Supreme Court of Texas to Issue Decision on Spoliation of Evidence

The Surpreme Court of Texas heard argument in September 2012, in Brookshire Bros., Ltd. v. Aldridge, No. 12-08-00368-CV, 2010 WL 2982902 (Tex. App.—Tyler July 30, 2010, pet. granted) (mem. op.). The issues presented involve whether the trial court erred by admitting evidence of spoliation and including a spoliation instruction in the jury charge of a slip-and-fall case.

 

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Texas Supreme Court Holds Chiropractor Had a Duty to Disclose

In Felton v. Lovett, No. 11-0252, 2012 WL 5971207 (Tex. 2012), a patient, who suffered vertebral arterial dissection and stroke as a result of a neck manipulation, brought an action against a chiropractor, alleging that he failed to disclose risks associated with the neck manipulation procedure. 

The jury found in favor of the patient and awarded damages against the chiropractor.  The chiropractor appealed.

A reasonable health care provider must disclose the risks that would influence a reasonable patient in deciding whether to undergo treatment.  A health care provider may be liable for failing to disclose to a patient the risks inherent in proposed treatment. 

The issue in this case was whether the possibility that a patient would suffer a negative reaction to a procedure due to an undetectable physical condition was a risk that was inherent in the procedure.

The court of appeals concluded that because the patient’s injury would not have occurred but for his own physical condition—an unhealthy vertebral artery—the risk could not have been inherent in the chiropractor’s treatment.  The Texas Supreme Court held that the court of appeals ruling “ignores the evidence that the patient’s injury would not have occurred but for the chiropractor’s treatment, that chiropractic neck manipulation can result in vertebral artery dissection, and that dissection and stroke are known risks of chiropractic treatment that should be disclosed.”  As such, the Texas Supreme Court held that risk of vertebral artery dissection and stroke was inherent in neck manipulations, and, thus, the chiropractor had a duty to disclose the risk.

 

Texas Supreme Court Rules Franchise Tax is Constitutional

On October 19, 2012, the Texas Supreme Court held that the Texas franchise tax does not violate the Texas Constitution. 

Nestle USA and two Texas-based companies, Switchplace, LLC and NSMBA Relators, sued the State of Texas arguing the Texas franchise tax is unconstitutional.  The franchise tax charges one-half of one percent to wholesalers, but a full one percent to businesses engaged in manufacturing — even if all manufacturing activities are out-of-state. The petitioners claimed this distinction violated the Texas Constitution's requirement that taxes be levied in an "equal and uniform" manner. 

The Texas Supreme Court held that the legislature must have discretion in structuring tax laws. “This is especially true when the object of the tax—occupations or the privilege of doing business in the state—is not easily or exactly valued.”  The Texas Supreme Court concluded that the legislature's structuring of the franchise tax is reasonably related to its object and, as such, the “petitioners’ challenges are without merit.”

Justice Willett and Justice Lehrmann issued a dissenting opinion, asserting that the court lacks exclusive original mandamus jurisdiction in taxpayers’ constitutional challenges and that the court stretched mandamus jurisprudence beyond its constitutional limits.

Texas Franchise Tax Challenged

The Texas Supreme Court heard arguments this week in a case that could have significant implications on the Texas franchise tax.

Nestle USA and two Texas-based companies, Switchplace LLC and NSMBA Relators, sued the State of Texas arguing the Texas franchise tax is unconstitutional.  The franchise tax charges one-half of one percent to wholesalers, but a full one percent to businesses engaged in manufacturing. The plaintiffs claim this distinction violates the Texas Constitution's requirement that taxes be levied in an "equal and uniform" manner, as well as the U.S. Constitution's equal-protection and due-process protections.

The state of Texas argued that taxpayers can be classified differently as long as it's done reasonably and that the Texas Constitution allows the creation of separate classifications for tax purposes.

Texas has had a version of the franchise tax since the 19th century. Texas lawmakers revised the franchise tax in 2006, expanding the kinds of businesses subject to the tax.  In the first two years after the revision, the tax brought in nearly $9 billion.

 

Defective Road Condition Not a "Special Defect"

On August 17, 2012, the Texas Supreme Court overturned a Court of Appeals decision that had previously ruled that a defective condition in a roadway allegedly caused by the City’s poor repair work qualified as a “special defect” thereby giving rise to a heightened duty owed to the plaintiff.  See City of Denton v. Rachel Paper, 11-0596.  

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Landowners Can Challenge the Eminent Domain Power of a Pipeline Owner

In Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 55 Tex. Sup. Ct. J. 380, 2012 WL 695322 (Tex. 2012), the Texas Supreme Court determined whether a landowner can challenge the eminent domain power of a pipeline owner that has been granted a common-carrier permit from the Railroad Commission.

 The Texas Constitution safeguards private property by declaring that eminent domain can only be exercised for “public use.”  Even when the Legislature grants certain private entities “the right and power of eminent domain,” the overarching constitutional rule controls: no taking of property for private use. Accordingly, the Natural Resources Code requires so-called “common carrier” pipeline companies to transport carbon dioxide to or for the public for hire. In other words, a pipeline company cannot wield eminent domain to build a private pipeline. 

 The Beaumont Court of Appeals previously held that (1) a pipeline owner can conclusively acquire the right to condemn private property by checking a box on a one-page form filed with the Railroad Commission, and (2) a landowner cannot challenge whether the proposed pipeline will in fact be public rather than private. The Texas Supreme Court overturned the Beaumont Court of Appeals’ decision, holding that “unadorned assertions of public use are constitutionally insufficient.” The Texas Supreme Court further held that for a pipeline company to qualify as a common carrier, a reasonable probability must exist that the pipeline will “serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.”  As such, the Texas Supreme Court reversed the Beaumont Court of Appeals' judgment, and remanded the case to the district court.

 

Texas Supreme Court Holds Failure to Use AED Did Not Waive Governmental Immunity

On June 29, 2012, the Texas Supreme Court issued an opinion in City of North Richland Hills v. Laura Friend, et al., No. 11-0367, wherein it held that the failure of a city-owned water park to provide a defibrillator did not waive the city’s immunity, because it did not constitute the “use of tangible personal property.” See Texas Tort Claims Act section 101.021(2). 

The claim arose as the result of Sara Friend collapsing on July 14, 2004 at a city-owned water park in North Richland Hills, Texas.  The city employees responded with oxygen and air-way equipment, but did not retrieve the portable Automatic External Defibrillator (AED) device that was present at the water park.  Friend did not receive defibrillation until 21 minutes later, when the fire department arrived. Friend died shortly thereafter. 

Friend’s estate sued several defendants, including the city and some of its employees, claiming gross negligence in failing to retrieve and timely use the AED that proximately caused Friend’s death. 

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The Learned Intermediary Doctrine Applies to Prescription Drug Products-Liability Cases

The Texas Supreme Court recently held that a prescription drug manufacturer fulfills its duty to warn users of its product's risks by providing warnings to the intermediaries who prescribe the drug.  Once a manufacturer warns intermediaries, it has no further duty to warn the end users directly. 

In Centocor, Inc. v. Hamilton, No. 10-0223, 2012 WL 2052783 (Tex. 2012), a patient, Patricia Hamilton (“Hamilton”) developed a side effect from treatments with a drug manufactured by Centocor, Inc. (“Centocor”), a subsidiary of Johnson & Johnson and a prescription drug manufacturer.  Centocor marketed directly to Hamilton.  Hamilton brought an action against Centocor, alleging failure to warn, fraud, and negligence.  Centocor argued that the learned intermediary doctrine applied and it had no duty to warn Hamilton directly of the risks and potential side effects associated with the drug. 

This is the first time the Texas Supreme Court has considered a case that presents the applicability of the learned intermediary doctrine within the context of prescription drug products-liability cases.   The Texas Supreme Court held that “because patients can obtain prescription drugs only through their prescribing physician or another authorized intermediary and because the ‘learned intermediary’ is best suited to weigh the patient's individual needs in conjunction with the risks and benefits of the prescription drug,” the learned intermediary doctrine applies and limits the drug manufacturer's duty to warn only the prescribing physician.  The Texas Supreme Court further held that the learned intermediary doctrine is not a common-law affirmative defense, which would shift the burden on drug manufacturers to “plead, prove and request jury findings” on the doctrine.  Rather, the Texas Supreme Court held that it is “more akin to a common-law rule.”  The Texas Supreme Court held that Hamilton had the burden to prove that Centocor's warning to the prescribing doctors was inadequate.

Texas Supreme Court Reverses Exemplary Damages Award

 In Safeshred, Inc. v. Martinez, 2012 WL 1370862, No. 10-0426 (Tex. 2012), the Texas Supreme Court held there was not legally sufficient evidence to recover exemplary damages. 

The plaintiff (“Employee”) was a truck driver who was fired after refusing to haul an unsafe load.   Employee brought a wrongful termination claim against his employer (“Employer”) seeking lost wages and exemplary damages. The jury awarded $7,569.18 in lost wages and $250,000 in exemplary damages.   The Austin Court of Appeals affirmed the lost wages and exemplary damages award.

The Texas Supreme Court held that Employee was entitled to exemplary damages under his claim only with a showing of malice surrounding Employee’s firing.  The Texas Supreme Court held that a malice finding, as the basis for exemplary damages, requires more than an employer's mere intent to fire an employee, or else every jury's finding of retaliation would warrant exemplary damages.  The Texas Supreme Court further held that malice could only be shown by clear and convincing evidence that an employer, in firing an employee, “intended or ignored an extreme risk of some additional harm (like interference with his future employment, harassment, or terminating him knowing it was unlawful to do so).  In lieu of this standard, the Texas Supreme Court held that the Employee did not present legally sufficient evidence for a reasonable trier of fact to form a firm belief or conviction that the Employer acted with malice in firing him.

 

 

 

Texas Supreme Court Affirms Property Rights of Shoreline Owners

On March 30, 2012, the Texas Supreme Court, in Severance v. Patterson, affirmed the private property rights of shoreline property owners. In doing so, the Court ruled the public’s right of access to state beaches is not guaranteed in the event of a hurricane or storm reshaping the coastline.

This ruling is thought to limit the state’s ability to enforce the Open Beaches Act, a 53 year old law that has in the past been used to compel landowners to raze or move structures that intrude on the public right of way due to storm erosion. The opinion focuses on the "dry beach," which runs from the high tide mark to the vegetation line and may be privately owned, as opposed to the “wet beach” which  runs from the high tide mark to the water, which is public land.

In so ruling, Justice Wainwright stated:

The public may have a superior interest in use of privately owned dry beach when an easement has been established on the beachfront. But it does not follow that the public interest in the use of privately owned dry beach is greater than a private property owner’s right to exclude others from her land when no easement exists on that land.

This 5-3 ruling is the result of a controversy that began after Hurricane Rita moved the vegetation line behind Carol Severance’s properties on Galveston Island, and she was ordered to raze or move her structures.

Texas Supreme Court Holds Jury Waiver Enforceable

On March 9, 2012, the Texas Supreme Court issued its decision in In Re Frank Motor Company, which held that a long time employee who signed a jury waiver agreement was not entitled to have it set aside because he was coerced into signing it by his employer.

In this case, a long-time employee (“Employee”) signed a Jury Trial Waiver only after his supervisor threatened to fire him if he did not sign it.  Employee claimed that he only signed the Jury Trial Waiver to avoid losing his job of twenty-eight years.   Almost a year after signing the Jury Trial Waiver, Employee was terminated.  Employee then brought an action against his employer (“Employer”) for age discrimination.   The trial court denied Employer’s Motion to Strike Employee’s Demand for Jury Trial and Employer subsequently filed a Petition for Writ of Mandamus to Compel Enforcement of the Jury Trial Waiver.

The Texas Supreme Court held that Employer’s threat to exercise its right to terminate Employee could not amount to coercion that would invalidate the Jury Trial Waiver.  As such, the Texas Supreme Court directed the trial court to grant Employer’s Motion to Strike Employee’s Jury Demand.

Texas Cities Have Additional Clarification on Takings Cases

On January 27, 2012, the Texas Supreme Court withdrew its prior opinion and issued a new opinion in City of Dallas v. Stewart, 2012 WL 247966, ––– S.W.3d –––– (Tex. 2012).  In its prior decision on July 1, 2011, the Texas Supreme Court upheld the jury’s award of $75,000 in a case where Stewart argued that the city improperly took and demolished her house.  Stewart had previously fought and lost the demolition order in the municipal board meetings, and she then timely appealed the decision to state district court, where she prevailed and was awarded damages.

The city appealed the trial court’s decision, and this case eventually made it to the Texas Supreme Court. In July 2011, the Texas Supreme Court issued its opinion affirming the underlying court’s decision.  

However, the city was concerned that the Texas Supreme Court’s July 1, 2011 decision would potentially open the door for many persons to bring similar takings cases against cities all over Texas, and therefore filed a motion for new hearing.  Chief Justice Jefferson wrote: “[The cities] argue that failing to accord administrative nuisance determinations preclusive effect will open the floodgates for takings claims. Because takings claims have a ten-year statute of limitations, they contend, parties will now sue to challenge demolitions that occurred any time in the past ten years.”

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Texas Supreme Court Denies Rehearing in Escabedo

On July 1, 2011, the Texas Supreme Court issued its decision in Haygood v. Escabedo, which held that evidence of a plaintiff's medical expenses at trial is limited to the amount the medical provider has a legal right to be paid.  The appellant in the case sought rehearing after the Court's decision, however, the Court denied rehearing on January 27, 2012. 

Challenge to Texas Franchise Tax Rejected by Supreme Court

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.

Defendant Is Not A "Prevailing Party" When Plaintiff Nonsuits To Avoid An Unfavorable Judgment

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.

City's Decision to Demolish a Public Nuisance is Reviewable De Novo by a District Court

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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Recovery of Attorney's Fees Available for Holders Suing on Dishonored Checks

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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Workers Compensation Claimants Rights Limited By The Texas Supreme Court In Ruttiger

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.

Texas Supreme Court Now Requires E-Submission

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. 

Texas Supreme Court Limits Discovery of Computer Hard Drives

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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