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

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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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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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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The Texas Supreme Court recently issued its' opinion in Texas Mutual Ins. Co. v. Ruttiger.  This was a long awaited opinion by those who handle workers' compensation claims.  The opinion marks a shift in the law and will be important for those who practice in this area to keep in mind. 

In summary, the court held as follows:

1.  A workers' compensation claimant cannot bring a cause of action under Ch. 541.060 or 542.003 of the Insurance Code for unfair settlement practices against a workers' compensation insurance carrier because their exclusive remedy for such claims is through the Workers' Compensation Act itself.

2.  A workers compensation claimant can, however, bring a claim through Ch. 541.061 of the Insurance Code, if a workers' compensation insurance carrier misrepresents a policy through an untrue statement of material fact.  In Mr. Ruttiger's case, however, the court held there was legally insufficient evidence to support such a claim.

3. A plurality of the court held that there should no longer be a common law cause of action for breach of the duty of good faith and fair dealing against a workers' compensation insurance carrier.  The plurality of the court would overrule Aranda, which has been the law in Texas for over twenty years.

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The Texas Supreme Court has posted an order on its website which now requires parties to submit electronic copies of all petitions, responses and replies filed with the Court in all cases.  The order will become effective February 15, 2010.

Previously, the Court had only asked for electronic courtesy copies of filings in cases for which it requested briefs. The new order requires parties to e-mail copies of documents to the Supreme Court clerk, scebriefs@courts.state.tx.us, on the same day they file the original paper documents.  Because the parties will still have to file paper documents, submitting an electronic copy of the document does not constitute filing the document.  

Click here to view the Court's order on its website. 

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On August 28, 2009, in In re Weekley Homes, L.P., a unanimous Texas Supreme Court rejected a plaintiff's discovery request to perform a forensic examination on certain defendant's employee's computer servers and hard drives in an effort to discover emails the plaintiff believed had previously been deleted by the defendant's employees.  Specifically, the plaintiff in the underlying case sought to "search for any emails stored on servers or back up tapes or other media, [and] any email folders in the email accounts of [the Employees]."  The plaintiff sought to perform this forensic exam after it believed the defendant had not produced everything that still may have been on the employees' hard drives. 

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