they were merits-preclusive.

Having determined that the requests were merits-preclusive, the court went on to consider whether Noble proved that the late-served admissions were the result of “flagrant bad faith or callous disregard.” Monroy’s explanation for the late-served admissions was that his counsel had just hired a new assistant, and the new assistant neglected to calendar the response time for the discovery. The court noted that “a lack of care, simple bad judgment, or a mistaken belief that no discovery had been served does not rise to the level of bad faith or callous disregard for the rules. . . Rather, a determination of bad faith or callous disregard for the rules has been reserved for cases in which the evidence shows that a party is mindful of pending deadlines and nonetheless either consciously or flagrantly fails to comply with the rules.”

In the end, the court held that although the responses were served late, Noble did not prove that they had been filed in flagrant bad faith or callous disregard for the rules. Accordingly, the court reversed and remanded the case.



FOURTEENTH COURT OF APPEALS

Nat’l Sec. Fire & Cas. Co. v. Hurst, No. 14–15–00714–CV, 2017 WL 2258243 (Tex. App.—Houston [14th Dist.] May 23, 2017, no pet. h.)

An insured cannot defeat an otherwise valid and binding appraisal award simply by refusing to accept the insurer’s payment of the award or by asserting extra-contractual claims that are derivative of the policy claims.

Ozier Hurst submitted a damage claim to his insurer, National Security Fire & Casualty Company, after his home sustained wind-related damage during Hurricane Ike. The damage was initially appraised at $3,524.56 (accounting for the $1,000 deductible). National paid Hurst the appraised amount, and although Hurst accepted and cashed the check, he did not use the money to repair the house.

Unhappy with the initial estimate and payment, Hurst sued National, the adjusting firm, and the independent adjuster for contractual and extra-contractual claims. Hurst invoked the appraisal clause, and the umpire awarded $7,166.36. National issued a check for $3,641.80, which is the difference between the umpire’s award and the amount already paid to Hurst. Hurst never returned or cashed the check. Nor did he move to set aside the award. He continued to pursue the underlying litigation.

The jury found (1) National liable for breach of contract, (2) that National, the adjusting firm, and the independent adjuster violated the prompt payment provisions of Section 542 of the Insurance Code, (3) National breached its common-law duty of good faith and fair dealing, and (4) National, the adjusting firm, and the independent adjuster violated Chapter 541 of the Insurance Code and the DTPA. The trial court denied all post-judgment motions and signed a final judgment in accordance with the jury verdict awarding damages from National, the adjusting firm, and the independent adjuster, including prejudgment and post judgment interest, penalty interest, court costs, and attorneys’ fees.

National appealed, arguing the trial court erred in failing to grant a directed verdict because the full and timely payment of the appraisal award precludes as a matter of law any award for breach of contract, penalty interest, or any statutory or common-law bad faith violations. Hurst responded that (1) because he did not accept National’s tendered payment, his breach of contract claim was not precluded and (2) the inclusion of a release of the extra-contractual claims rendered National’s payment a partial or conditional payment.

First, the Fourteenth Court concluded that acceptance of the payment is not a necessary condition to estop a breach of contract claim. Generally, all that is required to estop a breach of contract claim is that the insurer tenders the full amount owed pursuant to the conditions of an appraisal clause. Second, the court concluded the release of the extra-contractual claims did not render the tender of the payment less than the set amount determined by the appraisal process. Therefore, the court concluded, Hurst is estopped from recovering for breach of contract.

The court went on to conclude Hurst’s extra-contractual claims were also precluded. First, the full and timely payment of the appraisal award precluded an award under the Insurance Code’s prompt payment provisions. Second, the common-law duty of good faith and fair dealing and the DTPA violation claims were precluded because Hurst did not allege any act so extreme as to cause an injury independent from the loss of benefits under the insurance policy. The court reversed and rendered judgment that Hurst take nothing on his claims.


Eng’g and Terminal Services, L.P. v. TARSCO, Inc., No. 14–16–00424–CV, 2017 WL 1540888 (Tex. App.—Houston [14th Dist.] Apr. 27, 2017, no pet. h.)

The certificate of merit requirement in section 150.002 of the Texas Civil Practice and Remedies Code does not apply to a third-party petition filed by an original plaintiff seeking contribution from a third-party defendant.

Buckeye Partners, LP contracted with Engineering and Terminal Services (ETS) to provide engineering design and support services. ETS in turn subcontracted with TARSCO and Orcus. ETS sued Buckeye for breach of contract based on Buckeye’s alleged failure to pay ETS for its engineering services. In response, Buckeye filed counterclaims against ETS alleging its engineering designs contained errors, omissions, and other deficiencies that caused Buckeye substantial damages. ETS, as a third-party plaintiff, filed a third-party petition against TARSCO and Orcus based on allegedly defective engineering and design services that formed the basis of Buckeye’s counterclaims. ETS sought contribution from TARSCO and Orcus to the extent it was liable to Buckeye.

Section 150.002 requires “the plaintiff” in “any action or arbitration proceeding for damages arising out of the provision of professional services by a licensed or registered professional” engineer to file a supporting expert affidavit “with the complaint.”

ETS did not file a certificate of merit with its third-party petition. TARSCO and Orcus filed motions to dismiss the third-party claims under section 150.002 of the Texas Civil Practice and Remedies Code. ETS responded to the motions to dismiss relying on Jaster v. Comet II Construction, Inc., 438 S.W.3d 556 (Tex. 2014), in which five justices who joined in the court’s judgment agreed that a third-party plaintiff is not “the plaintiff” in an action or arbitration proceeding and thus is not subject to the certificate of merit requirement. The trial court granted the motions to dismiss and ETS appealed.

The Fourteenth Court looked to Jaster for guidance, which considered the statute’s applicability in the third-party practice context. In Jaster, four of the five Texas Supreme Court justices concluded a cross-claimant and a third-party plaintiff (who was originally the defendant) are not the “plaintiff” and therefore are not required to file a certificate of merit with the complaint. The plurality opinion reasoned that “action” means “suit” and that “plaintiff” means the party who initiates the action. The concurring opinion reasoned the certificate of merit requirement does not apply to third-party plaintiffs seeking indemnity and contributions, because the affidavit requirement is limited to actions for “damages.”

The Fourteenth Court rejected TARSCO’s and Orcus’s argument that Jaster does not support ETS because in Jaster, the third-party plaintiff was originally the defendant, but here, ETS is the original plaintiff who initiated the lawsuit. The court concluded that ETS’s status as the original plaintiff who filed a third-party petition against new third-party defendants is not a fact that distinguishes this case from Jaster in a legally meaningful way. The principle identified in Jaster applies equally to plaintiffs, defendants, or counter-defendants acting as third-party plaintiffs. The court therefore reversed the trial court’s orders dismissing ETS’s third-party claims against TARSCO and Orcus.