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!

 

 

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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!

 

The Texas Citizens Participation Act – To SLAPP or Anti-SLAPP That is the Question?

This week’s political turmoil in Washington and the heated discussion it has caused, makes a discussion of the Texas Citizens Participation Act (“TCPA”), as set out in Chapter 27 of the Texas Civil Practice and Remedies Code, an appropriate topic. Before giving a general overview to wet your appetite, I recommend that you get a copy of the State Bar Litigation Section Report The Advocate, Volume 84, Fall 2018 as an excellent primer on the TCPA, its exemptions, and procedural hurdles. It is an excellent resource, a great place to start and the articles are exceptionally well-written.

For many years prior to the passage of the TCPA in 2011, frequent lawsuits were being filed against political participants by parties who had opposing views in order to silence the individual or group as opposed to genuinely seeking to recover for injuries caused by tying up the opposing party or group in expensive and time-consuming litigation. This litigation was called “strategic lawsuits against public participation” or SLAPP.

The TCPA, also known as the Anti-SLAPP statute, was enacted to protect the constitutional rights of persons to speak freely, associate freely and to petition and otherwise engage in government activities to the maximum extent of the law and to protect the rights of a person to file meritorious lawsuits for a demonstrable injury. It is also significant that the TCPA mandate is that it be construed liberally to effectuate its purpose and intent fully and it is very broadly construed. The TCPA has a built in Motion to Dismiss process to dismiss a SLAPP legal action filed against a person that requires the motion to dismiss to be filed no later than 60th day after the date of service of the legal action and hearing must be set the 60th day after service of the motion to dismiss. While there can be an short extension for hearing the motion to dismiss upon a showing of a crowded docket or good cause, the motion and hearing must still occur within 120 days after service of the motion to dismiss.

The TCPA also requires the Court to dismiss a legal action against the moving party that, under a preponderance of the evidence standard, is based on, relates to or is in response to a person’s right of free speech, right to petition the government, or the right of association. If the motion to dismiss is granted, the court must award court costs and reasonable attorneys’ fees relating to defending the legal action and may also award other expenses, as justice and equity may require. Tex. Civ. Prac. & Rem. Code 27.009(a)(1). There is a flip side of the coin when filing a motion to dismiss. If the court finds that a motion to dismiss is frivolous or solely intended to delay, the court may award court costs and reasonable fees to the other side.Sullivan v. Abraham, 488 S.W.3d 294, 299 (Tex. 2016).

Our country is blessed that we are able to actively participate in our government. While things that are said may cause your blood to stir and general gnashing of your teeth, the right to participate in or make petitions to our government and for the freedom to speak and associate are amazing freedoms not enjoyed by everyone in the world. The Texas Citizens Participation Act along with the United States and Texas Constitutions help define the limits of those rights and a way to protect them when someone is trying to unlawfully silence your public participation. The opinions in this blog are solely the author’s and any comments, suggestions or replies are welcome at john@jrjoneslaw.com.

 

 

 

Texas Supreme Court Updates on Sham Affidavit Doctrine, Collateral Source and One Satisfaction Rules

The Supreme Court of Texas has been busy this year. In opinions issued earlier this year, the Supreme Court of Texas adopted the sham affidavit doctrine which was discussed in the October 31, 2017 blog post and made an important ruling clarifying the one satisfaction and collateral source rules discussed in the August 31, 2015 blog post. First the sham affidavit case.

In Lujan v. Navistar, Inc., ___ S.W.3d___, 2018 Tex. LEXIS 347 (Tex. April 27, 2018), the Supreme of Texas agreed with and adopted the majority view that a trial court’s authority to distinguish between genuine and non-genuine fact issues includes the authority to apply the sham affidavit doctrine under Texas Rule of Civil Procedure 166a (i.e. summary judgment rule) when the court is confronted with evidence that appears to be a sham designed to avoid summary judgment. In adopting the sham affidavit rule, the Supreme Court of Texas set out the elements of when the sham affidavit rule can apply as follows: When: (1) the affidavit is executed after the deposition; and (2) there is a clear contradiction; on (3) a material point;  and (4) without explanation. Further, the court held that a trial court does not abuse its discretion by concluding that no genuine issue of fact exists under such circumstances, but did state that it is a case-specific inquiry not easily amenable to a rote application of the multi-part test. The examination of the nature and extent of the differences between the prior testimony and affidavit testimony asserted must be done to determine what effect the conflict should be given on a particular case. Whether you are prosecuting or defending a summary judgment after depositions, you should read Lujan in its entirety.

In Sky View at Las Palmas v. Mendez, ___S.W.3d ___. 2018 Tex. LEXIS 515 (Tex. June 1, 2018) , the Supreme Court held that the one-satisfaction and collateral source rules allow for credit for settlements paid by the defendant’s insurer.  This opinion goes into great detail about the burden of proof each party has under the one satisfaction rule framework and how each party can meet that burden. This case also discusses the collateral source rule that generally bars a wrongdoer from offsetting his liability with insurance proceeds independently procured by the injured party. As a result, if payment falls within the collateral source rule, its prohibition of more than one recovery for the same loss is not applicable. Here, The plaintiff tried to rely on the collateral source rule but the Supreme Court held that would have led to a double recovery because the defendant procured the insurance to protect the injured party and therefore, the collateral source rule was not applicable. Sky View, like Lujan above, is a must read on these issues.

The opinions in this blog are solely the author’s and any comments, suggestions or replies are welcome at john@jrjoneslaw.com.

Reasonable Certainty and Lost (Anticipated) Profits in Texas

Proving lost profits in a case is always difficult and the proof required must be more than a bare assertion that a contract was lost because of the opposing party’s behavior. Lost profits in Texas can only be recovered when both the fact and amount of damages are proved with reasonable certainty. The good news is that lost profits can be recovered in both tort and contract cases in Texas as long as there is no double recovery. See, e.g. Waite Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184-185 (Tex, 1998).

The general rule in Texas is that recovery of lost profits as damages will be allowed where it is shown that a loss of profits is the natural and probable consequence of the act or omissions complained and and the amount is shown with sufficient certainty. See Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017). The phrase “sufficient certainty” is the problem and the Supreme Court in Horizon Healthcare focuses on the specificity required to show reasonable certainty in a case where a party seeks lost anticipated profits.

The issue before the Supreme Court in Horizon Healthcare was whether the evidence was sufficient to uphold the award of future lost profits in a case that was based on an assumption that the plaintiff would have won the underlying contract had defendants not committed the underlying wrongdoing. According to the Supreme Court of Texas, anticipated profits cannot be recovered where they are dependent upon uncertain and changing conditions, such as market fluctuations, or the chances of business. Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017), citing, Tex. Instruments, Inc. v. Teltron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994). The Supreme Court also held that “the law is wisely skeptical of claims of lost profits from untested ventures or in unpredictable circumstances, which in reality are little more than wishful thinking.” Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848, 860 (Tex. 2017), citing, Phillips v. Carlton Energy Group, LLC, 475 S.W.3d 265, 280 (Tex. 2015).

When the evidence supporting a claim for lost anticipated profits is largely speculative or a mere hope for success, the Supreme Court has consistently held that the reasonable certainty standard has not been met.Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017), citing, Tex. Instruments, Inc. v. Teltron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994). A business owner’s testimony, by itself, is generally insufficient unless he can specify which specific contracts were lost, how many contracts were lost, how much profit they would have received from the contracts and evidence that the contracting party would have entered into the contract with them as opposed to some other party but for the defendants misconduct. Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848, 861 (Tex. 2017), citing, Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992).

Texas courts will grant an award of damages for lost profits in Texas, but the evidence must be detailed, reasonably certain and very specific. Early on in the discovery phase, a party really needs to focus on what is going to be needed to obtain the evidence to show the loss of profits with certainty. Counting on the business’ owner’s testimony alone to do the trick will not be enough. The opinions in this blog are solely the author’s and any comments, suggestions or replies should be sent to john@jrjoneslaw.com.