Introduction. In this construction defect case, Pleasant Grove Independent School District (“Pleasant Grove”) sued its general contractor, Altech, Inc. (“Altech”), for breach of warranty and the manufacturer, FieldTurf USA, Inc. (“FieldTurf”), for breach of warranty and fraud, pertaining to the installation of artificial turf in the construction of Pleasant Grove’s new football field. Pleasant Grove Indep. Sch. Dist. v. FieldTurf USA, Inc., 06-19-00022-CV, 2020 WL 1646633, at *1 (Tex. App.—Texarkana Apr. 3, 2020, no pet. h.). Prior to trial, the trial court granted Altech’s motion for summary judgment finding as a matter of law that Pleasant Grove take nothing on its claims against Altech, and granted FieldTurf’s partial motion for summary judgment finding as a matter of law that Pleasant Grove take nothing on its fraud claims against FieldTurf. The case proceeded to trial only on Pleasant Grove’s claims for breach of warranty against FieldTurf and the jury awarded $175,000 to Pleasant Grove. Both Pleasant Grove and FieldTurf appealed. The Court of Appeals reversed the summary judgment rendered in favor of Altech and upheld the partial summary judgment rendered in favor of FieldTurf. The Court remanded the case for a new trial of Pleasant Grove’s breach of warranty claims against both Altech and FieldTurf.

Background. Pleasant Grove retained Altech to be its general contractor for the construction of a new high school football stadium to include an artificial turf field. After meetings and discussions with FieldTurf representatives, Pleasant Gove recommended that Altech use FieldTurf to provide the turf materials and labor for the installation of the artificial turf. Altech complied with the recommendation.

The artificial turf was installed in 2009 and FieldTurf provided an 8 year warranty that if the height of the artificial turf decreased by 50% or more, during normal and ordinary use, then FieldTurf would repair or replace the defective turf.

In 2014, Pleasant Grove notified FieldTurf of significant problems with the turf and demanded that the turf be replaced under the warranty. FieldTurf offered to perform a “laymore scrape” to remove some of the rubber infill at the base of the fibers to expose more of the fibers. Pleasant Grove rejected this offer and filed suit against FieldTurf and Altech for breach of warranty and also sued FieldTurf for fraud.

Before the case proceeded to trial, both Altech and FieldTurf filed motions for summary judgment with the trial court. Altech requested that the trial court enter a total summary judgment as a matter of law in its favor on Pleasant Grove’s breach of warranty claims, and the trial court granted the motion. FieldTurf requested that the trial enter a partial summary judgment as a matter of law in its favor on Pleasant Grove’s fraud claims only, and the trial court granted the motion. The case proceeded to jury trial on Pleasant Grove’s breach of warranty claims against FieldTurf. The jury returned a verdict for $175,000 in Pleasant Grove’s favor. Both Pleasant Grove and FieldTurf appealed.

Legal analysis. The Court of Appeals first discussed the summary judgment rendered in favor of Altech on Pleasant Grove’s breach of warranty claims and found that based upon the contract documents there was some evidence to support these claims. Thus, the trial court erred in rendering this summary judgment.

Next the Court of Appeals discussed the partial summary judgment rendered in favor of FieldTurf. In regard to Pleasant Grove’s fraudulent misrepresentation claim, the Court found that there was no evidence in the record that FieldTurf made a material misrepresentation to Pleasant Grove. Since this was an element that must be proved to support a fraudulent misrepresentation claim, there was no evidence to support the claim.

The Court of Appeals then discussed Pleasant Grove’s fraudulent nondisclosure claim based upon FieldTurf’s alleged failure to disclose material facts about the artificial turf. The Court stated that “in order for silence to become actionable for fraud by nondisclosure there must be a duty to disclose.” In this case, Pleasant Grove contended that this duty existed because FieldTurf voluntarily disclosed partial information and later failed to disclose new information that made the earlier representation misleading. Pleasant Grove argued that FieldTurf represented that the artificial turf’s useful life was 10-12 years and was exceptionally durable when in fact FieldTurf knew and failed to disclosed that the artificial turf being used was defective. However, the Court apparently found that Pleasant Grove failed to present any evidence regarding the partial disclosure. Therefore, there was no evidence that FieldTurf had a duty to disclose information to Pleasant Grove. The Court affirmed the partial summary judgment granted in favor of FieldTurf as to Pleasant Grove’s fraud claims.

Ultimately, the Court of Appeals reversed the trial court’s summary judgment in favor of Altech and affirmed the partial summary judgment in favor of FieldTurf. The Court also remanded the case for a new trial on Pleasant Grove’s breach of warranty claims against both Altech and FieldTurf.

Lessons learned. Pleasant Grove reported problems it was experiencing with the artificial turf 6 years prior to the Court of Appeals’ decision. Assuming the case isn’t settled, it will now have to be retried before a jury against both FieldTurf and Altech since the Court of Appeals reversed the summary judgment rendered in favor of Altech. First, one wonders if it would have been a better business decision by FieldTurf to have just replaced the artificial turf as requested by Pleasant Grove rather than spend years in protracted litigation. Second, before a party like Altech files a motion for summary judgment, it should consider whether a favorable summary judgment will be upheld on appeal. Otherwise, it may find itself having to relitigate the case years later after an appellate court reverses the summary judgment.

In this residential property contract case, the Court addressed whether “as-is” and disclaimer-of-reliance contractual  provisions contained in the closing documents barred the homebuyer’s claims for fraud, negligent misrepresentation and violations of the Deceptive Trade Practice Act (DTPA), even when the seller’s disclosure statement apparently misrepresented and omitted material information. Pogue v. Williamson, 01-17-00844-CV, 2020 WL 1173708, at *1 (Tex. App.—Houston [1st Dist.] Mar. 12, 2020, no pet. h.). After considering these issues, the Court of Appeals reversed the $760,769 judgment of the trial court rendered in favor of the homebuyer.

Background. Williamson purchased the  home subject of this lawsuit from the Pogues. The parties initially entered an earnest money contract in which Williamson agreed to pay the Pogues $210,000 for the residential property and the Pogues agreed to provide seller financing to Williamson. Williamson also agreed to accept the property “as is” and have the property inspected.

Before the parties closed, Williamson reviewed the disclosure statement provided by the Pogues that it would later be learned contained numerous errors. The closing documents included a deed, a promissory note, and a deed of trust securing payment of the note. The deed of trust contained the following as is and disclaimer-of-reliance language:

As a material part of the consideration for the Property, [the Pogues have] executed this deed and granted, sold and conveyed the above described property, premises and improvements, and [Williamson] has accepted this deed and purchased the above-described property, premises improvements, “AS IS.” [The Pogues] and [Williamson] agree that there is no warranty by [the Pogues] that the Property is fit for a particular purpose. [Williamson] acknowledges that [she] is not relying upon any representations, statements, assertions or non-assertions by the [Pogues] with respect to the Property condition, but is relying solely on [her own] examination of the Property.

Pogue v. Williamson, supra, at *2.

Williamson also signed a document instructing the attorney drafting the closing documents to not perform a termite inspection or take actions to determine whether the property was in a flood plain or had drainage problems.

After moving into the house in October 2010, Williamson discovered serious problems with the house over the next 2 years, including extensive mold and water penetration, septic system problems, electrical problems, and bug infestation including termites. As a result, between 2010 and 2013, Williamson spent over $85,000 on repairs.

A dispute ensued between the parties regarding Williamson’s ability to timely pay the promissory note and Williamson hired an attorney. The attorney sent a demand letter to the Pogues stating that they failed to provide proper disclosures of the home’s condition, the septic tanks wasn’t code compliant, there was existing termite infestation, and there was extensive mold problems throughout the home. The letter requested an extension on the note payment.

The parties were unable to reach an agreement and Williamson filed suit alleging fraud, negligent misrepresentations and DTPA violations. After 7 years of litigation, the case proceeded to trial and the jury awarded a verdict in favor of Williamson. Based upon the verdict, the trial court rendered a judgment for Williamson totaling  $760,769. The Pogues appealed on the grounds that the deed of trust “As is” and disclaimer of reliance provisions barred Williamson from recovering on her claims.

Legal analysis. The Court of Appeals placed significance on  the jury’s findings in favor of Williamson on her fraud claims because:

A buyer is not bound by an “as-is” clause if she demonstrates that she was induced to enter the agreement by fraudulent representation or concealment of information by the seller. Id. at 162. To succeed on this theory, the buyer must show that the defendant made a material misrepresentation; the defendant was either aware that the representation was false or that he lacked knowledge of its truth; the defendant intended for the plaintiff to rely on the misrepresentation; the plaintiff relied on the misrepresentation; and the plaintiff’s reliance caused injury.”

Pogue v. Williamson, supra, at *4.

However, the Court went onto discuss the disclaimer of reliance clause contained in the deed of trust and stated:

In a “disclaimer-of-reliance” clause, a buyer generally agrees that she is entering the contract relying solely on her own judgment and not on any statement or representation by the seller. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 178–81 (Tex. 1997). And similar to how demonstrating fraudulent inducement can, as a matter of law, preclude a contract’s “as-is” clause, proof of an enforceable disclaimer-of-reliance clause can, as a matter of law, preclude a fraudulent-inducement claim. Lufkin, 573 S.W.3d at 229; Schlumberger, 959 S.W.2d at 181. The enforceability of this disclaimer-of-reliance provision is a question of law. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011) (citing Schlumberger, 959 S.W.2d at 181). And it is dispositive.

Pogue v. Williamson, supra, at *4.

In determining whether a disclaimer-of-reliance clause is enforceable, we consider the totality of the circumstances and whether (1) the disclaimer language is clear;      (2) the terms of the agreement were negotiated, rather than boilerplate; (3) the contract was the product of an arm’s-length transaction; (4) the complaining party was represented by counsel; and (5) the parties were knowledgeable in business. Lufkin, 573 S.W.3d at 229 (citing Italian Cowboy, 341 S.W.3d at 337 n.8, and Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008)).

Pogue v. Williamson, supra, at *5.

After considering the totality of the circumstances and the above factors, the Court of Appeals concluded that the disclaimer-of-reliance clause was enforceable and barred Williamson from recovering on her claims. Thus, the Court reversed the trial court’s judgment and rendered judgment that Williamson, the homebuyer, take nothing.

Lessons learned. Although this decision may appear harsh on its face, contractual “as is” and disclaimer-of-reliance provisions are strictly enforced in Texas with only limited exceptions. This may be an issue that can only be changed through legislative action. Until then, if a homebuyer can afford it, the buyer should hire independent counsel to carefully review and revise all closing documents before completing the purchase of a house.

Introduction. As a matter of first impression, the Texas Supreme Court, in Energy Transfer Partners, L.P., et al (“ETP”) v. Enterprise Products Partners, L.P., et al (“Enterprise”), affirmed the reversal of a judgment exceeding $500 million involving a pipeline partnership dispute, on the grounds that in Texas parties can contract for conditions precedent to preclude the unintentional formation of a partnership. Energy Transfer Partners, L.P. v. Enter. Products Partners, L.P., 593 S.W.3d 732 (Tex. 2020).

Background. In this case, ETP and Enterprise agreed to explore the possibility of forming a joint venture to provide pipeline services to transport oil from Cushing, Oklahoma to the south. In March 2011, Enterprise approached ETP to discuss converting the Old Ocean pipeline into one that could transport oil south from Cushing. ETP owned the pipeline but Enterprise held the lease on it.

Enterprise was also a joint owner with ConocoPhillips in a pipeline called Seaway that transported oil north from the Texas Gulf Coast to Cushing. Enterprise wanted to reverse the direction of the pipeline from Cushing but ConcocoPhillips was not interested in doing so.

In three written agreements, ETP and Enterprise expressed that neither party would be bound to proceed until each company’s board of directors approved the execution of a formal written contract regarding this joint venture. This never happened.

The first of these agreements was a Confidentiality Agreement entered in March 2011. The second and third agreement were a Letter Agreement with an attached Non-Binding Term Sheet entered and a Reimbursement Agreement, entered in April 2011.

By May 2011, ETP and Enterprise began marketing the project to potential customers as a 50/50 joint venture. They needed commitments from shippers to ship at least 250,000 barrels per day to make the venture profitable.  The first two marketing attempts were unsuccessful. But, during their last attempt, Chesapeake committed to ship 100,000 barrels per day.

However, just prior to this commitment, Enterprise had begun preparing for its exit from the proposed transaction and negotiating with Enbridge to form a pipeline venture. In August 2011, Enterprise terminated its relationship with ETP.

In September 2011, Conoco sold its interest in the Seaway pipeline to Enbridge making Enbridge the joint owner in Seaway with Enterprise. Enbridge and Enterprise then moved forward to obtain shipper commitments sufficient to to support the modification of this pipeline for transporting oil south from Cushing. They spent billions to reverse the direction of this pipeline. The new pipeline–Wrangler–opened in June 2012 and became financially successful.

ETP sued on the grounds that ETP and Enterprise had formed a partnership by their conduct to “market and pursue” a pipeline, irrespective of their contractual disclaimers.  It was ETP’s position that, in moving forward on the Wrangler pipeline with Enbridge, Enterprise breached the statutory duty of loyalty owed by a partner. The jury found in favor of ETP and the trial court entered a judgment awarding ETP a total of $535,794,777 against Enterprise.

The Court of Appeals reversed the judgment apparently on the grounds that the Texas Business and Commerce Code allows parties to contract for conditions precedent to the formation of a partnership. Since the parties did not meet the conditions precedent requiring that a formal agreement be entered and approved by each party’s board of directors, then the parties did not form a partnership.

In analyzing the decision of the Court of Appeals, the Texas Supreme Court first discussed Section 152.051(b) of the Texas Business and Organizations Code which states:

Except as provided by Subsection (c) and Section 152.053(a), an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether:

(1) the persons intend to create a partnership; or

(2) the association is called a “partnership,” “joint venture,” or other name.

The Court also discussed § 152.052 which lists those factors that  may be considered in determining whether a partnership has been formed.

Next, the Court discussed Texas Business Organizations Code § 152.0003 that provides:

The principles of law and equity and the other partnership provisions supplement this chapter unless otherwise provided by this chapter or the other partnership provisions.

Given that the common law of Texas strongly favors freedom of contract,  the Court held that parties can in fact contract for conditions precedent to preclude the unintentional formation of a partnership. Thus, the Texas Supreme Court affirmed the Court of Appeals reversal of the trial court’s judgment.

Lessons learned. The Texas Supreme Court has a history of going to great lengths to uphold the freedom of contract. (See previous blog article texas-supreme-court-reverses-another-multi-million-dollar-business-fraud-verdict.html). Thus, each party to a major transaction should always have their attorney participate in drafting and reviewing any related agreements.  Otherwise, one of the parties may find itself in the shoes of ETP losing out on a five-hundred million dollar deal.

Introduction. In the fraud case of Pettit*v. Tabor, Marilyn Eileen Pettit Tabor (Lyn) ‘conveyed her interest in the family farm to her brother, Robert York Pettit (Bob), based upon Bob’s promise to protect the property and to reconvey it to Lyn. However, when it came time for Bob to reconvey the farm to Lyn, Bob refused to do so. The Court of Appeals upheld the Trial Court’s judgment which included the imposition of a constructive trust upon the farm in favor of Lyn based upon Bob’s fraudulent conduct. Pettit v. Tabor, 06-19-00002-CV, 2020 WL 216025, at *1 (Tex. App.—Texarkana Jan. 15, 2020, pet. filed). This article primarily addresses the appellate court’s opinion addressing the constructive trust.

Background and Court’s Holding. In 2006, Lyn’s and Bob’s mother conveyed the family farm to Lyn and Bob. In March 2013, Lyn received notice about a lawsuit that had been filed against a company she owned–Pettit Mortgage, Inc. At that time, Lyn was already contemplating conveying her interest in the family farm to her children, as a result of her health problems. The lawsuit made her feel a greater sense of urgency to complete this transfer. Lyn called her brother, Bob, to let him know that she was going to convey her interest in the farm to her children. However, Bob convinced Lyn that, while the lawsuit was pending, a better way to protect the farm would be to transfer it to Bob. When the lawsuit was over, he would reconvey it to Lyn. Within a few days, Bob prepared warranty deeds that Lyn signed conveying her interest in the farm to Bob.

In May of 2013, Lyn settled the lawsuit that had been filed against her company. Lyn then contacted Bob to let him know that the lawsuit was settled and asked him to start the paperwork reconveying her interest in the farm back to her. Bob initially said he would take care of it but later told Lyn that he was not going to reconvey the interest in the farm to her. Lyn eventually discovered that Bob, through a series of transfers, conveyed all of the farm and related mineral interests to his son Jeffery, as Trustee for the Big Horn Phalanx Trust, to protect it from Lyn.

Lyn sued Bob and his children, including Bob’s son, Jeffrey, as Trustee of the Big Horn Phalanx Trust. Lyn sought a judgment for fraud, breach of fiduciary duty, the imposition of a constructive trust, damages and other relief. After a bench trial, the Trial Court:

  1. Declared that the transfer of Lyn’s interest in the family farm to Bob was void because of fraud by Bob;
  2. Imposed a constructive trust upon Lyn’s 50% undivided interest in the family farm;
  3. Awarded Lyn $50,000 in punitive damages for Bob’s conduct;
  4. Awarded Lyn reasonable attorney fees and costs; and
  5. Awarded Lyn other relief.

Bob and his children (Defendants) appealed on the grounds including that the court should have found they prevailed on their affirmative defense of illegality and because the imposition of a constructive trust was not supported by the evidence.

The Court of Appeals first discussed the equitable remedy of a constructive trust and stated:

A constructive trust is “a creation of equity to prevent a wrongdoer from profiting from her wrongful acts.” Gray v. Sangrey, 428 S.W.3d 311, 315 (Tex. App.—Texarkana 2014, pet. denied) (citing Procom Energy, L.L.A. v. Roach, 16 S.W.3d 377, 381 (Tex. App.—Tyler 2000, pet. denied)). A constructive trust subjects the person who holds title to property “to an equitable duty to convey it to another, on the ground that his acquisition or retention of the property is wrongful and that he would be unjustly enriched if he were permitted to retain the property.” Cailloux, 224 S.W.3d at 736 (quoting Talley v. Howsley, 176 S.W.2d 158, 160 (Tex. 1943)). “To obtain a constructive trust, the proponent must prove (1) the breach of a special trust, fiduciary relationship, or actual fraud, (2) unjust enrichment of the wrongdoer, and (3) tracing to an identifiable res.” Gray, 428 S.W.3d at 315 (citing Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex. App.—Dallas 2006, no pet.)).”

Pettit v. Tabor, supra, at *5.

Next, the Court of Appeals discussed the Defendants’ contention that their affirmative defense of illegality barred Lyn from recovering this equitable relief. The court stated that this affirmative defense is applicable when:

A grantor who conveys his property for the purpose of shielding the property from liability to future creditors, when the purpose of such a conveyance is not to divest the grantor of beneficial interest, should not receive the aid of the courts against his grantee. Public policy considerations demand that we refuse equitable relief and leave the parties where they have placed themselves.

Pettit v. Tabor, supra, at *6.

Defendants contended that  this defense was available because Lyn conveyed her interest to Bob to defraud her creditor in the lawsuit filed against the company she owned, Pettit Mortgage, Inc. However, the Court of Appeals found that since the Plaintiff sued Pettit Mortgage, Inc. and not Lyn, individually, the Plaintiff was never Lyn’s creditor. Therefore the affirmative defense did not apply.

The court went on to hold that there was sufficient evidence to support the imposition of a constructive trust, in Lyn’s favor, upon the interest in the farm she had conveyed to Bob. The court stated:

To obtain a constructive trust, the proponent must prove (1) the breach of a special trust, fiduciary relationship, or actual fraud, (2) unjust enrichment of the wrongdoer, and (3) tracing to an identifiable res.” Gray, 428 S.W.3d at 315 (citing Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex. App.—Dallas 2006, no pet.)). Thus, the imposition of a constructive trust may be based either on the breach of a special trust or a fiduciary relationship, or on actual fraud. “Where the grantor voluntarily conveys to the grantee on a false oral promise that the grantee will reconvey, there is actual fraud justifying the imposition of a constructive trust.” In re Marriage of Braddock, 64 S.W.3d 581, 587 (Tex. App.—Texarkana 2001, no pet.) (citing Thigpen v. Locke, 363 S.W.2d 247, 250 (Tex. 1962)).

Pettit v. Tabor, supra, at *13.

The Court of Appeals found that there was evidence to support the Trial Court’s findings that Bob had committed actual fraud. Thus, the Trial Court did not abuse its discretion in imposing a constructive trust. The Court of Appeals went on to uphold the Trial Court’s judgment in its entirety including the award of punitive damages and attorney fees.

Lessons Learned.  It appears that Lyn’s mistake was trusting her brother. Of course, it is hard to call trusting one’s sibling a mistake. Unfortunately, family businesses often result in sticky situations. Lyn would have been better served by consulting with an experienced estate planning attorney to devise a succession plan that would have passed Lyn’s interest in the family farm to her children and helped protect it from Lyn’s creditors. In turn, Lyn could have preserved her relationship with her brother and avoided costly litigation.

A person’s inheritance rights can be affected by the community property interest of a surviving spouse as exemplified in the recent case of House v. Webb, 06-19-00054-CV, 2019 WL 6121124, at *1 (Tex. App.—Texarkana Nov. 19, 2019, pet. denied). The results of this case turned on whether the decedent had acquired real property by gift or by purchase. If it was acquired by gift then it would have been the decedent’s separate property when the decedent died. However, if it was acquired by purchase it would have been the decedent’s community property upon her death so that only 1/2 of the property would have passed to her sole heir, her son.

 In this case, Elizabeth Bauman (Aunt Elizabeth) conveyed her 874 acre farm to her niece, Dianne House (the decedent). The deed from Aunt Elizabeth to Diane stated:

“I, ELIZABETH SPRADLEY BAUMAN, … for and in consideration of the love and affection which I have for my niece, the Grantee, have GRANTED, SOLD AND CONVEYED, and by these presents do GRANT, SELL AND CONVEY unto DIAN[N]E HOUSE … all of the surface (without the present merchantable timber) and mineral estate in the following described real property in Nacogdoches County, Texas, to-wit: … “Big Loco Farm” … and “Little Farm.”

After Dianne died, her son, David, inherited the farm.  David contended that pursuant to the terms of the deed that Aunt Elizabeth gifted the farm to Dianne and therefore it was Dianne’s separate property. Thus, upon her death David inherited 100% of the farm and Dianne’s surviving husband, Leland, did not have a community property interest in the farm. Leland contended that the conveyance of the farm was a sale to Dianne and therefore he had a community property interest in it.

The dispute proceeded to trial and the jury found that the conveyance of the farm was a gift to Dianne. On appeal, Leland’s position was that the deed, by stating that Elizabeth “Granted, Sold, and Conveyed” the farm to Dianne created a sale rather than a gift so that the farm became his and Dianne’s community property.

However, the court of appeals disagreed and found that the unambiguous language in the deed that stated that the property was conveyed “for and in consideration of” love and affection clearly showed that Aunt Elizabeth intended to gift the property to Dianne. Thus, it was Dianne’s property and David inherited it free from any community property interest claimed by Leland.

As can be seen from this case, words of conveyance do matter, and deeds should be carefully drafted to clearly express the intent of the parties to the deed.

Introduction. In the recent motor vehicle collision case of Hills v. Donis, the Houston Court of Appeals overturned a judgment awarding the Plaintiffs $145,460 for past medical expenses because the Plaintiffs failed to present competent medical expert testimony proving that their injuries were caused by the collision. 14-18-00566-CV, 2020 WL 206187, (Tex. App.—Houston [14th Dist.] Jan. 14, 2020, no pet.).

Background. The Plaintiffs were passengers in a rear-end motor vehicle collision. The Plaintiffs sought to recover damages, from the party at fault, only for Plaintiffs’ medical expenses incurred as a result of injuries sustained in the collision. The Plaintiffs did not seek to recover other types of damages typically claimed for mental anguish, pain and suffering.

The Plaintiffs sustained neck and back soft tissue injuries. The Plaintiffs proved up the medical billing records by using Section 18.001 affidavits. This is a section of the Texas Civil Practice and Remedies Code that allows a party to prove up the reasonableness and necessity of medical expenses incurred by submitting affidavits that comply with this statute. In addition to medical bills that were attached to these affidavits, Plaintiffs apparently introduced letters from the treating doctor stating Plaintiff’s injuries were caused by the collision. However, Plaintiffs did not present any deposition or live testimony from the treating doctor.

At the conclusion of the trial, the trial court entered an award in favor of Plaintiffs for past medical expenses totaling $145,460. The Defendant appealed.

Analysis by Court of Appeals. The Court of Appeals, found that the evidence presented at trial failed to show that the medical care provided to Plaintiffs was for injuries caused by the collision. The court recognized that uncontroverted Section 18.001 affidavits could be used as a procedural device to prove that the charges for medical care were reasonable and necessary. “Section 18.001 affidavits do not, however, establish the requisite causal link between the occurrence and the plaintiff’s medical expenses.” Hills v. Doris, supra, at *4.

Expert testimony is generally necessary to establish causation of medical conditions that are “outside the common knowledge and experience of jurors.” See Guevara v. Ferrer, 247 S.W.3d 662, 665 (Tex. 2007). In limited cases, however, lay testimony may support a causation finding that links an event with a person’s physical condition. Id. at 666. “This exception applies only in those cases in which general experience and common sense enable a layperson to determine the causal relationship with reasonable probability.” Kelley v. Aldine Indep. Sch. Dist., No. 14-15-00899-CV, 2017 WL 421980, at *2 (Tex. App.—Houston [14th Dist.] Jan. 31, 2017, pet. denied) (citing Guevara, 247 S.W.3d at 666; Morgan v. Compugraphic Corp., 675 S.W.2d 729, 733 (Tex. 1984)). In such cases, “lay testimony establishing a sequence of events which provides a strong, logically traceable connection between the event and the condition is sufficient proof of causation.” Id. (quoting Morgan, 675 S.W.2d at 733).

Hills v. Doris, supra, at 3.

The Court stated that the types of  injuries for which the Plaintiffs sought compensation such as cervical and lumbar radiculitis were neither common nor basic. Thus, the Plaintiffs needed medical expert testimony to prove that their injuries were caused by the collision. The Plaintiffs pointed to the letters from the treating doctor as  evidence of causation. The Court found that the conclusory letters constituted no evidence of causation.

To constitute competent evidence of causation, a medical expert’s opinion must be reliable and rest in reasonable medical probability. Crye, 907 S.W.2d at 500. “This rule applies whether the opinion is expressed in testimony or in a medical record, as the need to avoid opinions based on speculation and conjecture is identical in both situations.” Id. [he treating doctor’s] opinions are not competent evidence of causation because his opinions are conclusory. An expert’s bare proclamation that this one event caused another is not enough to establish causation; “the expert must go further and explain, to a reasonable degree, how and why the breach caused the injury based on the facts presented.” Jelinek v. Casas, 328 S.W.3d 526, 539–40 (Tex. 2010). [The treating doctor’s] letters do not provide any data or facts from which [the treating doctor] could have formed an opinion that the diagnosed injuries were caused by a motor vehicle accident. Absent such facts, [the treating doctor’s] letters are unreliable speculation, which we conclude does not constitute evidence in support of the trial court’s judgment.”

Hills v. Doris, supra, at *4.

Court’s decision. As a result of Plaintiff’s’ failure to prove that their injuries were caused by the motor vehicle collision, the Court of Appeals overturned the trial court’s judgment in favor of the Plaintiffs and rendered that the Plaintiffs take nothing. This was no doubt a stinging lost for the Plaintiffs.

Lessons learned. No matter whether a party is providing up damages in a personal injury dispute or a business dispute competent evidence, which often must include expert testimony, must be presented to support an award of damages. (See previous article–Court overturned $95 million dollar verdict because plaintiffs failed to prove damages caused by breach of fiduciary duties. https://www.texascommerciallitigator.blog/2018/10/ninety-five-million-dollar-judgment-reversed-breach-corporate-fiduciary-duty-case.html). This is why it is important to retain experienced trial counsel well-versed on the law of damages, before engaging in costly litigation.

Introduction. Negligent misrepresentation and fraud can be viable alternative causes of action to a breach of contract claim, as shown by the recent Texas federal court case of Correct RX Pharmacy Services, Inc. v. Cornerstone Automation Sys., L.L.C., 945 F.3d 423 (5th Cir. 2019). In this case, Plaintiff, Correct RX Pharmacy Services (“Correct RX”), contracted with Defendant, CASI Automation Systems, LLC (“CASI”), for CASI to provide an automated pharmacy delivery system. Correct RX advised CASI that time of completion was essential. CASI failed to timely perform and Correct RX filed this lawsuit.

Correct RX alleged causes of action for fraud and negligent misrepresentation, rather than breach of contract. The jury found in favor of Correct RX on the negligent misrepresentation allegations and awarded $3,131,064 in damages. CASI appealed this award on the grounds that Correct RX’s tort claim of negligent misrepresentation sounded in contract and was precluded by the economic loss rule. The 5th Circuit Court of Appeals disagreed with CASI and affirmed the trial court judgment based upon the jury verdict.

Background. Correct RX was in the business of providing pharmacy services to correction facilities and government entities. CASI was in the business of developing and providing automated pharmacy delivery systems. So, Correct RX began dealing with CASI to develop a more efficient means of providing pharmacy services to Correct Rx’s customers. According to the record, CASI made various representations about the quality of its services including that it had already developed software that, with only minor adaptations, would meet the needs of Correct RX.

Correct RX informed CASI that its lease at its current work location would soon expire and it was going to lease a larger facility to accommodate the new automated system that CASI would be providing. CASI agreed to develop and install the system within 30 weeks. Correct RX agreed to pay CASI $4,194,654 for its services with an enhanced down payment of over 50% to accommodate for this short completion deadline. After the agreement was entered, CASI experienced delays and later informed Correct RX that it would not be able to complete the project by the agreed deadline.

As a result, Correct RX negotiated an extension of its existing lease. Additionally, Correct RX and CASI  amended their agreement so as to extend the delivery deadline in exchange for a $200,000 price deduction. Unfortunately, CASI failed to complete the project by the new deadline resulting in Correct RX suing CASI for negligent misrepresentation and fraud.

At the trial, the evidence included that CASI engineers informed CASI negotiators that the 30 week deadline could not be met and one of the engineers even testified that no Correct RX project he had worked on had ever been completed on time. The jury found in favor of Correct RX on the negligent misrepresentation claim and awarded damages for the deposits, equipment loan interest, $73,390 for out of pocket expenses, for a total award of $3,131,064.

Appellate Court’s Decision. On appeal, CASI argued that in Texas the “economic loss rule…generally precludes recovery in tort for economic losses resulting from the failure of a party to perform under a contract.” After reciting a history of Texas cases discussing the economic loss rule, the 5th Circuit found that it did not apply to Correct RX’s claims. In finding that it did not apply and affirming the trial court’s judgment against CASI, the Court stated:

What remains is the simple determination of whether Correct Rx satisfied Texas’s independent injury requirement by recovering only the damages permitted in a negligent misrepresentation suit under section 552B of the Second Restatement. See D.S.A., Inc., 973 S.W.2d at 663. This provision permits recovery “for the pecuniary loss” resulting from “the plaintiff’s reliance upon the misrepresentation.” Restatement (Second) of Torts § 552B(1)(a)-(b). It prohibits recovery of “the benefit of the plaintiff’s contract with the defendant.” Id. at (2). As the district court determined, Correct Rx recovered only its out-of-pocket expenses, placing it back into the position it occupied before its detrimental reliance on CASI’s negligent misrepresentations. The company did not recover the value of what CASI had promised. Given this straightforward analysis, the district court also did not err in finding that Correct Rx had satisfied Texas’s independent-injury requirement. Having established a breach of an independent duty and an independent injury within the meaning of Texas law on the matter, Correct Rx’s recovery was not precluded by the Texas contractual economic loss rule.

Correct RX Pharmacy Services, Inc. v. Cornerstone Automation Sys., L.L.C., supra.

Lessons Learned. Often times, parties to a business transaction are in a rush to close the deal. In reading this opinion, it is unclear whether the contract between Correct RX and CASI contained a clause disclaiming reliance upon extracontractual representations. As discussed in one of my previous blog articles, a tightly drafted disclaimer and integration clause can even provide a defense to a defendant being sued for fraudulent inducement to enter into a contract. (https://www.texascommerciallitigator.blog/2019/06/multi-million-dollar-judgment-against-ibm-reversed-by-texas-supreme-court.html). Possibly, a tightly drafted disclaimer and integration clause would have provided CASI with a defense to the tort claim of negligent misrepresentation. This case is also an example of the plaintiff thinking outside of the box in alleging alternative causes of action to a mere breach of contract. This was probably done to allow Correct RX to recover damages that were not recoverable for a mere breach of contract. This is a prime example of why it is important to retain experienced commercial litigation counsel in high-stakes business disputes.

Introduction. The failure to plan for your estate and the succession of your business while you are healthy and mentally competent can lead to drastic and expensive measures, as shown by the recent high profile Texas case of In re Guardianship of Thrash, 04-19-00104-CV, 2019 WL 6499225 (Tex. App.—San Antonio Dec. 4, 2019, pet. denied). In this case, the Probate Court found that a successful business owner of an automotive repair shop, had become incapacitated due to dementia, Alzheimer’s and other factors. As a result the Court appointed the niece of the business owner to serve as the guardian over the business owner’s estate and a third party to serve as the guardian of the business owner’s person to manage issues such as his medical care. The Probate Court’s decision was affirmed on appeal.

Background. The background information in this appellate decision states as follows:

Thrash is a millionaire and owner of a successful automotive repair shop. He started dating Laura around 2009, and by 2012, she moved into the apartment above his shop with him. Over time, friends and family members grew concerned that Laura was isolating Thrash from them and spending large amounts of his money. In 2016, Thrash and Laura—as well as two of Laura’s adult children, Jose and Michelle—moved into a home Thrash bought for approximately $750,000 in cash. According to several long-time friends, Thrash’s purchase of the home was highly unusual because Thrash was known as a fiscally conservative person. They grew suspicious of Laura, who did not allow Thrash to have his own phone, forcing all social and business calls to go to her cell phone.

In re Guardianship of Thrash, supra, at p. 1.

In 2017 The Texas Health and Human Services Commission filed for a guardianship over Thrash, apparently after receiving an anonymous report that Laura, Thrash’s girlfriend, was mishandling Thrash’s assets. The application for guardianship alleged that 72 year old Thrash suffered from Alzheimer’ and diabetes, and was under Laura’s influence. It further alleged that Thrash recently changed his will to list Laura and her family as beneficiaries, gave Laura power of attorney over his finances and assets, and changed his business plan to name Laura as successor-owner of his automotive repair shop. A hearing was held on the application and the court found that Thrash was incapacitated and appointed an attorney to serve as temporary guardian of Thrash’s person and estate.

In November 2017, Thrash’s great-niece, Tonya Barina, filed an application to be appointed as Thrash’s permanent guardian. Laura contested it. On November 15, 2018, the Probate Court signed an order appointing Laura as guardian of Thrash’s person and Barina as guardian of Thrash’s estate.

On January 29, 2019, the Probate Court granted Barina’s motion for new trial, resulting in the court continuing to appoint Barina as the Guardian of Thrash’s estate but replacing Laura with a third party to serve as the Guardian of Thrash’s person. Laura appealed.

The San Antonio Court of Appeals reviewed the record and found that there was sufficient evidence to support the Probate Court’s decision. The medical evidence included that Thrash suffered from Parkinson’s disease, hypertension, dementia, Alzheimer’s disease and was unable to make responsible decisions for himself. The evidence also included that Thrash’s spending habits and use of money significantly changed in 2016. He purchased a home for $750,000, put Laura and her family members on Thrash’s business payroll, and loaned money Laura. The appellate court also found that there was evidence that Laura isolated Thrash from his friends and family.

In regard to the legal requirements that must be met to appoint a guardian, the court stated:

The Legislature has determined that a court shall appoint a guardian for a person other than a minor according to the circumstances and considering the best interests of the ward. Tex. Est. Code Ann. § 1104.101. Before appointing a guardian, the court must find by clear and convincing evidence that: (1) the ward is an incapacitated person; (2) it is in the best interest of the ward to have the court appoint a guardian; (3) the rights of the ward or the ward’s property will be protected by the appointment of a guardian; and (4) alternatives to guardianship and supports and services available have been considered and determined to be infeasible. Id. § 1101.101(a)(1). An “incapacitated person” is defined, in relevant part, as “an adult who, because of a physical or mental condition, is substantially unable to: (A) provide food, clothing, or shelter for himself or herself; (B) to care for the person’s own physical health; or (C) manage the person’s own financial affairs.” Id. § 1002.017(2). A determination of incapacity of an adult proposed ward must be evidenced by recurring acts or occurrences within the preceding six-month period, and not by isolated instances of negligence or bad judgment. Id. § 1101.102.

In re Guardianship of Thrash, supra, at p. 5.

Appellate court’s conclusion. The San Antonio Court of Appeals found that, under the legal requirements that must be met to appoint a guardian, the record supported  the Probate Court’s decision finding that Thrash was legally incapacitated and appointing guardians over Thrash’s person and estate.

Lessons learned. Mr. Thrash was only 72 years old when he was found to be mentally incapacitated by dementia, Alzheimer’s and other factors. It is unfortunate that he had failed to plan, while he was still mentally healthy, for his estate, his business and himself in the event of his incapacity or disability. Typically, this can be addressed through estate planning tools like powers of attorney and a will or trust, combined with proper corporate planning. This allows for us to control our own destiny while we are still legally able to do so, rather than eventually having our destiny determined by a court through a costly guardianship.

We previously discussed that  in Texas, like most states, performance under a contract containing a force majeure clause may be excused by acts of god or other exigent  circumstances defined by the clause. However, even if the contract does not contain a force majeure clause, all is not lost if COVID–19 related events are making it impossible or impracticable to perform contractual obligations.

Texas recognizes the contractual defense of impossibility of performance when a supervening cause makes it objectively impossible to perform. “Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992). Some courts have held that this doctrine only applies if the supervening event could not have been reasonably anticipated by the parties. “ Where the obligation to perform is absolute, impossibility of performance occurring after the contract is made is not an excuse for nonperformance if the impossibility might have reasonably been anticipated and guarded against in the contract.” Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ). However, the Texas Supreme Court in Centex Corp. v. Dalton, supra, at. p. 954, indicated that foreseeability is only one factor to be considered.

A similar defense recognized by Texas courts, is the defense of impracticability of performance. Under this doctrine, ““Where … a party’s performance is made impracticable … by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged….” Centex Corp. v. Dalton, 840 S.W.2d at 954. Note, at least one Texas Court of Appeals has indicated that this defense does not exist. (See Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ).) However, given that the Texas Supreme Court in Centex discusses this doctrine in its decision, a solid argument can be made that it is a recognized common law defense in Texas.

Further, if the contract is for the sale of goods, the impracticability of performance defense also exists under Texas Business & Commerce Code § 2.615 which states:

“Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

(1) Delay in delivery or non-delivery in whole or in part by a seller who complies with Subdivisions (2) and (3) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

(2) Where the causes mentioned in Subdivision (1) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

(3) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under Subdivision (2), of the estimated quota thus made available for the buyer.”

Thus, a party seeking to assert this defense will also want to make a determination whether the contract involves the sale of goods.

As a result of the unforeseeable COVID-19 pandemic, governmental orders have been issued closing businesses and schools, restricting travel, ordering workers and consumers to stay home, and disrupting supply chains, making it impossible or impracticable to perform certain contracts. Thus, if you or your business find that you cannot perform the obligations of your contract, you may have a defense under the doctrines of impossibility or impracticability.

In Texas, like most states, performance under a contract containing a force majeure clause may be excused by acts of god or other exigent  circumstances defined by the clause. Force majeure is a creature of contract and will only be applicable to the extent expressed in the contract. “The scope and effect of a “force majeure ” clause depends on the specific contract language, and not on any traditional definition of the term.” Virginia Power Energy Mktg., Inc. v. Apache Corp., 297 S.W.3d 397, 402 (Tex. App.—Houston [14th Dist.] 2009, pet. denied). As will be explained, these clauses may very well excuse contractual performance when the delay or failure to perform is being caused by the COVID-19 pandemic.

“Force majeure” is  French for “a superior force”  and is defined as:

“An event or effect that can be neither anticipated nor controlled; esp., an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do. •The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).

FORCE MAJEURE, Black’s Law Dictionary (11th ed. 2019)

A typical force majeure clause will excuse performance under the contract when the delay or failure to perform is caused by acts beyond the nonperforming party’s control. The clause may specify that this includes acts of god, natural disasters, war, governmental actions, strikes, and other similar events. Further, there is no lack of foreseeability requirement, if the event is listed in the force majeure clause. Kodiak 1981 Drilling P’ship v. Delhi Gas Pipeline Corp., 736 S.W.2d 715, 721 (Tex. App.—San Antonio 1987, writ ref’d n.r.e.)

As a result of the COVID-19 pandemic, governmental orders have been issued closing businesses and schools, restricting travel, ordering workers and consumers to stay home, and disrupting supply chains. Thus, if your business is unable to timely perform its obligations under a contract because of COVID-19 events, the first place you should look for answers is in the written contract. If it contains a force majeure clause, your business’s performance under the contract may very well be excused by the express language of the contract. Stay tuned for what to do if your contract does not contain a force majeure clause.