Case Updates for April, May, and June 2018

By Andrew Nelson, Wright & Close, LLP and Kyle Lawrence, Beck Redden LLP

 FIRST COURT OF APPEALS

In re Vantage Drilling International, No. 01-17-00592-CV, 2018 WL 2666945 (Tex. App.—Houston [1st Dist.] June 5, 2018, orig. proceeding)
The court refused to grant mandamus relief reversing a trial court’s order compelling arbitration when the party opposing arbitration failed to prove that a final appeal would be inadequate to review the alleged arbitration waiver. 

 Martinez Partners, a law firm, filed suit against Vantage, a former client, over the non-payment of attorney’s fees. The parties’ engagement agreements contained arbitration provisions which neither party initially invoked. The parties litigated heavily for nearly a year. Then, following a hearing in which the trial judge made comments that cast doubt upon Martinez Partners’ position in the litigation, Martinez Partners moved to compel arbitration. Vantage opposed, arguing that Martinez Partners had either expressly or impliedly waived arbitration. The trial court compelled arbitration, and Vantage filed a petition for writ of mandamus.

 The court first examined the standards for granting mandamus following an order compelling arbitration. When reviewing an order compelling arbitration, mandamus is generally unavailable, and the party seeking mandamus must meet a “particularly heavy” burden. Any doubts, including doubts regarding waiver, should be resolved in favor of arbitration. The court acknowledged that post-arbitration review may create some wasting of resources, but noted that allowing pre-arbitration review in all cases would create needless and costly battles in the appellate courts. The court then looked at the specific facts of the case to see whether Vantage could meet its “particularly heavy” burden.

 The main purported benefit of avoiding arbitration, according to Vantage, was the avoidance of further expense and delay. However, standing alone, this possibility is generally not sufficient to support mandamus relief. Next, Vantage argued that the time and money already spent in litigation would be wasted if arbitration was compelled. The court rejected that argument holding that the discovery conducted during litigation would also benefit the arbitration and no special circumstances existed that would cause Vantage to suffer prejudice if arbitration was compelled. Finally, Vantage argued that mandamus should issue as a result of Martinez Partners’ “impermissible tactical conduct.” The court held that there was no authority supporting the argument that tactical conduct trumps the legislature’s strong preference in favor of arbitration as an alternative vehicle for settling disputes. The court denied mandamus.

 Justice Keyes dissented. She would have held that Martinez Partners’ conduct met all the elements of waiver by substantial litigation conduct set by Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008) and Henry v. Cash Biz, LP, —S.W.3d—, No. 16-0854, 2018 WL 1022838 (Tex. Feb. 23, 2018), and that mandamus relief was appropriate to enforce the waiver. She summarized her position as follows: By approving the trial court’s order sending this case to arbitration, the majority allows the real party in interest to take the spoils of its abusive discovery practices over almost a year and its insight into the trial court’s skeptical perception of its case gained through litigation conduct into its newly-sought arbitration proceedings, thereby avoiding the trial court’s ruling on Vantage’s motion for partial summary judgment filed against it and creating a new playing field.

Fuentes v. Zaragoza, No. 01-16-00251-CV, 2018 WL 2437120 (Tex. App.—Houston [1st Dist.] May 31, 2018, no pet. h.)
A trial court could not render judgment against entities as alter egos of a named defendant when those entities were nonsuited prior to trial. 

 Evangelina Zaragoza filed for divorce from Miguel Zaragoza Fuentes. Miguel contested personal jurisdiction and, after losing his challenge, did not appear for trial. Evangelina took a default judgment against him. Miguel is a very successful businessman who owns numerous entities. The default judgment awarded Evangelina $537 million in damages and a 50% interest in 89 business entities, on the grounds that they were Miguel’s alter-egos. Miguel then moved for judgment as a matter of law and filed a motion for new trial, both of which were denied. A number of Miguel’s related entities also intervened in the case and moved to set aside the alter-ego order, but the court denied those motions as well.

 On appeal, Miguel and the entities made several challenges, including an argument that the trial court erred in rendering judgment against the entities as Miguel’s alter-egos. The entities argued “that (1) the trial court violated their due process rights by divesting them of their property without notice or hearing, (2) the trial court ignored rules on the joinder of necessary parties, and (3) the evidence failed to demonstrate that any of these companies were Miguel’s alter egos.” The court agreed on all points.

 The court noted that one of the co-appellants was never served. The others were not put on notice that their property interests would be at stake during trial. Evangelina non-suited the entities before trial and did not furnish them with her proposed property division. Evangelina’s alter-ego theory did not relieve her of the duty to ensure that all parties were afforded notice and an opportunity to be heard. Even an entity that has been found to be an alter-ego of an individual has those rights. The court held that “all parties alleged to be part of a single enterprise must each be afforded an opportunity to defend against the claims asserted.” If an entity is not afforded notice and an opportunity to be heard, its due process rights are violated, and a court may not enter judgment against it.

 Similarly, the court held that Evangelina failed to join all necessary parties to the action; therefore, the trial court erred in rendering judgment. Because all of the alleged alter-egos owned property subject to the division Evangelina requested, they were all necessary and indispensable parties without whom a judgment may not be entered.

 Finally, the court held that the evidence was legally and factually insufficient to support the trial court’s alter-ego finding. The First Court reversed the trial court’s judgment.


 FOURTEENTH COURT OF APPEALS
Critical Path Resources, Inc. v. Cuevas, -- S.W.3d ---, 2018 WL 1532343 (Tex. App.—Houston [14th Dist.] Mar. 29, 2018, no pet. h.).

Because the concept of superseding cause was not baked into the instruction on proximate cause given the jury, and the appellant did not argue that the sufficiency of the evidence should be determined as if the charge included an instruction on new-and-independent cause, the Court refused to consider evidence of superseding causes when evaluating the sufficiency of the evidence to support proximate causation. 

 Critical Path Resources is an appeal of a multi-million-dollar judgment rendered on a verdict after a wrongful-death and personal-injury trial arising from a catastrophic refinery explosion. The majority overruled Critical Path’s challenges to the sufficiency of the evidence to support the negligence and causation findings, but suggested a remittitur of a portion of the damages. The dissent would have rendered a take-nothing judgment on the basis that events after Critical Path’s negligent conduct constituted superseding causes. Appellate practitioners will be particularly interested in the Court’s analysis of the greatest relief Critical Path could receive based on its argument that the trial court erred by refusing to submit an instruction on new-and-independent cause.

In its opening brief, Critical Path argued that it was an abuse of discretion to refuse the instruction because there was evidence to support its submission. Critical Path further argued that it was entitled to a new trial because the refusal was harmful. But Critical Path did not contend, until a post-submission brief, that the sufficiency of the evidence should be evaluated as if the instruction were properly included in the charge. In this posture, the majority disagreed with the dissent’s consideration of evidence of superseding causes when reviewing the sufficiency of the evidence to support proximate causation. According to the majority, the “concept of superseding cause [was] not baked into the standard instruction on proximate cause given” to the jury. Thus, noting the “general rule” that the sufficiency of the evidence is “based on the charge as given, which in this case lacked an instruction on new and independent (or superseding) cause,” the majority rejected the dissent’s reasoning that superseding cause could be considered as a component of proximate cause. Furthermore, the majority explained, even if Critical Path had framed its appellate complaint as a sufficiency challenge, the greatest relief it could obtain was the relief it requested in its appellate brief: a new trial.

Toth v. Sears Home Improvement Products, Inc., No. 14-17-00615-CV, 2018 WL 2139285, at *1 (Tex. App.—Houston [14th Dist.] May 10, 2018, no pet. h.).

 The Fourteenth Court held that the TCPA’s commercial-speech exemption, as recently construed by the Supreme Court, did not apply to a contractor’s statements recommending a third-party’s product to a homeowner. 

The Texas Citizens Participation Act (“TCPA”) allows for early dismissal of claims based on certain types of communications. But the Act does not apply to claims based on some forms of commercial speech. Tex. Civ. Prac. & Rem. Code § 27.010(b). The Supreme Court recently clarified that the commercial-exemption applies when: (1) the defendant was primarily engaged in the business of selling or leasing goods, (2) the defendant made the statement or engaged in the conduct on which the claim is based in the defendant’s capacity as a seller or lessor of those goods or services, (3) the statement or conduct at issue arose out of a commercial transaction involving the kind of goods or services the defendant provides, and (4) the intended audience of the statement or conduct were actual or potential customers of the defendant for the kind of goods or services the defendant provides. Castleman v. Internet Money Ltd., 61 Tex. Sup. Ct. J. 1056, 2018 WL 1975039, at *3 (Tex. Apr. 27, 2018) (per curiam). In Toth v. Sears Home Improvement Products, Inc., decided two weeks after Castleman, the Fourteenth Court determined the applicability of the commercial-speech exemption in light of the Supreme Court’s recent decision.

 Winifred Langham complained that moisture was rising through wood floors that Sears sold and installed, so Sears sent an independent flooring contractor, John Toth, to investigate. Toth recommended that the floors be re-installed using a sealant product called Bostik. When Sears offered a refund instead, Langham filed suit and hired Toth to re-install the floors. Sears then sued Toth, claiming that he violated a confidentiality provision in his independent-contractor agreement by communicating with Langham.

On appeal, the Fourteenth Court determined that Toth’s statements to Langham recommending the Bostik product did not meet the second or third Castleman elements. Therefore, commercial-speech exemption did apply.

First, the Court observed there was “no indication that Toth was a seller of Bostik[,]” so his statements were “akin to expressing an opinion or evaluation about another’s product . . . , which is ordinarily protected” by the TCPA. Second, the Court reasoned that Castleman “aligns” with earlier cases requiring the statement to be made “for the purpose of securing sales in the goods or services of the person making the statement.” But here, Toth “proposed a commercial transaction to Sears—not to Langham—by recommending that Sears purchase the product and use it”; there was “no indication . . . that Toth made the Bostik statements to coax Langham into hiring him” to fix the floors. Finally, the Court concluded that Toth made the statements “while performing under the contract as Sears’s independent-contractor[,]” not in “his individual capacity as a seller of goods or services.” The “only reason he was speaking to Langham” was because Sears engaged him to do so, and there was no evidence that he was “promoting his personal business . . . instead of replacing the floor on Sears’s behalf.”