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Do Plaintiffs Stand a Chance in the Texas Supreme Court -- Part 4

 

Our last four posts on the highest civil court in the Lone Star State went from Bloody Day at Texas Supreme Court (Mar. 28, 2014) to Do Plaintiffs Stand a Chance in the Supreme Court of Texas? (Apr. 25) to Do Plaintiffs Stand a Chance in the Supreme Court of Texas -- Part 2 (May 30) to Do Plaintiffs Stand a Chance in the Texas Supreme Court -- Part 3 (June 23).

The streak continues. In the three Fridays that followed our June 23 post -- the Court usually issues opinions at the end of each business week -- the Court has kept up its, er, consistency.

Behold, the Court:

• Reinstated a grant of no-evidence summary judgment in favor of a defendant land owner whose employee chased a trespassing vehicle across the land at high speed, leading to a rollover and three fatalities. The Court reasoned that chasing the vehicle across unlit roads "d[id] not create [a] likelihood of serious injury to the defendants" absent evidence of "aggressive moves" on the part of the employee or the speed at which he was travelling. Boerjan v. Rodriguez, No. 12-0838 (Tex. June 27, 2014).

• Ruled that a royalty owner was not entitled to a $10 million jury award for underpayment of royalties, finding that the costs of separating CO2 from casinghead gas may be assessed against the royalty interest as a postproduction expense, despite the parties previously classifying all oil separation activity as a production expense.  French v. Occidental Permian Ltd., No. 12-1002 (Tex. June 27, 2014).

• Reversed a trial court order requiring a majority shareholder found to have engaged in oppressive conduct to buy-out the minority shareholder's interest for fair value. The Court ruled that a buy-out order is not an authorized remedy for oppressive conduct under the TBOC. Cardiac Perfusion Services, Inc. v. Hughes, No. 13-0014 (Tex. June 27, 2014).

• Ruled that the imposition of a spoliation instruction against a defendant store owner who allowed video surveillance footage to be automatically erased was an abuse of discretion because the degree of resulting prejudice was not in accordance with the spoliating party's culpability. The Court reversed judgment for plaintiff and remanded for new trial. Brookshire Brothers, LTD v. Alridge, No. 10-0846 (Tex. July 3, 2014).

• Denied a plaintiff's takings claim after the state claimed and fought for ownership of part of Plaintiff's land for two decades, reducing the value of the land and preventing her from finding a willing buyer. Although the court found that "the State's conduct is troubling," it held that no taking occurs until the assertion of ownership is coupled with taking physical possession. Porretto v. Texas General Land Office, No. 12-0483 (Tex. July 3, 2014).

• Dismissed the claims of an asbestos plaintiff's estate because the claims failed to comply with the requirements of new legislation enacted post-injury that changed the procedural requirements for statutory wrongful death causes of action. To do so, the Court overruled a court of appeals ruling that the new requirements were unconstitutionally retroactive as applied to Plaintiff's claims.Union Carbide Corp. v. Synatzske, No. 12-0617 (July 3, 2014).

• Overturned the denial of immunity to a government-entity defendant, dismissing a commercial tenant's breach of contract claim. Although entering into a contract for goods or services waives governmental immunity from claims by the contracting party, the Court reasoned that the lease was not such a contract despite a use restriction requiring plaintiff to operate a marina. Lubbock County Water Control v. Church & Akin, LLC, No. 12-1039 (Tex. July 3, 2014).

• Affirmed dismissal of an asbestos plaintiff's claim against a manufacturer, finding that evidence of considerable exposure to defendant's products was, given evidence of additional exposure to other sources of asbestos, insufficient to establish causation in the absence of evidence quantifying the aggregate dose of asbestos attributable to defendant. Bostic v. Georgia-Pacific Corp., No. 10-0775 (Tex. July 11, 2014).

• Vacated a $1.2 million jury verdict against a fuel system manufacturer for installing a faulty flex connector, resulting in massive fuel loss. The court ruled that a spoliation instruction issued against the defendant after it lost the flex connector in question was, absent evidence of intentional concealment, an abuse of discretion. Petroleum Solutions, Inc. v. Head, No. 11-0425 (Tex. July 11, 2014).

The slaughter has become extreme.

If you have a choice about where to file a case, you might give serious thought to going somewhere other than the state courts of Texas.

Do Plaintiffs Stand a Chance in the Texas Supreme Court -- Part 3

In the last two weeks, the Supreme Court of Texas ruled as follows in the 11 cases it decided:

• Threw out $46.5 million jury verdict for the owner of the Rivercenter Mall and the ground beneath the Marriott Riverwalk hotel in downtown San Antonio. The owner had sued its tenants for sending a letter that "blew up" a pending $166 million deal to sell the property. The Court held that, despite the "dramatic effect" of the letter on the deal, no evidence supported the jury's finding that the deal would have closed but-for the letter. HMC Hotel Properties II Ltd. P'ship v. Keystone-Texas Property Holding Corp., No. 12-0289 (Tex. June 13, 2014).

• Held that the guarantor of a $696,000 note waived his statutory right to reduce the note amount by the $840,000 fair market value of the collateral securing the note at the time the lender foreclosed. The guaranty provided that the guarantor waived "any defense", which the Court construed to include the right of offset under section 51.003(b) of the Texas Property Code. Moayedi v. Interstate 35/Chisam Road, L.P., No. 12-0937 (Tex. June 13, 2014).

• Ruled that cotton farmers had to arbitrate a dispute with a marketing pool. The Court severely limited the unconscionability defense, allowing a contract provision that entitled the pool but not the farmers to an award of attorneys' fees and ordering severance of an unenforceable waiver of the farmers' rights under the Texas Deceptive Trade Practices-Consumer Protection Act despite the pool's failure to request it in the trial court. Venture Cotton Coooperative v. Freeman, No. 13-0122 (Tex. June 13, 2014).

• Overturned a jury finding that the majority shareholders of a Texas corporation oppressed the minority by thwarting their efforts to sell their shares. The Court held that the business judgment rule protected majority conduct that oppresses the minority. It also disallowed the trial court's order that the majority buy out the minority shareholders' stake and abolished any common-law claim for minority oppression in Texas. Ritchie v. Rupe, No. 11-0447 (Tex. June 20, 2014).

• Tossed a jury verdict awarding a general contractor $5 million in damages for a subcontractor's egregiously faulty construction plans, ruling that the "economic loss" rule generally bars tort claims between participants in construction projects under Texas law. LAN/STV v. Martin K. Eby Construction Co., Inc., No. 11-0810 (Tex. June 20, 2014).

• Vacated $26 million arbitration award in a dispute relating to the sale of insurance companies, concluding that the striking of an arbitrator for "partiality" violated the parties' arbitration agreement, which required only "knowledgeable" and "independent" arbitrators but not "impartial" ones. Americo Life, Inc. v. Myer, No. 12-0739 (Tex. June 20, 2014).

• Rendered judgment for Schlumberger, whose guest on a fishing trip in the Gulf of Mexico drank himself to extreme drunkenness before driving home and hitting a couple riding a motorcycle and causing them to lose their legs, on the ground that Schlumberger's activity on navigable waters did not give rise to a claim under federal maritime law, which in contrast to Texas law would have recognized Schlumberger's liablity as a "host". Schlumberger Technology Corp. v. Arthey, 12-1013 (Tex. June 20, 2013).

• Rendered judgment that the owner of Tract A could not recover damages from the lessee of minerals in Tract B for building a road between Tract A and Tract B, holding that a pooling order that covered parts of both Tract A and Tract B gave the lessee "implied" rights to use the surface of Tract A. Key Operating & Equip., Inc. v. Hegar, No. 13-0156 (Tex. June 20, 2014).

• Reinstated a jury verdict in favor of Ford Motor Company. Ford claimed that the plaintiff and a juror in a personal injury case defrauded it into paying millions of dollars to settle the case by inducing the juror to send a note asking "what is the maximum amount that can be awarded" during deliberations. Ford Motor Co. v. Castillo, No. 13-0158 (Tex. June 20, 2014).

• Rendered judgment against a victim of an assault at the Graham Central Station nightclub, ruling that no evidence supported the trial court's finding that Graham Central Station, Inc. owned and provided security for Graham Central Station. Graham Central Station, Inc. v. Pena, No. 13-0450 (Tex. June 20, 2014).

• Held that a workers compensation provide had a right to receive a bigger share of the proceeds of workers' claims against third-parties. State Office of Risk Management v. Carty, No. 13-0639 (Tex. June 20, 2014).

Judge for yourself whether the decisions favored the strong or the weak.

Do Plaintiffs Stand a Chance in the Texas Supreme Court -- Part 2

Arbitration good?

The Supreme Court of Texas has made enforcing arbitration clauses super-easy. But what happens if the arbitration produces an outcome that may give the conservative Court pause -- a $125 million award in favor of the claimant, for instance?

A case that the Court decided last week poses that lurking question. And regrettably their honors answered the question in the way you've probably come to expect. See here.

Question about an impression

Does the fact that an arbitrator has begged the lawyers who represent a party in arbitration for business but has gotten none make the arbitrator "evidently partial" to that party? The one whose lawyers have so far stiffed him on his requests for work? Such that a court must vacate the arbitration panel's award in favor of that party?

The Supreme Court of Texas said yes last week. In Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, No. 12-0789 (Tex. May 23, 2014), the 9-0 Court applied an easy-peasy test for unhappy losers to satisfy. They need show only that a non-disclosure "might have conveyed an impression [of the arbitrator's] partiality toward [the lawyers for the winning party] to a reasonable person." Id. at 13.

Did you get that? Might have conveyed an impression of partiality to a reasonable person. Not "would have conveyed" it. Only might have. Possibly could have. Perhaps maybe did. We have our suspicions. I don't like the look of that. We're going to need you to go ahead and come in on Saturday, um-kay.

What about waiver?

The airy-fairiness of that "might have conveyed" rule may or may not bother you. But what do you think about how the Court dealt with a waiver question?

The court of appeals had held that the losing party -- Tenaska Energy -- had waived any complaint because the business-hungry arbitrator had disclosed the fact that the lawyers for the winning party -- Ponderosa Energy -- had tapped him three times before to serve as an arbitrator and that he'd solicited business from their law firm. The court cited the fact that Tenaska also agreed, in writing, that it "knowingly waived any and all conflicts of interest and/or potential conflicts of interest relating to the designation of the members of the Panel in this Arbitration." Id. at 17.

The Court batted the waiver point away by noting that the same writing also represented that the arbitrators had "fully disclosed all conflicts of interest and potential conflicts of interest with respect to the designation of the members of the Panel in this Arbitration". Id. "Because the waiver clause was conditioned on a full disclosure that did not occur, Tenaska has not waived its partiality challenge." Id. at 18.

The Court didn't explain in what way the waiver "was conditioned on a full disclosure". The document didn't use any language that implied that the waiver depended on the accuracy of the "fully disclosed" statement. So it's okay for Tenaska to have fibbed that it "knowingly waived any and all conflicts of interest"?

The Court also put a lot of stress on the fact that the non-disclosing arbitrator solicited work from Ponderosa's lawyers not for himself but on behalf of an Indian firm that he partly owned and helped set up in the U.S. He disclosed that he'd hustled business for the Indian outfit from the law firm but hadn't gotten any.

But, in view of the fact that Ponderosa's lawyer chose him as an arbitrator -- in the same way that Tenaska's lawyers chose another of the three arbitrators, and those two selected a chair person  -- should Tenaska have some kind of obligation to ask questions to find out why Ponderosa thought so highly of him?

Why did they do it?

A Court that routinely rules unanimously in favor of defendants probably doesn't realize just what an echo chamber it has become. The members may beguile themselves with the thought that they would have ruled exactly the same way if the defendant had won the arbitration -- thus saving claimant Ponderosa from having to take a $1.25 million award and getting a fresh shot at the $150+ million that it sought.

Blawgletter does wonder what to make of the fact the Court mentioned that the Ponderosa lawyers converted their fee arrangement from hourly to contingent. Id. at 4-5. What does that signify, if not discomfort with a claimant and its lawyers receiving a big award?

Bottom line

What results from all this? Texas courts go out of their way to compel arbitration, including by non-signatories of agreements that include arbitration clauses, but also go out of their way to vacate awards on grounds that other courts would reject.

We also wonder why the Court didn't mention the Fifth Circuit's en banc opinion on the very same issue. Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir.2007) (en banc) (rejecting "mere appearance" of bias test). The Court would have had a very hard time explaining why the arbitrator who disclosed the fact that he'd tried to get business but had so far failed needed also to disclose more particulars about his unsuccessful efforts under the Fifth Circuit test. Maybe that's why.

Photo credit: Sarin Kunthong/Shutterstock.com

Wyly Jury Finds for SEC

A multi-week jury trial in the Southern District of New York ended today with a verdict for the Securities and Exchange Commission against Sam Wyly and the estate of his brother Charles Wyly Jr. The SEC alleged that the Wylys had used offshore trusts to make secret trades and that they received more than $550 million in profits as a result of the trades.

Do Plaintiffs Stand a Chance in the Supreme Court of Texas?

When Blawgletter last reported a few weeks ago on the Supreme Court of Texas, we didn't think the Court could top its record of ruling against each and every plaintiff unanimously.

We feel dumb today.

The court issued five opinions, with no dissents, in which their honors ruled for the defendants without exception.

In only one of the cases did any of the justices put his or her name on the opinion. Per curiam -- by the court -- emblazoned all the rest.

What should we make of the fact that the court has lately uniformly and unanimously struck down any judgment that favored a plaintiff and upheld any in which the defendant prevailed?

You may want to consider filing your case if possible in another state or choose arbitration.

Not that long ago, the court convinced many sister supreme courts to follow its lead with the persuasiveness of its reasoning. The court at the time had a balance of Democratic and Republican members. See Balance on Texas Supreme Court = Most Influence.

DuPont Deflects Kevlar Antitrust Claim

Do federal judges protect their own?

Before Blawgletter suggests an answer, let's look at the case that raises the question.

The Fourth Circuit upheld a summary judgment for E. I. DuPont de Nemours & Co., ruling that the South Korean plaintiff, Kolon Industries Incorporated, failed to raise a fact issue either as to DuPont's "monopoly power" in the U.S. market for para-aramid fibers (e.g., Kevlar) or as to its "willful maintenance" of the monopoly power it did not have. Kolon Indus., Inc. v. E. I. DuPont de Nemours & Co., No. 12-1587 (4th Cir. Apr. 3, 2014) (http://www.ca4.uscourts.gov/Opinions/Published/121587.P.pdf).

The panel held, 2-1, that DuPont's sub-60-percent-and-dropping share of the market didn't give it "durable" power to control price or exclude rivals. The majority also agreed with the district court that Kolon did not present proof that DuPont's exclusive supply agreements with customers foreclosed Kolon from gaining a "critical bridge" to a big market share big enough to sustain it as a viable competitive source of para-aramids.

The panel also concluded that Kolon's delay in asking the district court to recuse himself -- due to his participation as counsel for DuPont in an earlier lawsuit that involved patents on para-aramid fibers and financial interest in his old law firm -- warranted denial of the tardy motion for recusal.

The panel separately vacated a trade secrets judgment for just shy of $1 billion against Kolon. The district court erred, the panel held, by refusing to let Kolon present evidence that DuPont disclosed some of the alleged trade secrets in the earlier lawsuit. It also ordered that the district court on remand must assign a new judge to hear the case going forward.

Those last two parts of the decision will not go in the law books. The panel chose not to publish the separate opinion. Kolon Indus., Inc. v. E. I. DuPont de Nemours & Co., No. 12-1587 (4th Cir. Apr. 3, 2014) (per curiam) (http://www.ca4.uscourts.gov/Opinions/Unpublished/121260.U.pdf).

The panel's choice -- splitting the case into two opinions, using the one it published to talk about the antitrust claim and forfeiture of the right to recusal of the trial judge, and dealing with the trade secrets case and removal of the judge who survived formal recusal in the non-precedential and unpublished one -- suggests that their honors wished not to embarrass their colleague any more than they had to. We will leave to you what that implies about the question at the top of this post.

Give Us All Your Money

Alfred S. Teo, Sr., hid the fact that he owned a lot of stock in Musicland. He did so in reports he filed with the Securities and Exchange Commission. He also bought 45,000 shares of Musicland stock on the basis of a Musicland insider's tip that Best Buy wanted to make a best buy of Musicland.

Teo admitted all of that in a civil action by the SEC. Little wonder that a New Jersey jury found that he violated the Securities Exchange Act of 1934 and ordered him to disgorge $17 million of the $21 million profit that he made upon selling Musicland shares to Best Buy.

The main issue on appeal dealt with whether Teo's luck in holding a lot of Musicland shares at just the moment when Best Buy came calling cut the causal link between his Bad Deeds and his Huge Profits. The Third Circuit held that the SEC did enough to connect Teo's violations to his profits. Securities and Exchange Comm'n v. Teo, No. 12-1168 (3d Cir. Feb. 10, 2014).

Yes, the panel ruled by a 2-1 vote, Teo did get lucky, but that fact didn't preclude disgorgement of almost all of Teo's $21 million gain upon selling his Musicland shares to Best Buy. The SEC had to show only "but-for" causation, the panel pointed out, and once that happened Teo had the burden of proving how much of the $21 million rightly belonged to him. Because Teo didn't do enough to establish by how much his Good Fortune should reduce the amount of his Huge Profits, the panel concluded that the district court had rightly adjudged Teo liable for the $17 million.

Judge Jordan dissented. He wrote that Teo carried his burden by pointing to his Good Fortune.

Bonus:    Teo argued that the district court erred by letting the SEC tell the jury about what he said when pleading guilty to a criminal charge of insider trading. The panel noted that Teo's counsel hadn't objected to admission of the fact of his guilty plea into evidence. It also gave the back of its hand to Teo's complaint about the timing of the SEC's use of the things he confessed to in pleading guilty:

The Appellants complain, among other things, that the SEC’s use of the allocution at the end of its cross examination was particularly prejudicial because it was more likely to make an impression on the jury. However, so long as the evidence raised in the cross-examination was admitted and used for a permissible purpose, counsel is free to organize its examination of the witness in any manner it sees fit.

Id. at 11 n.7.

 

Constitution Bars Striking of Potential Juror for Sexual Orientation, Ninth Circuit Holds

In Batson v. Kentucky, 476 U.S. 79 (1986), the Supreme Court ruled that a party may not use a "peremptory strike" to prevent a member of a jury venire from serving on a criminal jury due to his or her race. The constitutional right to "equal protection" of the laws forbids such discrimination, the Court concluded. The Court extended the Batson rule to civil juries in Edmonson v. Leesville Concrete Co., 500 U.S. 614 (1991), and to the exclusion of women from juries in J.E.B.v. Alabama ex rel. T.B., 511 U.S. 127 (1994). But does Batson also bar keeping people off of juries because of their sexual orientation?

Yes, it does, the Ninth Circuit held in SmithKline Beecham Corp. v. Abbott Labs., No. 11-17357 (9th Cir. Jan. 21, 2014).

SmithKline alleged in the case that Abbott illegally inflated the price of an HIV drug it sold to SmithKline in order to drive customers to another Abbott product. In jury selection at trial, Abbott used a peremptory strike -- which doesn't require a showing of "cause" for excluding a potential juror -- to eliminate Juror B, a male whose answers to voir dire questions revealed that he lived with a male whom he described as his "partner". SmithKline challenged the strike under Batson, but the disrict court allowed the strike to stand. After a disappointingly small verdict in its favor, SmithKline cited the strike as a basis for the Ninth Circuit to overturn the result. The Ninth Circuit agreed:

We hold that heightened scrutiny applies to classifications based on sexual orientation and that Batson applies to strikes on that basis. Because a Batson violation occured here, this case must be remanded for a new trial.

SmithKline, slip op. at 39.

For more on Batson in the Ninth Circuit, see "Striking Alaska Native from Civil Jury Violated Batson".

U.S. Judge Makes Case for Jury Trials

The American jury makes a profound contribution to the very structure and fabric of American law, Ciulla v. Rigny, 89 F. Supp. 2d 97, 98 (D. Mass. 2000), and so it is here. Indeed, this particular case would be of little interest to anyone other than the litigants were it not for the remarkable role of the American jury. According to this federal jury, a broker-dealer who fails to disclose his poor forex trading record to clients, where knowledge of such a record may influence whether they choose to invest in forex with him managing that investment, violates his fiduciary duties and the Exchange Act. Since this jury determined that a broker-dealer who fraudulently has failed to disclose his poor forex trading record has violated the Exchange Act, other broker-dealers should now be on notice that such a failure by them could lead to the same finding. This important jury finding is as much “the law” as it would be were this Court to have made the same finding in a jury-waived case. No longer can the securities industry simply advance the SEC’s equivocation or its own internal procedures as the standard against which its conduct should be measured. Why? An American jury has said so.

SEC v. EagleEye Asset Mgmt., LLC, No. 11-11576-WGY (D. Mass. Oct. 4, 2013) (Young, D.J.). 

Telling Stories in Court

An opening statement in a recent trial started with this:

In 1975, when I was 16 years old, a friend who I played football with at Nacogdoches High School and I spent the summer hauling hay. We would drive out every day looking for farmers who were baling their hay and sometimes when they were cutting hay, so we would know where to come back to when it was time to haul it.

Randy had a three-quarter ton pickup truck. Randy Simpson was my friend, and we would work from early in the morning until late at night. We'd get maybe 15 cents a bale for picking up the bales as they would come out of the baler, putting them on Randy's pickup truck, driving them to the barn, and then stacking them up in the barn. It was hot, hard, dirty work, but it was great to work for ourselves, and it was good money to us.

One day when Randy dropped me off at home he was telling me in my driveway that some of his friends had told him about a wealthy farmer that had a hay elevator, electric hay elevator that would pull the bales up to the high loft. And he said his friends had talked to him about taking the hay elevator and selling it. He asked me what I thought about it. And I told him it wasn't something I was interested in.

When I was at home that night, watching TV with my dad, he must have overheard the conversation. And he said, son, [necessary pause] Randy doesn't have a dad at home. [Pause.] You need to tell your friend [pause] that you don't take people's property without paying for it.

That's what this case is about. It's about taking property that doesn't belong to you and not paying for it.

You might wonder: Did the case have anyting to do with farming or with hay?

No. It dealt with standard-essential patents on wireless telecommunications technology.

Did East Texas figure into the case at all?

No. The dispute pitted a Taiwanese company against  one from Canada.

Did the jurors get the point?

Would you have?

The story, by the way, had a happy ending. Randy chose the right path, without prompting. And the case settled. A win-win, you might say.