Limitations on Civil Conspiracy in Texas is Not What You Thought?

The Supreme Court in Texas issued an opinion on April 5, 2019 that effectively changes the statute of limitations analysis on civil conspiracy claims in Texas. See Agar Corporation, Inc. v. Electro Circuits International LLC, 2019 Tex. LEXIS 351 (April 5, 2019). The Supreme Court of Texas also clarified its position on whether a civil conspiracy claim is an independent tort or a theory of vicarious liability and held that it was  theory of vicarious liability and a derivative claim that depends on some underlying tort or illegal act.  Because a civil conspiracy requires an underlying tort, most civil conspiracy claims should accrue when the underlying tort claim causes harm to the plaintiff, that is, the same time as the tort claim against the primary wrongdoer. Further, limitations run separately for each such tortious act.

Agar was a summary judgment appeal. The trial court granted summary judgment on various tort claims based on the general two-year statute of limitations generally applicable to torts at section 16.003 of the Texas Civil Practice and Remedies Code. Included in the grant of summary judgment were various civil conspiracy claims. The court of appeals affirmed the trial court’s decision and the issue before the Supreme Court of Texas was what statute of limitations applies to a claim of civil conspiracy. Texas. See Agar Corporation, Inc. v. Electro Circuits International LLC, 2019 Tex. LEXIS 351, *1.

The Supreme Court of Texas held that it did not agree that section 16.003 of the Texas Civil Practice and Remedies Code universally applies to claims of civil conspiracy. Because civil conspiracy is a derivative tort that “depends on participation in some underlying tort,” the Supreme Court held that the applicable statute of limitations on a civil conspiracy claim must coincide with that of the underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable.” See Agar Corporation, Inc. v. Electro Circuits International LLC, 2019 Tex. LEXIS 351, *1-2, citing, Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996). Because one of the claims in Agar may not be barred by the applicable statute of limitations, the decision of the court of appeals was reversed in part and affirmed in part.

The Agar opinion has a lot of meat on it and if you are considering adding a civil conspiracy claim to your pleadings, it is a must read as it also sets out the elements of civil conspiracy and discusses what other jurisdictions have decided and why the court reached the opinion it did. The Supreme Court also goes through an analysis and finds that while civil conspiracy is a cause of action, it is not an independent tort.See Agar Corporation, Inc. v. Electro Circuits International LLC, 2019 Tex. LEXIS 351, *9. The court finally goes to great pains to point out that damages come from the underlying wrongful act, not the conspiracy itself. See Agar Corporation, Inc. v. Electro Circuits International LLC, 2019 Tex. LEXIS 351, *9, citing, Tilton v. Marshall, 925 S.W.2d 672, 680-681 (Tex. 1996).The opinions in this blog are solely the author’s and any comments, suggestions, or replies can be sent to john@jrjoneslaw.com.

 

 

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Nonjudicial Foreclosures and the Fair Debt Collection Practices Act

The United States Supreme Court’s unanimous opinion in Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307, 2019 U.S. LEXIS 2090, ___U.S. ___ (March 20, 2019) held that a business engaged in no more than a nonjudicial foreclosure proceeding is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”), except for the limited purposes of Section 1692f(6) dealing with the enforcement of security interests.  The opinion also continues the shift into a more mechanical and textual analysis and approach used by the current United States Supreme Court.

The facts of this case are straight forward. Obduskey defaulted on his mortgage and in 2014, McCarthy & Holthus, on behalf of its client, sent a notice initiating a nonjudicial foreclosure. The notice complied with the mandatory notice under Colorado law and once received by Obduckey, Obduskey responded demanding validation of the debt as allowed under the FDCPA. McCarthy & Holthus did not respond and simply initiated a new nonjudicial foreclosure in 2015. Obduskey then sued McCarthy & Holthus under the FDCPA. The issue before the courts was very limited.

As restated by Justice Breyer, the question before the court was “Does it mean that one principally involved in the enforcement of security interests is not a debt collector (except for the purposes of section 1692f(6))? If that is true, then numerous other provisions of the FDCPA do not apply or does it simply reinforce the fact that those principally involved in enforcement of security interests are also subject to the other provisions of the FDCPA? Strictly reading the statute, Justice Breyer, writing for an unanimous court, held that the last sentence does (with its section 1692f(6) exception) place those whose principal purpose is the enforcement of security interests outside the scope of the primary debt collector definition at section 1692a(6), where the business is engaged in no more that a nonjudicial foreclosing like the one before the court.

This is an important opinion in Texas as Texas is one of the states that allows for nonjudicial foreclosures on real property loans. However, it can also be a trap for the unwary as it is an extremely narrow decision and only deals with situations when a nonjudicial foreclosure action simply meets the minimum requirements of state law and does not do more. Additional actions by McCarthy & Holthus could have easily tipped the scale to where the Supreme Court could have gone the other way on this decision and found that other sections of the FDCPA applied to any additional actions.

The opinions in this blog are solely the author’s and any suggestions, comments or replies can be sent to john@jrjoneslaw.com.

Jury Verdicts and Inconsistent Jury Findings in Texas

Jury trials have a lot of moving parts to them. In my many years of practice, courts, counsel and jurors do an amazing job and get the answers right most of the time. However, what happens when the jury verdict is inconsistent and the jury’s answers are inconsistent. The Texas Supreme Court plurality opinion in USAA Tex. Lloyd’s Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018) provides some guidance and also reminds parties that they can waive the conflict in the jury’s answers by failing to voice a complaint before the jury is discharged.

In Menchaca, the jury found the insurer had not failed to comply with its obligations under the insurance policy, but found in response to another jury question that the insurer violated the insurance code section regarding failing to pay the claim for policy benefits without conducting a reasonable investigation. And so, the conflict exists because an insured cannot recover policy benefits for an insurer’s statutory violation if the policy does not provide the insured a right to receive the benefits.

When reviewing a jury verdict for conflicts, the threshold question is whether the findings are about the same material fact. Courts must try and reconcile apparent conflicts in the jury’s findings if reasonably possible in light of the pleadings and evidence, the manner of submission and the other findings considered as a whole. Sometimes the conflict between the jury’s findings are fatal. A fatal conflict exists when the answer to one jury question requires a judgment in favor of the plaintiff and the answer to another jury question requires a judgment in favor of the defendant. Since a trial court should not enter a judgment based on a verdict containing a fatal conflict, what should the court do?

If the jury’s answers are in a fatal conflict, the trial court must give the jury written instructions regarding the nature of the conflict and allow them to retire for further deliberations. See Tex. R. Civ. P. 295. To preserve error on conflicting findings, a party must object to the conflicting findings by the jury before the trial court discharges the jury. See USAA Tex. Lloyd’s Co. v. Menchaca, 545 S.W.3d 479, 518-519 (Tex. 2018). What the jury intended by the conflicting answers is best determined by the jury itself, and that is the solution that TRCP 295 requires.

Jury trials are full of landmines from the opening statement to the jury charge. Preserving error is the key because, despite the determined efforts of the parties and courts to get the charge right, there are very few jury trials where an error does not exist. Under Texas Rule of Appellate Procedure 33.1(a)(1)(A), appellate courts will not consider an error that was properly raised in the trial court. While there is a fundamental error exception to this rule, trying to raise an exception after the fact is easier said than done. The better practice is to draft your charge at the start of the case to use as a roadmap, modify it as you go and then remain vigilant to make sure the jury findings are consistent.

The opinions in this blog are solely the author’s and any suggestions, comments and replies can be sent to john@jrjoneslaw.com.

The Economic Loss Rule and Mere Breach of Contract Defense and the Texas Deceptive Trade Practices Act

It has long been the law in Texas that an allegation of a mere breach of contract, without more, does not constitute a false, misleading or deceptive act or practice” in violation of the Texas Deceptive Trade Practices – Consumer Protection Act (“DTPA”). Shakeri v. ADT Sec. Servs., Inc., 816 F.3d 283, 295 (5th Cir. 2016) (quoting Ashford Dev. Inc. v. USLife Real Estate Servs. Corp., 661 S.W.2d 933, 935 (Tex. 1983)). In the past few years, the relationship between the mere breach of contract defense and the economic loss rule have been reviewed by the courts. See Salek v. SunTrust Mortgage, Inc., 2018 U.S. District LEXIS 133396 (S..D. TX. August 8, 2018);  BCC Merch. Solutions, Inc. v. Jet Pay, LLC, 129 F. Supp. 3d 440 (N.D. Tx. 2015).

Under Texas law, where the damages claimed are the economic loss to the subject of the contract itself, the remedy is ordinary is one of the contract alone. Kevin M. Ehringer Enters., Inc. v. McData Servs., Corp., 646 F.3d 321, 325 (5th Cir. 2011). In determining whether the economic loss rule precludes particular tort claims, including the DTPA, Texas courts look to the source of the duty allegedly violated and the nature of the loss claimed. El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 143 (Tex. 2012), citing, Sw Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 494-495 (Tex. 1991).

Recently in Salek, the Court was faced with the issue of whether a DTPA unconscionable claim or course of action was exempt and beyond the scope of the “economic loss rule’ under one of the many pending Hurricane Harvey related lawsuits over repairs and the release of insurance related funds.  Defendant SunTrust filed a 12(b)(6) motion to dismiss for failure to state a claim. Plaintiff argued that under Sharyland Water Supply Corp. v. City Alton, 354 S.W.3d 407 (Tex. 2011), that unconscionability claims are exempt from the economic loss rule and therefore, Plaintiff’s DTPA claims could go forward.

Rejecting Plaintiff’s interpretation of Sharyland, the Court noted that courts have allowed recovery of economic damages even absent physical injury or property damage including for statutory causes of action. The Court also noted that the Supreme Court of Texas did not mention a DTPA unconscionable claim in Sharyland and did not overrule or otherwise limit the “mere breach of contract” defense.  Salek v. SunTrust Mortgage, Inc., 2018 U.S. District LEXIS 133396 *16-17 (S..D. TX. August 8, 2018). In reviewing Plaintiff’s claims, and granting the motion to dismiss, the court noted the essence of the claim was that SunTrust breached its promises under the deed of trust concerning the repair and disbursement of insurance proceeds and there was no independent legal duty to do so under Texas law. Therefore, the claims can be asserted in contract only, and not in tort under the DTPA.

The Court’s ruling essentially states that the mere breach of contract defense is the application of the economic loss rule to the DTPA. An allegation of a mere breach of contract does not constitute a false, misleading, or deceptive act in violation of the DTPA. A party raising the economic loss rule needs to look at the nature of the claim and whether there is a duty outside the contract. The opinions in this blog are solely the author’s and any comments, suggestions and replies can be sent to john@jrjoneslaw.com. Happy New Year to everyone!

 

 

Vexatious Pro Se Litigants in Texas

Texas has multiple procedural rules that allow a party to challenge a litigant’s position to make sure there is a valid legal and factual basis to the claims. Today’s blog will provide a simplified overview of Chapter 11 of the Texas Civil Practice and Remedies Code (“CPRC”) for vexatious pro se litigants who continually file multiple lawsuits without a valid basis. Anyone who has ever dealt with a republic of texas pro se litigant will want to brush up on Chapter 11 procedures. The filings usually come fast and furious.

Under Chapter 11, you can only file a motion against a pro se defendant and the statute specifically excludes licensed attorneys. Essentially, there are two types of Chapter 11 motions: (1) a motion requesting that a plaintiff be declared a vexatious litigant and be required to furnish security to proceed, and (2) a motion by any party or the court requesting that the vexatious litigant be prohibited from filing a new lawsuit without the permission of the local administrative judge. CPRC 11.051, 11.101(a).

Chapter 11 motions are time sensitive. The motion must be filed within 90 days after a party files their original answer or makes a special appearance. Defendant must also show that there is no reasonable probability that the plaintiff will prevail in the litigation. CPRC 11.054. In addition, Defendant must show one of the following: (a) in the seven years before the motion, pro se plaintiff commenced, prosecuted, or maintained at least five lawsuits that were (1) decided against the plaintiff, (2) pending for at least two years without being brought to trial or hearing, or (3) determined by a trial or appellate court to be frivolous or groundless. CPRC 11.054(1); (b) that another lawsuit was finally determined against the plaintiff and pro se plaintiff repeatedly relitigated or attempted to relitigate the cause of action, claim or controversy, issues of fact, issues of law, or validity of the final judgment against the same defendant. CPRC 11.054(2);or  (c) plaintiff has already been declared a vexatious litigant by a state or federal court based on the same or substantially similar facts, transactions or occurrences.

Once the Chapter 11 motion is filed, the litigation is stayed until the trial court rules on the Chapter 11 motion. A Plaintiff does not have to file a response; however, if a response is filed, a plaintiff should refute each of the arguments before the hearing. After notice, the court must conduct a hearing and evidence can be considered at the hearing via live testimony or affidavit. CPRC 11.053(b). If the court grants the Chapter 11 motion, the plaintiff must furnish security to cover the reasonable expenses incurred by the defendant, including costs and attorneys fees that would be recoverable if the litigation is dismissed. If Plaintiff does not furnish security as order by the court, the case will be dismissed.

The steps that have been taken over the past few years to reduce the number of baseless filing has made a difference although it sometimes has gone to far in restricting remedies for valid claims. The burden of proof is high on Chapter 11 motions, but at least there is another tool to stop the filing of lawsuits without merit so the judicial system can focus on the cases with merit. The opinions in this blog are solely the author’s and any comments, replies, or suggestions can be sent to john@jrjoneslaw.com. Happy New Year to everyone and their families.

The Discovery Rule in Texas is Still Alive

This past Friday, November 16, 2018, the Supreme Court of Texas reminded everyone that the discovery rule is alive and well in Texas. In Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), the Supreme Court of Texas was faced with the issue of whether the statute of limitations barred a claim for breach of a recorded right of first refusal to purchase a mineral interest. The grantors of the right of first refusal conveyed the mineral interest to a third party without notifying the holders of the right of first refusal. More than four years later, the holders of the right of first refusal finally learned of the conveyance and sued the third party for breach, seeking specific performance. The trial court ruled in favor of the holders of the right of first refusal option and the court of appeals reversed, holding that the statute of limitations barred the claim.

In reversing the court of appeals in part (on the discovery rule), and affirming in part (on the accrual date of the claim), the Supreme Court of Texas held that the discovery rule is a “limited exception” to the general theory that a cause of action accrues when a legal injury is incurred. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *15 (Tex. November 16, 2018), citing, BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011). The discovery rule is applied when the nature of the injury is inherently undiscoverable and the evidence is objectively verifiable and when applicable, it defers accrual of the cause of action until the plaintiff knew or should have known of the facts that gave rise to the cause of action. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *15 (Tex. November 16, 2018), citing, S.V. v. R.V., 933 S.W.2d 1,  4 (Tex. 1996). The elements of the discovery rule try to strike a balance between the policy of barring stale claims and preventing an unjust result when claims could not be brought with the limitations period. Id. at 3, 6.

The Supreme Court of Texas also set out that an injury is inherently undiscoverable when it is “unlikely to be discovered within the prescribed limitations period despite due diligence.” Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, Via Net v. TIG Insurance Co., 211 S.W.3d 310, 313-314 (Tex. 2006). Significantly, the Supreme Court held that the determination of whether an injury is inherently undiscoverable is made on a categorical basis rather than on the facts of the individual case. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, HECI Expl. Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998). As a result, the Court held that the inquiry is not whether the trustees in particular could have discovered their injury with diligence, but whether the injury was “the type of injury that could be discovered through the exercise of reasonable diligence.” Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011).

Disagreeing with the court of appeals that the injury was not inherently undiscoverable, and rejecting that the injury could have been gleaned in a recorded public instrument from public sources like tax rolls and commercial sources, the Supreme Court of Texas provided other examples of cases where the discovery rule was applicable even though the injury could have been gleaned from reviewing publicly available information.  Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *16-18 (Tex. November 16, 2018), citingKelley v. Rinkle, 532 S.W.2d 947, 949 (Tex. 1976) (accrual of libel action in false credit report) and Vanderbilt Mortgage & Fin, Inc. v. Flores, 692 F.3d 358, 369-370 (5th Cir. 2012) (fraudulent lien claims in real property records); but see Shell Oil Co. v. Ross, 356 S.W.3d 924, 929-930 (Tex. 2011) (underpayments in royalties available in public accessible information).The Supreme Court of Texas’ opinion and the examples provided in its opinion give excellent guidance for when the discovery rule may be a tool in a litigator’s tool box should the need arise. 

The opinions in this blog are solely the author’s and any replies, comments or suggestions can be sent to john@jrjoneslaw.com. Happy Thanksgiving to everyone!

 

 

Litigation Over Commissions Under the Texas Real Estate Licensing Act

There has been significant litigation in the last few years over individuals trying to circumvent the requirements set out in the Texas Real Estate Licensing Act to recover a commission for the sale of real property in Texas. Section 1101.806(c) of the Texas Real Estate Licensing Act entitled “Liability for Payment of Compensation or Commission” is the statute of frauds provision of the Real Estate Licensing Act (hereinafter “RELA”).

Strict compliance is required with RELA and an agreement to pay a real estate commission must be in writing or it is not enforceable. Lathem v. Kruse, 290 S.W.3d 922 (Tex. App.– Dallas 2009, no pet.); see also Expo Holdings, LP v. Jacobson, 2010 Tex. App. LEXIS 6851 (Tex. App. – [14th Dist.] 2010, n.w.h.). RELA also limits the persons who can receive a commission and a person must be either a licensed real estate agent or an attorney to receive a commission for the sale of real estate in Texas. See Tex. Occ. Code 1101.806 (b).  Therefore, in order to recover for a commission, the agreement to do so must be in writing and paid to either a licensed real estate agent or attorney. Despite the plain language of the statute, creative attempts continue to pop-up around Texas to try and circumvent the requirements of RELA.

Texas courts have strictly construed RELA because of the policy to protect the public and have insisted on compliance with the RELA regardless of the types of claims made. Texas courts also look to the substance, not the form of the contract at issue to determine the applicability of the RELA. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex. App.–Houston [1st Dist.] 1989, no writ) (holding that when RELA applies and its requirements are not met, courts have denied recovery when fraud, conspiracy, deceit, quantum meruit and breach of contract have been plead); See Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631,634 (Tex. 1997) (rejecting tortious interference claim by broker against lessors because claim wholly derivative of unenforceable oral commission agreement and only translates into loss of expectancy of receiving a commission at the end of lease negotiations). Even when someone introduces a party and helps locate property and negotiate the sales transaction, they are not entitled to a commission unless they are a person entitled to recover a commission under RELA and the fee agreement is in writing and signed by the parties. See Expo Holdings, LP v. Jacobson, 2010 Tex. App. LEXIS 6851 (Tex. App. – [14th Dist.] 2010, n.w.h.).

The Texas Real Estate Licensing Act is designed to protect the public and rightfully, in my opinion, requires that any fee agreement be in writing and can only be paid to a licensed real estate agent or an attorney. The most valuable asset people own is their home and protections are necessary. The opinions in this blog are solely the author’s and any comments, suggestions and replies can be sent to john@jrjoneslaw.com. Happy Halloween!