The Intersection of the Anonymous Right to Free Speech, the Texas Citizens Participation Act, and Rule 202 Pre-Suit Discovery

The Austin Court of Appeals recently considered how the Texas Citizens Participation Act (TCPA) applies to a Rule 202 petition for pre-suit discovery in a case involving anonymous online speech.  The TCPA requires a court to dismiss a legal action when a movant shows the action relates to the movant’s exercise of free speech rights.  Rule 202 of the Texas Rules of Civil Procedure permits a person to petition a court for an order authorizing depositions before a suit is filed in order to investigate a potential claim or suit.  The Austin appellate court was called upon to answer the question of how these two requirements coexist.

In In re Chris Elliott, No. 03-16-00231-CV (Tex. App—Austin Oct. 7, 2016),, which is registered to Chris Elliott, published an article reporting negatively about MagneGas, a Delaware technology company.  MagneGas filed a Rule 202 Petition and a Motion to Compel Elliott’s deposition to investigate a potential claim against “the authors, publishers, and distributors” of The Pump Stopper, who MagneGas alleged made false and misleading claims about the company.

John Doe 1 (“Doe”), who identified himself as an author, publisher and/or distributor who utilizes the website, filed a TCPA motion to dismiss the Rule 202 petition.  Doe argued the Rule 202 petition related to Doe’s exercise of his right to free speech and the rights of free speech of other potential defendants.

After a brief non-evidentiary hearing, the trial court ordered Elliott’s deposition.  Elliott then filed a writ of mandamus with the Austin Court of Appeals and sought emergency relief.

The court of appeals concluded that Doe’s TCPA motion to dismiss was sufficient to invoke the TCPA and to stay discovery.  The court held that the TCPA’s definition of “legal action” is broad and encompasses a Rule 202 petition, as it includes “a lawsuit, cause of action, petition, complaint, cross-claim, or counterclaim or any other judicial pleading or filing that requests legal or equitable relief.  The court noted that the TCPA’s language specifically states that although the court may allow specified and limited discovery relevant to the TCPA motion to dismiss on a showing of good cause, otherwise all discovery is suspended until the court has ruled on the motion to dismiss.  Because the district court’s order allowing Elliott’s deposition was not the specified and limited discovery contemplated by the TCPA, the appellate court held that the district court had abused its discretion by permitting the deposition before ruling on Doe’s TCPA motion to dismiss.

In re Chris Elliott, No. 03-16-00231-CV (Tex. App.–Austin Oct. 7, 2016).

Federal Subject Matter Jurisdiction is not Lost by Voluntary Dismissal of the only Claim Conferring Jurisdiction

The Fifth Circuit has reiterated the rule that federal subject matter jurisdiction is measured at the time of removal and is not destroyed by subsequent events including the voluntary dismissal of the only claim conferring federal question jurisdiction.

In GlobeRanger Corp. v. Software AG, No. 15-10121 (5th Cir. Sept. 7, 2016), the court untangled a jurisdictional knot worthy of a law school exam.  GlobeRanger sued Software AG in federal court for trade secret misappropriation.  Software AG objected claiming no federal jurisdiction so GlobeRanger dismissed and refiled in state court asserting numerous claims including conversion.  Software AG then removed the case arguing that most of the claims were preempted and barred by the federal Copyright Act.  GlobeRanger moved to remand but the district court denied the motion and dismissed the case under Rule 12(b)(6), leading to the first appeal. GlobeRanger Corp. v. Software AG, 691 F.3d 702, 709 (5th Cir. 2012) (“GlobeRanger I”) held that at least some of the factual allegations were outside the subject matter of the Copyright Act and therefore not preempted.  It also affirmed the denial of GlobeRanger’s motion to remand.  The opinion suggested that the district court could have found on remand with a more developed record that the conversion claim was not fully preempted.  But that issue was never reconsidered because GlobeRanger dropped the conversion claim, leaving only a state law claim for misappropriation of trade secrets to be tried in federal court under supplemental jurisdiction.

The jury found that Software AG had misappropriated trade secrets and awarded $15 million to GlobeRanger, leading to the second appeal.  In the second appeal the parties’ jurisdictional positions again flipped from where they were in GlobeRanger I.  Now GlobeRanger argued that there was federal jurisdiction while Software AG argued there was none.

Software AG argued that GlobeRanger was in a jurisdictional dilemma.  Either the trade secret claim was governed and preempted by federal copyright law, or it wasn’t governed by federal law and there was no federal jurisdiction.

The circuit court began with the preemption question, whether the misappropriation of trade secrets claim was equivalent to the anti-copying principle of federal copyright law.  It agreed with GlobeRanger that state law prevents acquisition through a breach of a confidential relationship or improper means and thus involves an extra element not found in copyright law.  “Because trade secret law protects against not just copying but also any taking that occurs through breach of a confidential relationship or other improper means, all ten circuits that have considered trade secret misappropriation claims have found them not preempted by the Copyright Act.”

The court then considered Software AG’s alternative argument that no federal question jurisdiction existed (the only asserted basis for federal jurisdiction) so the case should have been remanded to state court.  The opinion started with the “fundamental principle” that jurisdiction is determined at the time of removal, citing Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939).  A dismissal of some claims does not undo an initial determination of jurisdiction.  It does create a question whether the remaining state law claims should be retained as a discretionary exercise of the court’s supplemental jurisdiction, but Software AG never asked the district court to exercise that discretion and thus waived the issue.

Ironically, GlobeRanger’s federal judgment was saved by its dismissed conversion claim.  The court found that the original complaint alleged conversion of only intangible property, which is preempted by federal copyright law and thus supported federal question jurisdiction at the time of removal.  Even though the conversion claim was later dismissed, the district court continued to have supplemental jurisdiction over the state law misappropriation of trade secrets claim.  So by asserting a claim that was preempted and barred by federal law, GlobeRanger was able to retain a federal court verdict and judgment over a purely state law claim.

GlobeRanger Corp. v. Software AG, No. 15-10121 (5th Cir. Sept. 7, 2016)


If you are defense counsel in a personal injury suit, you may be accustomed to receiving an affidavit concerning cost and necessity of services from plaintiff’s counsel immediately or shortly following your answer to the suit. In many cases you may not know whether the case warrants hiring an expert to controvert the affidavit within Texas Civil Practice and Remedies Code Section 18.001’s thirty-day time frame.  To avoid possible exclusion of controverting evidence, you will need to file a motion for leave with the court or secure a Rule 11 agreement with plaintiff’s counsel to file a controverting affidavit.

But what if you receive notice of a deposition on written questions by plaintiff’s counsel to the plaintiff’s medical service providers and subsequently have the responses served on you? If those written questions include whether the costs of those services were reasonable and the services necessary, could plaintiff’s counsel use the deposition on written questions to prove the reasonableness and necessity of costs and services under Section 18.001?

Defense counsel must be prepared to respond appropriately. So the question arises: Is there any meaningful difference between an affidavit and a deposition that would prevent the application of Section 18.001 to the latter?

Black’s Law Dictionary distinguishes between an “affidavit” and a “deposition.” An affidavit is defined as a “voluntary declaration of facts written down and sworn to by a declarant.” Affidavit, Black’s Law Dictionary (10th ed. 2014).  A “deposition” is defined as a “witness’s out-of-court testimony that is reduced to writing for later use in court or for discovery purposes.” Deposition, Black’s Law Dictionary (10th ed. 2014).

On their face, these definitions look similar, but affidavits and depositions are different in practice:

“Definition of the term ‘Deposition’ (Depositio). In the civil law it meant simply the testimony of a witness. In very old English practice, simply the written testimony of a witness. In modern practice it means the testimony of a witness given or taken down in writing, under oath or affirmation, before a commissioner, examiner, or other judicial officer, in answer to interrogatories and cross interrogatories, and usually subscribed by the witness. A deposition is therefore distinguished from an affidavit, which is always an ex parte statement drawn up in writing without any formal interrogation, and signed and sworn to by the party making it, although in affidavits the party making it is constantly called a deponent, and said to depose.”

Deposition, Black’s Law Dictionary (10th ed. 2014).

Section 18.001 requires a party to serve an “affidavit.” A strict reading of the statute would exclude a deposition on written questions. After all, a deposition on written questions to a non-party, like a medical service provider, employs the coercive power of a court to require the non-party to answer. See Tex. R. Civ. P. 200, 205.  This is not present with affidavits.  Also, unlike with affidavits, another party may object to the written questions and serve cross-questions “on all other parties,” and the other parties may subsequently serve “redirect questions on all other parties.” See Tex. R. Civ. P. 200.

On the other hand, the purpose of the statute was to save time and expenses to litigants and inconvenience to medical providers by providing a simple procedure to prove up the reasonableness and necessity of medical expenses.  Were one to look at the purpose of the statute, he or she may conclude that form should not be put before substance, so that either an affidavit or deposition on written questions may be used so long as the information included in the latter satisfies Section 18.001.  This conclusion would be especially compelling if an opposing party chose to forego serving or failed to serve objections and cross-questions in response to the notice of deposition on written questions by the plaintiff.

For defense counsel, pending some clarification by the legislature or the courts, the best practice would be to treat a deposition on written questions as if it satisfies Section 18.001. Depending on when the notice of deposition on written questions to a plaintiff’s medical service provider is served, you may not be in a position to serve (meaningful) objections and cross questions in response.  File a controverting-affidavit within the statutory time frame or file a motion for leave to do so.  If for some reason you did not file a controverting affidavit, or if you filed a motion for leave which was denied, then object in your pretrial materials—for example in a motion in limine—and in trial to the use of a deposition on written questions as a means to prove the reasonableness and necessity of costs and services.


Texas Nuisance Law Gets A Face-Lift

The Supreme Court of Texas clarified the Texas nuisance doctrine in Crosstex N. Tex. Pipeline, L.P. v. Gardiner.  Justice Boyd opened by noting that Dean Prosser declared nuisance as the law’s “garbage can.”  He proceeded to clean up this area of the law.

The Court said “nuisance” refers not to a defendant’s conduct or to a cause of action, but to a type of legal injury involving interference with the use and enjoyment of real property.  A defendant can be liable for causing a nuisance if it intentionally causes it, negligently causes it, or—in limited circumstances—causes it by engaging in abnormally dangerous or ultra-hazardous activities.

Crosstex operates a natural-gas pipeline.  It purchased a tract along the pipeline’s path in rural Denton County to use for a compressor station.  The Gardiners own an undeveloped 95-acre ranch across the road.  Crosstex installed “hospital-grade” mufflers on the compressor-station engines, which it believed sufficient to eliminate unreasonable noise levels.  It was not.  One neighbor said the noise was like “an engine of a locomotive sitting on [his] driveway.”  Another said the noise was like “standing in the middle of an airport with jet airplanes taking off all around.”  Crosstex tried multiple mitigation efforts, but a Crosstex representative admitted the building needed to be fully enclosed and Crosstex didn’t have the money.

The Gardiners complained that the compressor station greatly diminished their ranch’s value and ruined both their financial investment and their ability to use and enjoy their land.  The trial court submitted intentional-nuisance and negligent-nuisance claims to the jury, which found Crosstex had not intentionally created a nuisance, but it had negligently created a nuisance that was permanent and reduced the ranch’s fair market value by over $2 million.

Justice Boyd’s unanimous opinion confirmed the trial court’s submitted definition.  A ‘nuisance’ is a condition that substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it.  The court said the term “nuisance” does not refer to the “wrongful act” or to the “resulting damages,” but only to the legal injury—the interference with the use and enjoyment of property—that may result from the wrongful act and result in the compensable damages.  To qualify as a legal injury, the interference must be “substantial,” in light of all the circumstances.  The “unreasonableness” inquiry focuses on the interference’s effect on the plaintiff’s comfort or contentment, not on the defendant’s conduct.  It is based upon an objective standard of persons of ordinary sensibilities, not on the subjective response of the plaintiff.  The “substantial” and “reasonableness” inquiries require balancing of the following factors:

  •  the character and nature of the neighborhood, each party’s land usage, and social expectations;
  •  the location of each party’s land and the nature of that locality;
  • the extent to which others in the vicinity are engaging in similar use of their land;
  •  the social utility of each property’s usage;
  • the likelihood that the defendant’s conduct will interfere with the plaintiff’s use and enjoyment of their land;
  • the magnitude, extent, degree, frequency, or duration of the interference and resulting harm;
  • the relative capacity of each party to bear the burden of ceasing or mitigating the usage of their land;
  • the timing of each party’s conduct or usage that creates the conflict;
  • the defendant’s motive in causing the interference; and
  • the interests of the community and the public at large.

Addressing the first category of potential liability, intentional nuisance, the court said the evidence must establish that the defendant intentionally caused the interference that constitutes the nuisance, not just that the defendant intentionally engaged in the conduct that caused the interference.  The effects of the substantial interference must be unreasonable.  The defendant’s conduct must not be unreasonable.  However, a defendant’s reasonable conduct could still be actionable if it was negligent.

Addressing the second category of potential liability, the court said a defendant can be liable for “negligently” causing a “nuisance” if the plaintiff proves “the existence of a legal duty, a breach of that duty, and damages proximately caused by the breach.”  A nuisance may result from “a failure to take precautions against a risk apparent to a reasonable man.”

The third category, strict-liability nuisance, includes claims based on conduct that invades another’s interests and is culpable because abnormal and out of place in its surroundings.  The court did not affirmatively endorse a strict liability claim based on a nuisance injury, but said that to the extent such a claim exists, it arises only out of conduct that constitutes an “abnormally dangerous activity” or involves an abnormally “dangerous substance” that creates a “high degree of risk” of serious injury.

            Three remedies are available for a private-nuisance claim: damages, injunctive relief, and self-help abatement.  The decision to enjoin the defendant’s conduct is a discretionary decision for the judge after the case has been tried and the jury discharged.  When an injunction or abatement is inappropriate, the claimant may recover damages.  Generally, when a nuisance is temporary, the landowner may recover only lost use and enjoyment that has already accrued.  If the nuisance is permanent, the owner may recover lost market value.

Crosstex N. Tex. Pipeline, L.P. v. Gardiner, No. 15-0049.


Texas Anti-SLAPP Commercial Speech Exemption does not apply to Blogger’s Statements about Wedding Photographer

The Texas Citizens Participation Act (“TCPA”) provides for expedited dismissal and interlocutory appeal from a court’s denial of  a motion to dismiss a suit that is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association.  Tex. Civ. Prac. & Rem. Code § 27.002.  There are four exemptions from the application of the TCPA.  Under the “commercial speech exemption,” the TCPA does not apply to an action against a person primarily engaged in selling or leasing of goods or services if the statement arises out of the sale or lease of goods or services or a commercial transaction in which the intended audience is an actual or potential buyer or customer.

In Moldovan v. Polito, No. 05-15-01052-CV (Tex. App.—Dallas Aug. 2, 2016), the Dallas Court of Appeals considered the limits of the commercial speech exception.  Newlyweds Neely Moldovan, a blogger, and Andrew Moldovan had a dispute with Andrea Polito and her company over the wedding photography package they purchased.  The dispute went “viral” after the Moldovans discussed their complaints on television and social media.  Polito and her company brought suit against the Moldovans for defamation per quod, defamation per se, business disparagement, tortious interference with prospective contracts, and civil conspiracy.

The trial court denied Moldovans’ motion to dismiss under the TCPA, finding that the commercial speech exemption applied and that Polito and her company proved by clear and specific evidence a prima facie case of each element of their claims while the Moldovans failed to prove their defenses.  In their interlocutory appeal, the Moldovans argued there was no evidence the commercial speech exception applied and the trial court erred by permitting live testimony at the hearing on the motion to dismiss.  With respect to the commercial speech exception, Polito contended the commercial speech exemption applied because Ms. Moldovan’s statements arose out of the marketing of her blogging and social media services and, by publicizing the dispute, Ms. Moldovan sought to increase her number of readers so she could charge more.

The court of appeals stated even if Polito’s assertions were true, she still must prove the statements arose out of a “commercial transaction in which the intended audience is an actual potential buyer or customer.”  Ms. Moldovan’s potential buyers or customers are those who wish to purchase social media reviews of their products, not blog readers.  The court recalled cases in which courts held that reviews by entities such as the better business bureau are communications made in connection with a matter of public concern, not commercial speech.  For the commercial speech exception to apply, “the statement must be made for the purpose of securing sales in the goods or services of the person making the statement.”  While Ms. Moldovan’s statements may have had the effect of increasing sales, the posts were about Polito and her company, not about Ms. Moldovan’s business.  Therefore, the commercial speech exception did not apply.  However, because Polito and her company met their burden to establish a prima facie case for each element of their claims and because the Moldovans did not establish each essential element of a defense, the trial court did not err by denying the Moldovans’ motion to dismiss.

Moldovan v. Polito, No. 05-15-01052-CV (Tex. App.—Dallas Aug. 2, 2016)


Fraudulent Transfers Made With Actual Intent to Hinder, Delay or Defraud Creditors Permit Piercing the Corporate Veil for Contract Debts

Texas law greatly restricts the use of alter ego or fraud to pierce the corporate veil and hold shareholders liable for a corporation’s contract debts.  A shareholder may only be held personally liable

if the obligee demonstrates that the holder, beneficial owner, subscriber, or affiliate caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the holder, beneficial owner, subscriber, or affiliate.

Tex. Bus. Orgs. Code § 21.223(b).

In the long running saga of Husky Int’l Elecs., Inc. v. Ritz (In re Ritz), No. 14-20526 (5th Cir. Aug. 10, 2016), Chrysalis Manufacturing sold products to Husky International without any misrepresentations.  Daniel Ritz, who had financial control of Chrysalis, then drained Chrysalis of assets by transferring Chrysalis funds to other entities Ritz controlled.  Husky sued Ritz seeking to hold him personally liable under Section 21.223(b).  Ritz then filed for Chapter 7 bankruptcy.  Husky objected to the discharge of Ritz’s debt under 11 U.S.C. § 523(a)(2)(A) (excepting from discharge “any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud.”).

On appeal the Fifth Circuit faced two issues, first whether fraudulent transfers in violation of the Texas Uniform Fraudulent Transfer Act (TUFTA) would support an alter ego claim for personal liability under Texas Business Organizations Code Section 21.223(b).  The second was whether a debt incurred without a misrepresentation would support an objection to discharge of the debt under U.S Code Section 523(a)(2)(A).

In its first opinion the circuit court did not reach the alter ego issue but held that the absence of a misrepresentation precluded an objection to discharge.  The U.S. Supreme Court reversed, holding that fraudulent transfers could support an objection to discharge.  Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016).  On remand, despite the absence of state court holdings on the issue, the Fifth Circuit held that fraudulent transfers committed with actual fraud can support an alter ego claim for personal liability:

We hold today, however, that establishing that a transfer is fraudulent under the actual fraud prong of TUFTA is sufficient to satisfy the actual fraud requirement of veil-piercing because a transfer that is made “with the actual intent to hinder, delay, or defraud any creditor,” Tex. Bus. & Com. Code Ann. § 24.005(a)(1), necessarily “involves ‘dishonesty of purpose or intent to deceive.”

“Although no Texas court has previously reached the same holding, looking to the sources this court considers when making an Erie guess, we are convinced that the Supreme Court of Texas would arrive at the same conclusion as we do here.”

Husky Int’l Elecs., Inc. v. Ritz (In re Ritz), No. 14-20526 (5th Cir. Aug. 10, 2016).

The Impact of Medical Lien Funding on Past Medical Expenses “Actually Paid or Incurred”

Texas Civil Practice and Remedies Code Section 41.0105 limits recoveries of medical care expenses by an injured claimant to those expenses actually paid or incurred by or on behalf of the claimant.  A number of appellate decisions have addressed what this paid-or-incurred language means in different contexts.  The opinion in Katy Springs Manufacturing, Inc. v. Favalora, 476 S.W.3d 579 (Tex. App.—Houston [14th Dist.] 2015, pet. denied, motion for rehearing pending), is another such case.

The plaintiff, Favalora, was injured on the job, and, uninsured, he incurred over $200,000 in medical expenses.  Favalora then entered into contracts with several of his health care providers, assigning his interest in and granting a security interest in any proceeds that might be recovered in his pending personal injury suit against his employer, Katy Springs.  Favalora’s health care providers in turn sold those accounts receivable at a discount and the accompanying assignment and security interest in the lawsuit proceeds to Medstar Funding, a “direct funder of health care receivables.”

Katy Springs argued that only the discounted sale price, paid by MedStar to the health care providers, was admissible as evidence of Favalora’s past medical expenses “actually paid or incurred,” pursuant to section 41.0105 of the Texas Civil Practice and Remedies Code and the Texas Supreme Court’s decision in Haygood v. De Escabado, 356 S.W.3d 390 (Tex. 2011).  Favalora argued that he was still on the hook for the full amount of the medical bills, which could and would be collected by MedStar.

The Houston Fourteenth Court of Appeals agreed with Favalora, affirming the trial court’s ruling.

Katy Springs filed a petition for review with the Texas Supreme Court raising a number of issues including issues challenging the lower courts’ rulings concerning evidence of plaintiff’s medical expenses and the impact of medical lien financing.  The petition for review was denied.  Katy Springs has now filed a motion for rehearing.  The Supreme Court requested a response from Favalora, which has been filed, and Katy Springs has filed a reply brief.  An amicus curiae brief has been submitted by the Texas Association of Defense Counsel as well.

Katy Springs Manufacturing, Inc. v. Favalora, 476 S.W.3d 579 (Tex. App.—Houston [14th Dist.] 2015, pet. dism’d, motion for rehearing pending [15-0923]).



The Texas Supreme Court Adopts a “Factual Plausibility” Pleading Standard

Did the Texas Supreme Court substitute fair notice pleading for well-pleaded complaints?  Texas Rule of Civil Procedure 91a was adopted in 2013, and provides a “no reasonable person could believe” standard.  Until recently, whether “no reasonable person could believe” meant “plausibility” remained an unanswered question.  In City of Dallas v. Sanchez, No. 15-0094 (July 1, 2016), the Court implicitly construed Rule 91a to impose a “factual-plausibility standard.”

Sanchez marks the first time the Court posited a standard by which to assess Rule 91a’s “no reasonable person could believe” or “no basis in fact” standard. Interestingly, the Court’s per curiam opinion does not engage in an in-depth analysis as to how the Court arrived at a “factual-plausibility standard,” but simply cites to a Houston Fourteenth Court of Appeals case, which analogized Rule 91a to Federal Rule 12(b)(6) and applied the federal well-pleaded complaint standard.  See Wooley v. Schaffer, 447 S.W.3d 71, 75-76 (Tex. App.—Houston [14th Dist.] 2014, pet. denied).

In Sanchez, 9-1-1 dispatchers in Dallas, Texas received two calls within ten-minutes of one another, from two separate callers, with separate phone numbers and separate residences, but both at the same apartment complex and both requesting assistance for a drug-overdose victim.  The second call concerned Matthew Sanchez.  After the dispatcher received the victim’s location and emergency, the call was disconnected and never reestablished.  Emergency responders arrived at the first caller’s residence and provided treatment to the first drug-overdose victim.  The responders subsequently left the apartment complex, concluding that the second call was redundant.  Sanchez died.

On Petition for Review, following partial dismissal by the trial court under Rule 91a, the Texas Supreme Court centered its attention on a single issue: “whether the phone’s condition was a proximate cause of Sanchez’s death.”  Asked another way, is it factually plausible that a 9-1-1 phone system malfunction actually caused Sanchez’s death?  If “yes,” the Texas Tort Claims Act waives the City’s governmental immunity.  If “no,” then the plaintiffs’ pleading has no basis in fact and dismissal is mandatory under Rule 91a.  The Court answered “no”:

“The malfunction was merely one of a series of factors that contributed to Sanchez not receiving timely medical assistance. . . . Sanchez’s death was caused  by drugs, the passage of time, and misinterpretation of information. . . . Accordingly, the pleadings do not establish a defect in the 9-1-1 telephone system was a proximate cause of Sanchez’s death as required to establish a waiver of governmental immunity under the Tort Claims Act.”

Thus, the Court appears to treat the “factual-plausibility standard” as co-extensive with the federal plausibility standard.  In light of Sanchez, practitioners need seriously to consider whether notice-pleading will keep their case in court.  The bare facts in the Sanchez petition left too many unanswered factual questions, not the least of which is whether the City had a long-standing problem with its emergency responder line that was left unremedied, with knowledge that some callers/victims would be disconnected from emergency dispatchers and, thereby, harmed. Notice-pleading ordinarily allows for bare facts and conclusory statements. But the Court in Sanchez required something more.

  City of Dallas v. Sanchez, No. 15-0094 (Tex. July 1, 2016)

Personal jurisdiction found over corporate parent without veil-piercing

Ordinarily, when evaluating the contacts of distinct legal entities, the contacts of parent corporations and subsidiaries are evaluated separately for jurisdictional purposes, unless the corporate veil is pierced.  On first glance, that doesn’t appear to be what happened in Cornerstone Healthcare Group Holding, Inc. v. Nautic Management VI, L.P.  The key to understanding this opinion lies in the nature of the causes of action, and the fact that those causes of action arose before–or concurrent with–the creation of the subsidiary entities that were part of the overall transaction in question.

According to the allegations, several executives of Cornerstone identified Reliant Hospital Partners, LLC as a possible takeover target, and instead of presenting the opportunity to Cornerstone, took the opportunity to Nautic Management VI, a Delaware limited partner, and Nautic Partners, a management advisor that conducts due diligence on potential investments.  Nautic Management ultimately purchased Reliant (Old Reliant) and to facilitate the deal, it set up a chain of wholly-owned subsidiaries beginning with Reliant Holding Company, a Delaware company, which owned Reliant Pledgor, also a Delaware Company, which owned Reliant Opco Holding Corporation, also a Delaware Company. Reliant Pledgor and Reliant Opco owned Reliant Acquisitions, a Delaware company with its principle place of business in Texas.  Reliant Acquisitions purchased Old Reliant.   Following this acquisition, the Cornerstone executives who were involved in the Nautic transaction resigned from Cornerstone and joined Reliant Acquisitions.  Cornerstone brought suit accusing the executives of usurping corporate opportunities, misappropriating confidential information, and breaching fiduciary duties.  Cornerstone alleged that the Nautic entities and employees conspired and tortiously interfered.  Nautic Management and three funds it managed entered special appearances to contest personal jurisdiction.

The trial court granted the funds’ special appearances, but denied Nautic Management’s special appearance.  The court of appeals affirmed as to the funds’ special appearances but reversed as to Nautic Management, holding that Texas lacks jurisdiction.  The Texas Supreme Court granted Cornerstone’s petitions for review and reversed, holding that Texas has jurisdiction over the funds and over Nautic Management.

The supreme court’s opinion acknowledges that Cornerstone was not relying upon any veil-piercing theory to assert jurisdiction.  The opinion also acknowledges that the contacts of a parent and subsidiary  that are distinct entities cannot be attributed to one another.  Even so, the court found jurisdiction because the acquisition of Reliant and the creation of the various entities were all part of a single transaction to which the funds and Nautic Management were parties.  The court held that Cornerstone’s claims arose from the transaction itself which included purposeful contacts with Texas.  The court’s opinion may be found here.




Mandamus standard over dominant jurisdiction is relaxed

Once upon a time a trial court’s decision on a question of dominant jurisdiction was not subject to mandamus relief unless one court was actively interfering with another court’s exercise of jurisdiction.  The Texas Supreme Court has abrogated that standard in favor of the more flexible standard the court adopted in In re Prudential Insurance Company of America.

The opinion in In re J.B. Hunt Transport, Inc. involves a vehicle accident in Waller County, Texas between a tractor-trailer owned by J.B. Hunt and the occupants of an Isuzu Rodeo.  Following the accident, J.B. Hunt filed suit for property damages against the owners and occupants of the Isuzu seeking damages for the property damage to the tractor-trailer.  Before service was effected, the occupants of the Isuzu sued J.B. Hunt and its driver in Dallas County, Texas.   Defendants in both suits filed pleas in abatement.  The Dallas County district court agreed that the Waller County suit was the first filed, but the court denied the plea in abatement after concluding that an unspecified exception to the rule of dominant jurisdiction applied.

The Waller County district court abated the suit because by that time, J.B. Hunt had filed a petition for writ of mandamus to compel the Dallas County district court to abate the suit.  The Dallas Court of Appeals denied mandamus relief.  J.B. Hunt then sought mandamus relief from the Texas Supreme Court.

The Texas Supreme Court holds that the Dallas district court abused its discretion by denying the plea in abatement.  The court first clarified  language from its 1988 opinion in Wyatt v. Shaw Plumbing Co.  to specify what it meant by the requirement of an inherent interrelation of subject-matter between the two pending suits.  The court then turned its attention to two exceptions to the rule of dominant jurisdiction.

The court held that the inequitable conduct exception was not applicable.  The court held that evidence showing (1) that J.B. Hunt sent claims managers to the hospital to express condolences; (2) that J.B. Hunt offered to pay hotel room expenses; (3) that J.B. Hunt never mentioned its property damage claim; (4) that J.B. Hunt frequently inquired about the injured parties’ health; and (5) that J.B. Hunt sent an e-mail entitled “Williams v. JB Hunt” implying that J.B. Hunt was the defendant–was not evidence that would support the inequitable conduct exception.  This exception requires proof that the second-filer delayed filing as a result of the conduct and was prejudiced.  There was no evidence of delay or prejudice.

The court also rejected the second exception.  If the first filer files suit merely to obtain priority and without a bona fide intent to prosecute the suit, then there is an exception.  The court held that J.B. Hunt’s acts in asking if the opposing counsel would accept service and in contacting counsel about matters involving the investigation of the cause of the accident are evidence of prosecuting the suit.  The court further pointed out that it is not impermissible to intend to secure a favorable venue.  What is impermissible is when that filing of suit is not followed by a bona fide intent to prosecute the suit.

Thus, the court found that the Dallas County district court abused its discretion by denying J.B. Hunt’s plea in abatement.  The court then proceeded to hold that In re Prudential’s more flexible mandamus standard applied and supported the granting of mandamus relief in this case.  The court’s opinion may be found here.