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2012 Fall Newsletter - Recent Cases from the Texas Appellate Courts

Recent Cases from the Texas Appellate Courts
(Fall 2012)

There have been some interesting and significant cases decided recently that impact many of the Firm’s various practice groups.  Keeping up with the progress of the law is one way that Johnson Trent works to protect its clients interests.  We have selected some examples and summarized the significant points below:
Construction Law:
Jenkins v. Occidental Chemical Corp., Cause No. 01-09-01140-CV (Tex. App.—Houston Nov. 17, 2011, mot. r’hrg pending).
Texas has protected professionals in the design and building trades for decades by creating statutes of repose.  A statute of repose establishes a deadline, usually ten years, and no claim that arises outside of the statutory period may be brought against the protected professionals and trades persons.  Statutes of repose are different from statutes of limitations because they limit liability even if a claim is otherwise timely.
The statute of repose for builders applies to suits “against a person who constructs or repairs an improvement to real property.”  Although the statute has been around for decades, there has not been a great deal written about who is actually protected. 
Certainly, the contractor who frames a house or pours a foundation is included, but what about the general contractor who merely oversees the construction?  Texas law seems clear that general contractors are protected. 
But what then about the property owners who hire the general contractor?  Are they any different than a general contractor? What about the case where a property owner acts as the general contractor? Jenkins addresses this question. 
In a case involving a chemical plant owner who hired a contractor to construct an improvement that, over ten years later caused a severe injury, the Fourteenth Court of Appeals held that the property owner is not in the protected class. The Court also provides an answer to a similar question involving the statute of repose that protects registered or licensed engineers.  The case is pending on rehearing.
Oil & Gas:
Allen v. Devon Energy Holdings, L.L.C., Cause No. 01-09-00643-CV (Tex. App.—Houston [1st Dist.] Mar. 9, 2012, pet. filed).
Since fracturing is in the news, this recent decision coming out of the Barnett Shale play is of interest. It reminds us that oil and gas lawsuits may implicate virtually any area of the practice of law. The dispute was over the redemption of a member’s interest in a limited liability company. 
Chief Holdings, LLC was a great Barnett Shale success story. Trevor Rees-Jones as the managing member built the company up so that in 2003, Chief was able to offer a redemption to its investors.  Robert Allen, in return for an investment of $700 cash and a pledge of a $34,300 certificate of deposit as collateral for a line of credit, redeemed his 8% equity in the company for $8.2 million. 
When Rees-Jones sold the company to Devon in 2006, its total value had ballooned from $138.3 million to $2.6 billion. Allen sued under various fraud and fiduciary-based theories. 
In a lengthy opinion, the First Court of Appeals held that a release in the redemption agreement could be vitiated by fraud. Under the court’s opinion, the forward looking statements in the 2003 redemption offer that cataloged the risks involved in the company’s expansion plans supported a fraud claim. The court held there was a question of fact as to fraud even though the redemption agreement contained a disclaimer of reliance, a representation that Allen had conducted his own due diligence, and an opportunity to review the company’s records. 
The court also discussed the question of fiduciary duties between limited liability company members, a question of first impression under Texas law. The court analogized membership in an LLC to a partnership, and held that a fiduciary duty exists between the managing member and the membership in the context of a redemption.
The lesson from Allen is to be very careful in offering redemptions to members in a limited liability company.  Also helpful is to precisely define the duties owed in the LLC agreement.
Products Liability:
U-Haul Int’l, Inc. v. Waldrip, Cause No. 10-0781 (Tex. Aug. 31, 2012).
This recent Texas Supreme Court decision touches on two common issues in products liability cases: use of evidence of other defects and gross negligence.  When a parked U-Haul truck rolled and seriously injured the plaintiff, a jury awarded $45 million in damages (including exemplary damages).  The allegation was that the truck was poorly maintained and had faulty brakes and a worn-out transmission.
The principal issue before the Court was the plaintiff’s use of expert testimony summarizing an investigation by a safety advocacy group and the government in Canada.  The gist of the testimony was that recurring safety problems in U-Haul trucks was indicative of the entire fleet and that there were system-wide failures in U-Haul’s maintenance and inspection program.  Applying the similarity standard from Nissan Motor Co. Ltd. v. Armstrong, 145 S.W.3d 131 (Tex. 2004) and Service Corp. v. Guerra, 348 S.W.3d 221 (Tex. 2011), the Court concluded that the problems uncovered in the Canadian investigations were insufficiently similar to be admissible. 
But inadmissible evidence rarely results in a court overturning a judgment because it is difficult to show that the evidence probably led to an improper judgment.  Although the testimony covered only a few pages of the transcript, the Court focused on the apparent importance of the evidence to the plaintiffs’ attorney.  The Court held that because the evidence probably impacted the gross negligence finding by the jury, it was harmful error and remanded for a new trial on U-Haul’s negligence, which the Court held was supported by legally sufficient evidence. 
Of particular interest in this decision is that the Court also held that there was legally insufficient evidence of gross negligence and rendered judgment against the plaintiff on this remedy.  This decision makes the result in the case curious, but helpful to defendants.  Before now, the expectation in this case would be that there could be no harmful error in the improper admission of evidence of gross negligence where there is no evidence of gross negligence at all.  Presumably, the Court could have rendered judgment based on the jury’s negligence and damages findings and reversed as to gross negligence and exemplary damages.   But that is not what the Court did.  The Court has created the suggestion that tainted evidence in one theory of liability requires a new trial as to the untainted theories of liability.  It remains to be seen if the law continues in this direction.
Loaisiga v. Cerda, Cause No. 10-0928 (Tex. Aug. 31, 2012).
If there were any question that public policy in Texas protects physicians, this decision should put an end to it.  Texas law requires any plaintiff suing a physician for health care liability to timely serve an expert report supporting the claim that the physician violated the medical standard of care.  This suit presents the question of whether a patient’s claim that a doctor sexually assaulted her during a medical exam is a health care liability claim that requires such an expert report.  The Texas Supreme Court’s answer is that it is.
The Court held that the statute that requires an expert report creates a rebuttable presumption that suits against physicians (and other health care providers) are health care liability claims.  The egregious facts in this case make that decision hard to understand.  But the Court held that the Legislature’s words, defining a health care to include “any act,” tied its hands.  Certainly, medical examinations can require intrusive contact. 
The Court held that an act falls outside the statute only when it is conclusively proven that (1) there is no complaint about any act of the provider related to medical or health care services other than the offensive contact; (2) the contact was not pursuant to actual or implied consent by the plaintiff; and (3) the only possible relationship between the contact and the rendition of medical services or healthcare was the setting in which the act took place.  Importing this standard into the pleading phase of a case should guarantee that an expert report (which must be served soon after a suit is filed) will always be required.  It is difficult to imagine that a party could conclusively prove anything at such an early stage of a suit.
Another significant development in this case is that an expert providing a report in compliance with the statute may not simply rely on the plaintiff’s factual allegations. In doing so, the Court continues its trend of importing higher evidentiary burdens into the pleading stage of a suit. The expert report must indicate that the expert considered and commented on the patient’s relevant medical records.