NO “COVER” BEFORE BREACH

TXU Portfolio Management Company, LP v. FPL Energy, LLC
Dallas Court of Appeals, No. 05-08-01584-CV (August 18, 2016)
Justices Francis, Evans (Dissent), and Whitehill (Opinion)
Efforts to compensate for undelivered product do not constitute “cover” if they occur before the contract is breached. TXU Portfolio Management Company (“TXUPM”) contracted with several wind farms (the “Wind Farms”) for delivery of annual quantities of wind energy, but the Wind Farms were unable to fulfill their delivery obligations. Because TXUPM was required to meet its customers’ daily energy needs, it compensated for the lower-than-expected deliveries from the Wind Farms by purchasing energy from other sources throughout the course of the year. After a trial on TXUPM’s breach of contract claim against the Wind Farms, the jury found TXUPM suffered “market damages” of $8.9 million. But the jury also found that TXUPM had covered for the electricity the Wind Farms failed to provide. The jurors were instructed that “cover” meant “purchasing or producing electricity as a substitute for the electricity promised but not delivered under the Agreements.” Because TXUPM did not prove any “cover damages,” the trial court entered a take-nothing judgment against TXUPM.

The Dallas Court of Appeals disagreed. The Wind Farms’ delivery obligations were measured on an annual basis; so they did not breach their agreements until the year ended. Section 2.712(a) of the Texas Business and Commerce Code provides: “After a breach within the preceding section the buyer may ‘cover’ by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.” (Emphasis added.) An aggrieved buyer may either cover or sue for market damages, but not both. The trial court held that TXUPM’s cover activities prevented it from recovering market damages. But the Court of Appeals held that the plain language of the statute restricts “cover” to activities post-breach. In this case, TXUPM purchased additional electricity on a daily basis before the annual delivery obligations were technically breached. Because of the ephemeral nature of electricity, TXUPM did not—and indeed could not—purchase electricity after the breach to make up for the daily pre-breach shortfalls. So TXUPM’s purchases did not constitute cover, and it was entitled to the $8.9 million market damages found by the jury.

Justice Evans dissented, arguing the Court was bound to evaluate the evidence based on the definition of “cover” presented to the jury—regardless of what the “correct” definition may be. TXUPM objected to the definition at trial, but not on the grounds that it was an inaccurate statement of the law. Because the definition in the jury charge did not include the “after breach” language from the statute, Justice Evans concluded the evidence was sufficient to support the jury’s finding of cover.

NO PATENT-AGENT PRIVILEGE IN TEXAS

Despite a thoughtful dissent by Justice Evans, a panel of the Dallas Court of Appeals has refused to recognize a Texas “patent-agent privilege” like that recently adopted by the Federal Circuit in In re Queen’s University at Kingston, 820 F.3d 1287 (Fed. Cir. 2016), or to apply that federal privilege in a state-law breach-of-contract case.


In re Silver
Dallas Court of Appeals, No. 05-16-00774-CV (August 17, 2016)
Justices Francis, Evans (Dissent), and Stoddart (Opinion)
Non-attorneys may register as “patent agents” with the USPTO and be authorized to prepare and prosecute patent applications there. The Supreme Court has held those activities “constitute[] the practice of law,” but that the Supremacy Clause bars states from prohibiting registered non-attorney patent agents from pursuing patent prosecutions on the ground they are engaged in the unauthorized practice of law. Sperry v. Florida, 373 U.S. 379, 383-85 (1963). Applying Sperry, a divided panel of the Federal Circuit earlier this year “recognize[d] a patent-agent privilege extending to communications with non-attorney patent agents when those agents are acting within the agent’s authorized practice of law before the Patent Office.” In re Queen’s University, 820 F.3d at 1302.

Silver claims he invented and owns patents for the technology in a device called the “Ziosk” that allows restaurant patrons to order meals, play games, and pay their checks from their tables. Silver and Tabletop Media, a corporation that marketed the Ziosk, sued each other in state court for breach of contract. In the course of that litigation, Tabletop sought discovery of more than 300 emails between Silver and his non-attorney patent agent who had pursued the Ziosk patents. When the trial court rejected his claim that those communications were privileged, Silver sought mandamus in the Dallas Court of Appeals.

The panel majority agreed with the district court and rejected Silver’s privilege claim on two grounds. First, it said, no patent-agent privilege exists under the Texas constitution, statutes, or court rules. And, although the Federal Rules of Evidence expressly authorize federal courts to recognize new common-law privileges, as the Federal Circuit had done in Queen’s University, intermediate appellate courts in Texas do not “declare new common law discovery privileges.” Second, even if such a privilege might apply under federal law in a dispute regarding the validity of a patent or its infringement, this case focused on state-law breach-of-contract claims; consequently, state rather than federal privilege law controls.

In dissent, Justice Evans argued that, unlike Queen’s University, this case involved not the recognition of a new common-law privilege, but the interpretation and application of the existing attorney-client privilege in Texas Rule of Evidence 503. Rule 503(b)(1)(A) insulates confidential communications to facilitate legal services between a client and a “lawyer,” which Rule 503(a)(3) defines as “a person authorized, or who the client reasonably believes is authorized, to practice law in any state or nation.” Because under Sperry a non-attorney patent agent is “authorized to practice law” in prosecuting patents, Justice Evans would have held communications between Silver and his patent agent in connection with the patent process to be covered by the Rule 503 Texas attorney-client privilege. (Justice Evans would not have extended the privilege to later communications between Silver and his patent agent regarding the Tabletop litigation, because those were not in connection with the patent process. Neither the majority nor dissent discussed whether the work-product doctrine, TRCP 192.5, might protect those communications.)

Stay tuned for further developments. Absent some agreement between the parties that moots the issue, this dispute seems likely to go another round or two in the appellate courts.

UN-MAKING A MURDERER. FOR NOW, AT LEAST.

Dassey v. Dittmann
U.S. District Court, E. D. Wisconsin, Case No. 14-CV-1310 (August 12, 2016)
Magistrate Judge William E. Duffin
In a 91-page opinion linked here, a federal court in Wisconsin has granted the habeas corpus petition of one of the men featured in “Making a Murderer.” Brendan Dassey, the young nephew of primary defendant Steven Avery, has had his state-court conviction set aside because the police who interviewed or interrogated him crossed a line, causing his statements to them to be constitutionally involuntary. Although it did “not reach this conclusion lightly,” the federal court found “that this case represents the sort of ‘extreme malfunction[] in the state criminal justice system[]’ that federal habeas corpus relief exists to correct.”

The court denied Dassey’s request for relief based on the misconduct or ineffective assistance of his original counsel Leonard Kachinsky—who, among other things, allowed Dassey to be interrogated without counsel present—at least in part because of the particular legal theory Dassey’s habeas counsel elected to pursue on this issue. But the court concluded the tactics and methodology employed by the officers in Dassey’s interrogation, in the context of all the relevant circumstances, “overbore” Dassey’s free will and rendered his statements to the police involuntary, which required his conviction to be vacated. In the court’s words: “The investigators repeatedly claimed to already know what happened … and assured Dassey that he had nothing to worry about. These repeated false promises, when considered in conjunction with all relevant factors, most especially Dassey’s age, intellectual deficits, and the absence of a supportive adult, rendered Dassey’s confession involuntary under the Fifth and Fourteenth Amendments. The Wisconsin Court of Appeals’ decision to the contrary was an unreasonable application of clearly established federal law.”

The State of Wisconsin has the right to appeal this decision, and the federal court provided that if it does so, the habeas order will be stayed pending the outcome of that appeal. In the absence of an appeal, however, the order directs that the State “release Dassey from custody unless, within 90 days of the date of this decision, the State initiates proceedings to retry him.”

NO EVIDENTIARY HEARING, NO SANCTIONS

To obtain attorney’s fees as a sanction under TRCP Rule 13 or Chapter 10 of the Civil Practice and Remedies Code, a party must present supporting evidence at an evidentiary hearing.
Click v. Transportation Workers Union Local 556
Dallas Court of Appeals, No. 05-1-00796-CV (August 10, 2016)
Justices Francis, Fillmore, and Schenck (Opinion)
Click, Lindemann, and Martin were officers of Transportation Workers Union Local 556. The Union sued them for misappropriation of funds and breach of fiduciary duty. Click and Lindemann moved for summary judgment and, in their prayer, also sought attorney’s fees under Rule 13 and Chapter 10, asserting that the Union’s claims against them were brought in bad faith. The trial court granted their summary judgment motion and in the final judgment ordered that the Union take nothing against them. But it awarded no sanctions or fees against the Union. The Dallas Court of Appeals affirmed, reminding practitioners and parties that “Chapter 10 and rule 13 require the trial court to hold an evidentiary hearing to make the necessary factual determinations about the motives and credibility of the person signing the allegedly groundless pleading.” “Without such an evidentiary hearing,” the Court explained, “the trial court has no evidence before it to determine that a pleading was filed in bad faith or to harass.” Further, the Court said, “Motions and arguments of counsel are not evidence in a sanction hearing context.” Because Click and Lindemann had not sought or obtained an evidentiary hearing on their request for fees and sanctions, the appeals court affirmed the judgment denying that request.

“AS IS” MEANS “AS IS,” BUT “LIKE NEW” DOESN’T MEAN “JUST LIKE NEW”

CAS, Ltd. v. TM Aviation Partners, LP
Dallas Court of Appeals, No. 05-15-779-CV (August 4, 2016)
Justices Bridges (Opinion), Lang, and O’Neill
Gregory Coy, the president of CAS, was in the market for a set of used aircraft floats to pass along to an overseas client. He agreed to purchase a set from TM Aviation, which had bought them from a third party several years before but had never taken possession of them. Timothy Thompson from TM Aviation had advertised the floats as “like new” and passed along photos of the floats he had received when he originally purchased them. But he disclosed to Coy that he had never actually seen the floats, and he encouraged Coy to inspect them.

Coy decided to purchase the floats on behalf of CAS without inspecting them first and drafted up a bill of sale providing the floats were to be sold “as is, where is, … without warranties expressed or implied.” After Coy had the floats delivered, he was disappointed in their condition and sued TM Aviation for breach of contract, breach of warranty, fraud, and violations of the DTPA. The trial court entered a take-nothing judgment in favor of TM Aviation.

CAS appealed, arguing it was fraudulently induced to enter into the “as is” contract. A seller “cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer’s agreement to purchase ‘as is,’ and then disavow the assurance which procured the ‘as is’ agreement.” So, whether an “as is” clause should be given effect is based on the totality of the circumstances, including whether the “as is” clause was boilerplate or an important basis of the bargain, the relative sophistication of the parties, and other representations made by the parties. Here, the Court focused on the facts that the parties were both sophisticated businessmen with years of experience buying and selling aviation parts and that CAS was the party who drafted the bill of sale, which included the “as is” provision.

The Court rejected CAS’s argument that TM Aviation’s description of the floats as “like new” was a material misrepresentation. Distinguishing a case in which the Texas Supreme Court held that advertising a boat as “just like new” was an actionable misrepresentation, the Dallas Court concluded that “just like new” means “exactly like new,” whereas “like new” merely means “in very good condition.” In light of the fact that both parties in this case understood the floats were over 30 years old, the Court held the phrase “like new” was “more of a vague representation constituting a mere opinion” and was not sufficiently definite to constitute a material misrepresentation. So CAS could not avoid the “as is” clause, and the take nothing judgment was affirmed.

OKAY, IT’S THE LAW. WE GET IT. BUT, STILL ….


Lesson for today: Update your insurance forms, and when you do, follow the rules to the letter.
Switzer v. Vaughan
Dallas Court of Appeals, No. 05-14-00811-CV (July 27, 2016)
Justices Francis, Lang-Miers (Opinion), and Myers
Eric Switzer worked for the Post Office. He didn’t want his ex-wife to benefit from his life insurance policy through the Federal Employees’Group Life Insurance (“FEGLI”) program. So, in 2008 he changed the designated beneficiary on that policy to Kay Vaughan, a co-employee he was then dating. Alas, his relationship with Kay withered and, about a year later, Eric married Patricia. Eric then completed a form to change the beneficiary on his FEGLI policy again, to his new wife, Patricia. Mostly. Unfortunately, he failed to check one required box. The Post Office apparently returned the form to him to be completed or corrected, but he never did so. We know this because Patricia later found the original form among Eric’s papers. When Eric died, both women—the widow and the ex-girlfriend—laid claim to the policy proceeds. On cross-motions for summary judgment, the trial court awarded the policy proceeds to (drum roll) … the ex-girlfriend Kay.  The Dallas Court of Appeals affirmed.

Patricia produced evidence that two witnesses had seen Eric fill out the form changing the beneficiary to her and had co-signed that form, that Eric later tripled the amount of insurance so she would have funds to pay off their mortgage if he died, and that Eric apparently had sent the mostly-complete beneficiary-change form to the Post Office because it was stamped “received.” She argued substantial compliance with the requirements for effecting a beneficiary change. Unfortunately for Patricia, FEGLI policies are governed by statute and a host of federal regulations that demand strict compliance with their requirements and that preempt any state law to the contrary. Because Eric’s beneficiary-change form was incomplete and had not been filed with his federal employer before his death as required, the attempted change in beneficiary was ineffective. So, the ex-girlfriend Kay, the last validly-named beneficiary, was entitled to the policy proceeds. Probably not what Eric had in mind.

GRANT OF SPECIAL APPEARANCE REVERSED ON APPEAL AFTER FINAL JUDGMENT



Joining most other courts across the state, the Dallas Court of Appeals has now held that a plaintiff may wait until after final judgment to appeal from the grant of a special appearance. Under Civil Practice & Remedies Code § 51.014(a)(7), a party “may” pursue an interlocutory appeal when a trial court grants a special appearance. But, the Dallas Court explained, such an interlocutory appeal is permissive, and a party’s decision not to pursue it does not waive that party’s right to appeal the ruling after final judgment. 

Southampton Ltd. v. Four Horsemen Auto Group, Inc.
Dallas Court of Appeals, No. 05-14-01415-CV (July 20, 2016)
Justices Bridges (Opinion), Francis, and Myers

Southampton and Southwest made a loan to Michael J. Terry in connection with some Oklahoma auto dealerships bearing his name. The dealerships were owned and operated by Four Horsemen and three Chisholm Trail entities, of which Terry was a “managing member.” Terry signed the promissory note individually but also signed guaranty and other agreements on behalf of Four Horsemen and the Chisholm Trail entities. The loan documents contained a forum-selection clause providing for exclusive jurisdiction in the courts of Dallas County, Texas. When Terry, Four Horsemen, and the Chisholm Trail entities failed to pay, Southampton and Southwest brought suit in Dallas. Four Horsemen and the Chisholm Trail entities filed special appearances, arguing their own lack of contacts with Texas and Terry’s lack of authority to bind them to the forum-selection clause. The trial court granted the special appearances, and the case proceeded to trial against Terry individually, resulting in a $400,000 judgment for plaintiffs. Southampton and Southwest then appealed the grant of the other defendants’ special appearances.

The Dallas Court of Appeals first confirmed the plaintiffs’ right to wait until final judgment to pursue their appeal. Then it reversed the grant of the special appearances, finding Terry had apparent authority to act for Four Horsemen and the Chisholm Trail entities, and therefore that the forum-selection clause bound those entities and subjected them to personal jurisdiction in Texas.

ARBITRATION AGREEMENT DOESN’T APPLY TO DISPUTE BETWEEN PARTIES ON THE SAME SIDE





Swearingen v. Swearingen
Dallas Court of Appeals, No. 05-15-01199-CV (July 14, 2016)
Justices Bridges, Francis, and Myers (Opinion)
David and William Swearingen agreed to arbitrate all disputes against United Capital Financial Advisers, Inc. (“UCFA”) related to their sale of Swearingen Financial Group to UCFA. After the sale, David and William starting fighting about how to divide the money, and David attempted to submit that dispute to arbitration. William filed a motion to stay arbitration, arguing that although he and David had agreed to arbitrate their disputes against UCFA, they did not agree to arbitrate disputes against each other. Both the trial court and the Dallas Court of Appeals agreed with William.

Under the purchase agreement, the words “we,” “us,” and “our” referred to UCFA, and “you” and “your” referred to David and William individually and collectively and to their firm, Swearingen Financial Group. The agreement provided that if a dispute arose related to the agreement, “you and UCFA agree” to arbitrate such claim “upon notice by either party to the other.” It also provided that, in the event of such arbitration, “[y]ou and we will, by joint agreement, select a single arbitrator.” The Court held that, although the agreement did not specifically state it only applied to disputes between UCFA on the one hand and David and William on the other, that is the only reasonable interpretation of the agreement. It was clear from the context that “either party” referred to David and William on one side and UCFA on the other. In addition, the agreement provided that “you” (defined as David and William) and “we” (defined as UCFA) would jointly agree to an arbitrator. The Court held it would be nonsensical for UCFA to participate in the selection of an arbitrator in a dispute between David and William. So, the Court affirmed the trial court’s judgment granting a stay of arbitration.

WE CAN’T ALL BE WINNERS – OR PREVAILING PARTIES

Brinson Benefits, Inc. v. Hooper
Dallas Court of Appeals, No. 05-15-00123-CV (July 7, 2016)
Justices Evans, Schenck (Opinion), and Richter
Contrary to what you may have learned in pee wee soccer, everyone can’t be a winner—or under the terms of the Texas Theft Liability Act, a “prevailing party.” After Linda Hooper resigned from her employment at Brinson Benefits, Brinson sued her for taking the company’s confidential information and obtained an injunction preventing her from using it to solicit the company’s customers or prospects. Brinson later learned Hooper had developed and serviced several clients “on the side” while she was still Brinson’s employee, improperly retaining all commissions and other payments for herself. Brinson’s claims against Hooper included a claim under the TTLA for theft of “confidential and proprietary information and property.”

After the close of evidence, the trial court granted directed verdict in Hooper’s favor as to any damages caused by her taking confidential information, but not with regard to the wrongfully-retained commissions. The case then went to the jury, and it found Hooper breached her fiduciary duties to Brinson and committed theft of Brinson’s property. Post-trial, the trial court ordered Hooper to pay Brinson the damages found by the jury, plus attorneys’ fees of around $100,000. But it also found Hooper had “prevailed” on the portion of the claim subject to the directed verdict, and so ordered Brinson to pay Hooper’s attorneys’ fees of more than $370,000. Brinson appealed, arguing that Hooper was not a “prevailing party” and was not entitled to attorneys’ fees under the TTLA.

The Dallas Court of Appeals agreed. Under the TTLA, “[e]ach person who prevails in a suit under this chapter shall be awarded court costs and reasonable and necessary attorney’s fees.” TEX. CIV. PRAC. & REM. CODE ANN. § 134.005(b). Hooper argued that, because the trial court granted a directed verdict as to the theft of confidential information, she was a “prevailing party” and was entitled to her attorneys’ fees, even though the jury awarded Brinson relief on its TTLA claim based on the theft of commissions. The Dallas Court noted that, to recover fees, a TTLA defendant must “prevail on the merits of the claim, which one court has interpreted to mean “establish [she] did not commit theft.” Brinson clearly prevailed on its claim that Hooper committed theft. The fact that it did not obtain all the relief it sought does not transform Hooper into a prevailing party under the TTLA. The trial court, therefore, abused its discretion in awarding Hooper her attorneys’ fees and that portion of the judgment was reversed.

The Court affirmed, however, a second portion of the judgment, which awarded attorneys’ fees under the TTLA to two other defendants who had prevailed on claims that they conspired with Hooper to commit theft and other torts.

** Carrington Coleman partner, Lyndon Bittle, represented Brinson Benefits on appeal.

ANOTHER SLAPP-DOWN, DISMISSING DEFAMATION CLAIM BASED ON STATEMENTS MADE IN LITIGATION

Watson v. Hardman
Dallas Court of Appeals, No. 05-15-01355-CV (July 6, 2016)
Justices Lang, Evans, and Whitehill (Opinion)
A tragic auto accident took the lives of a husband, wife, and three of six children from their blended family. “Go Fund Me” accounts were established for the benefit of the surviving children; those accounts were administered by the Hardmans, the brother and sister-in-law of the husband killed in the crash. Watson, father of one of the surviving children, filed a Rule 202 petition seeking discovery regarding what he alleged to be the Hardmans’ misappropriation of funds from the Go-Fund-Me accounts. The Hardmans responded with their own lawsuit against Watson, alleging defamation based in part on comments in the Rule 202 Petition. Watson moved for dismissal under the state’s anti-SLAPP statute, Chapter 27 of the Civil Practice & Remedies Code. The trial court denied that motion, but the Dallas Court of Appeals reversed.

Rendering judgment for Watson and dismissing the claims based on statements in his Rule 202 petition, the Court held:
  • Watson’s Rule 202 petition was an “exercise of the [constitutionally protected] right to petition” under § 27.001(4)(A)(i) of the statute.

  • The statute does not require petitioning to be “made in connection with a matter of public concern” to be protected, as does an “exercise of the right of free speech,” and the Court declined to engraft such a requirement onto the statute.

  • Because the statements in his Rule 202 petition were protected by “absolute privilege,” Watson established a valid defense to the Hardmans’ claims arising from those statements.
The Court also reversed the trial court’s refusal to dismiss the Hardmans’ claims based on statements outside the Rule 202 proceeding, holding in the process:
  • Allegations of defamation regarding misappropriation of publicly solicited funds relate to “a matter of public concern,” such that the statements potentially qualify as protected “free speech” under the statute.

  • A movant/defendant may demonstrate the allegedly defamatory remarks relate to “a matter of public concern” by reference to pleadings; additional evidence beyond the pleadings was not necessary.
The Court remanded rather than rendering judgment on claims resting on alleged extra-judicial statements because, in the alternative to their opposition to the motion to dismiss, the Hardmans had sought the opportunity to take discovery about those statements, and the trial court had not addressed that request.

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