Texas Trial Law Advocate : Texas Business Litigation Lawyer & Attorney : Craig Cherry : Haley & Olson Law Firm : TX Personal Injury, Product Liability

     This post discusses the basics of the “automatic stay” that is in place when a customer files for bankruptcy.  This post also includes a discussion of the potential pitfalls that creditors face for violations of the automatic stay.

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The Securities and Exchange Commission has filed suit accusing Life Partners Holdings of "systematically and materially" misleading investors about the life expectancy of people whose life insurance policies it traded. According to the SEC's suit filed in federal court in Waco, the alleged scheme inflated the value of the company's stock.  Specifically, the SEC has alleged that "the deception mislead shareholders into thinking the company's revenue model was sutainable when in fact it was illusory."

The SEC is seeking to recover unspecified civil penalites, as well as, the return of stock trade profits and bonuses.

The company and the executives deny the SEC's allegations.

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 The Texas Supreme Court has once again affirmed its decision to make non-compete agreements more easily enforceable by employers against their employees.  The Court was asked to consider whether a covenant not to compete signed by a valued employee in consideration for stock options, designed to give the employee a greater stake in the company’s performance, is unenforceable as a matter of law because the stock options did not give rise to an interest in restraining competition.

In the summer of 2011, the Texas Supreme Court issued its opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. June 24, 2011), holding that, under the terms of the Covenants Not to Compete Act, a covenant not to compete signed by an employee in consideration of stock options was enforceable because the company’s provision of stock options was reasonably related to the employer’s interest in protecting its goodwill. This was deemed a business interest worthy of protection, thus the noncompete agreement was not unenforceable on that basis. A motion for rehearing was thereafter filed, and the Court recently withdrew its prior opinion and substituted a new opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. Dec. 16, 2011).  

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A constitutional challenge to the Texas Franchise Tax was recently rejected by the Texas Supreme Court.

In In Re: Allcat Claims Service, L.P. et al., No. 11-0589, 2011 WL 6091134 (Tex. 2011), a partnership argued that the Texas Franchise Tax constituted an income tax and, as such, violated the Texas Constitution. The Texas Constitution provides that the state may not collect an income tax on natural persons.

Allcat Claims Service LP, a Boerne insurance adjustment firm that filed the suit, contended that the Franchise Tax imposed against the partnership reduced the income of Allcat's partners, making it an income tax. 

The Supreme Court held the franchise tax is not unconstitutional. The Court distinguished the imposition of the Franchise Tax and an income tax on natural persons by reasoning that partnerships are treated as legal entities separate from their individual partners.  The franchise tax is imposed on a partnership before the partnership distributes profits to any individual partners. Accordingly, the Supreme Court held that the law does not impose an income tax and, as such, does not violate the Texas Constitution.

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     Under Texas law is there a remedy available to a prevailing plaintiff (“judgment creditor”) who, when seeking to collect on her judgment, finds that the losing defendant (“judgment debtor”) has attempted to transfer assets beyond her reach?

     Shore Answer:  Yes.  Look to the Uniform Fraudulent Transfer Act (the “Act”).

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In Smith v. City of Lubbock, 07-10-0466-CV, 2011 WL 4478494 (Tex. App.--Amarillo Sept. 26, 2011, pet. granted), the Amarillo Court of Appeals held that workers’ compensation  laws barred additional recovery against an employer who is a subscriber to workers’ compensation.  In this case, the additional recovery is based upon the existence of an uninsured/underinsured auto policy (the “UM Policy”) acquired by the City from St. Paul Fire and Marine Ins. Co. (“St. Paul”). 

This case arose when Smith, an employee of the City of Lubbock (the “City”) was struck by an intoxicated driver while Smith was in the course and scope of his duties for the City. Smith took the position that Texas workers’ compensation laws did not bar an employee from suing his employer on the UM Policy. The City obtained the UM Policy for its employees.  As a result of his injuries, Smith received workers’ compensation benefits; however, he also sought benefits pursuant to the UM Policy. Those benefits were denied, and Smith filed suit against the City and St. Paul. The trial court granted summary judgment on behalf of both the City and St. Paul; however, St. Paul has since conceded that it was not entitled to the granting of a summary judgment.  

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In 2009, the Texas Supreme Court held that a plaintiff who obtained favorable jury findings but no damages was not entitled to attorney's fees under contractual language entitling a prevailing party to such fees. Intercont'l Group P'ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 652 (Tex. 2009).

Recently, in Epps v. Fowler, No. 10-0283, 2011 WL 3796618, at *2 (Tex. 2011), the Texas Supreme Court addressed whether a defendant is a prevailing party entitled to attorney's fees when the plaintiff nonsuits a claim without prejudice. 

The Texas Supreme Court held that when the plaintiff nonsuits without prejudice, the defendant is not a prevailing party unless the trial court determines, on the defendant's motion, that the plaintiff took the nonsuit in order to avoid an unfavorable judgment.  

The Texas Supreme Court also held that when the plaintiff nonsuits with prejudice, the defendant is a prevailing party because a nonsuit with prejudice immediately alters the legal relationship between the parties by its res judicata effect.  This is in direct contrast to a nonsuit without prejudice, where the plaintiff remains free to re-file the same claims seeking the same relief.   

In Fowler, the trial court did not have the opportunity to determine whether the plaintiff filed its Motion for Nonsuit in order to avoid an unfavorable judgment.  As such, the Texas Supreme Court remanded the defendant's claim for attorney's fees under the contract to the trial court.  On remand, the defendant will have the opportunity to move the trial court to find that the plaintiff filed its Motion for Nonsuit in order to avoid an unfavorable judgment.  If the trial court makes such a finding, the defendant will be a prevailing party and entitled to recover attorney’s fees pursuant to the contract.

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Actos is a drug that has been used to treat Type-2 diabetes.  Studies now indicate that Actos can cause serious injuries, including heart attack, heart failure, and an increased risk of bladder cancer. 

As a result of a study linking Actos to bladder cancer, France withdrew Actos from the market in June 2011.  Likewise, Germany, has advised doctors against prescribing the drug due to the increased risk of bladder cancer resulting from its use.

The Food and Drug Administration (FDA) has updated the warning label of Actos, announcing a link between the drug and increased risk of bladder cancer.

Many lawsuits have now been filed across the country regarding Actos.  The Judicial Panel on Multidistrict Litigation (JPMDL) will hold a hearing in early December to determine if all Actos lawsuits should be consolidated in one federal court for discovery and pre-trial proceedings.  A decision is expected in early 2012.

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The Southern District of Texas recently provided additional clarification regarding what flood claims under an Standard Flood Insurance Policy (“SFIP”) were subject to the appraisal clause when there are pricing issues as well as potential coverage issues involved. Ultimately, the Court ruled that because the dispute involved whether a particular item was actually covered under the SFIP, the appraisal clause was not applicable to the flood claim at issue. 

Sidney and Bettie Jean Sam (“Plaintiffs”) were insured under a SFIP issued by National Lloyds Insurance Company (“National Lloyds”) pursuant to the National Flood Insurance Program (“NFIP”).  Plaintiffs’ apartment building was damaged by flood waters following Hurricane Ike.  National Lloyds sent an adjuster to the property in question, and later paid the Plaintiffs $100,622.67 for the loss.  

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In The City of Dallas v. Stewart, No. 09–0257, 2011 WL 2586882, (Tex. 2011), the Texas Supreme Court ruled that homeowners may seek de novo review in district court if city officials make nuisance determinations and condemn property.

Before this decision, many municipalities had adopted the following procedure for abating properties:

First, an appointed administrative board would determine if a property was a nuisance that should be abated. Second, the property owner was given the opportunity to appeal the Board’s decision in district court, but judicial review was not de novo.  Rather, judicial review in district court was limited to deciding whether substantial evidence supported the Board’s decision.  Substantial evidence review requires only more than a mere scintilla to support an administrative board’s decision. Third, the municipality would obtain a judicial demolition warrant to abate the property. Fourth, the structure would be demolished.

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In ½ Price Checks Cashed v. United Automobile Insurance Company, 344 S.W.3d 378 (Tex. 2011), the Texas Supreme Court decided that the holder of a dishonored check suing under Article 3 of the UCC ¹ is allowed to recover attorney’s fees under Chapter 38 of the Texas Civil Practice and Remedies Code.²

1             Section 3.414(b) of the Texas Business & Commerce Code (UCC) specifically provides that if an unaccepted draft is dishonored, the drawer is obligated to pay the draft according to its terms at the time it was issued or, if not issued, at the time it came into possession of a holder—the obligation being owed to any person entitled to enforce the draft.

2           Section 38.001(8) of the Texas Civil Practice and Remedies Code allows a claimant to recover attorney’s fees in a suit on a contract.

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On September 28, 2011, the Waco Court of Appeals decided Baker v. Energy Transfer Co, 2011 WL 4489803.  In the Baker case, the plaintiffs designated their non-retained medical experts by stating the subject matter on which those experts would testify and then, for their mental impressions and opinions and the basis of their opinions, plaintiffs referred to and incorporated by reference into the designation, previously tendered medical records.  However, the plaintiffs did not produce new medical records with their designation or re-produce medical records previously tendered.

The defendants filed a motion to strike the medical experts designation under Rule 193.6 for failing to timely and properly disclose the experts under Rule 194.  The Waco Court of Appeals held that the trial court did not abuse its discretion in striking the medical experts' designation.

First, the court was concerned with plaintiffs' designation because there were over twenty (20) medical experts identified by plaintiffs in their designation and the plaintiffs did not state the mental impressions or opinions for any of the medical providers. Instead, the plaintiffs incorporated by reference previously tendered medical records for the medical experts mental impressions and opinions. Additionally, the court pointed out that, in the designation, the plaintiffs did not direct the defendants to specific documents from the medical records previously tendered that set forth the mental impressions and opinions of the medical experts. The impression left by the court's opinion is that designating parties should not require opposing parties to hunt for the mental impressions and opinons the designating party believes a non-retained medical expert will provide in a case.

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The Waco Court of Appeals recently upheld a damages award and permanent injunction regarding the breach of a non-compete agreement in favor of Chris Christensen Systems, Inc. (CCS), a dog product manufacturer and distributor against its former employee, Eric Salas. 

The Court of Appeals upheld the default judgment and all damages and held that the non-compete agreement with a  five year duration and a broadly defined industry exclusion, as opposed to a geographic exclusion, was enforceable. 

Salas had been hired as a VP of Sales and Education Director for CCS and signed a non-compete and confidentiality agreement (the "Agreement") upon commencing his employment.  He was then provided with extensive confidential and trade secret information by his employer.  After leaving his employment in September 2009, Salas almost immediately began competing against CCS, in violation of the Agreement.  

In January 2010, CCS filed suit against Salas seeking a temporary injunction and seeking actual and exemplary damages.  The trial court granted the temporary injunction in favor of CCS. Interestingly, Salas filed an answer and appeared at the temporary injunction hearing via telephone with an individual who purported to be an attorney licensed in Florida, but it was later found to not be a licensed attorney in any state.  The temporary injunction was granted, and the matter was set for trial. 

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