Texas Court of Appeals Holds Workers Compensation Nonsubscribing Workers Compensation Employer Liable for Employees Injuries Sustained in Fall from Ladder

The benefit to Texas employers in maintaining workers compensation insurance is that they are shielded from liability to employees injured on the job. In exchange, employees are entitled to recover workers compensation benefits for injuries sustained on the job without having to prove that their employer was at fault. If an employer fails to maintain workers compensation, then the law states that the employer in essence waives common-law defenses such as contributory negligence and assumption of the risk.

In a recent Texas Court of Appeals case, an employee was injured on the job while at the top of a commercial extension ladder. The ladder slipped while the employee was at the top of it and the employee sustained serious bodily injuries from the fall. The employee alleged at trial that the ladder slipped because the employer stopped supporting the ladder at the bottom. The jury found in favor of the employee and awarded $427,818 in damages against the employer. (McMillan v. Hearne, 584 S.W.3d 505, 510 (Tex. App.—Texarkana 2019, no pet.)).

The employer appealed the verdict on the grounds that there was insufficient evidence to support the jury’s verdict that the employer was negligent. The Court of Appeals stated:

To prove negligence, evidence must be produced to establish a duty, a breach of duty, and damages proximately caused by the breach. Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 117 (Tex. 2004). Because McMillan is a worker’s compensation nonsubscriber, McMillan is not afforded the common-law defenses of contributory negligence, assumption of the risk, or negligence of a fellow servant. See Tex. Lab. Code Ann. § 406.033(a); Kroger Co. v. Keng, 23 S.W.3d 347, 350 (Tex. 2000). Thus, there are only two defenses available to McMillan, namely, (1) that he was not liable for negligence proximately causing Hearne’s injuries or (2) that Hearne was responsible for some act which was the sole proximate cause of the occurrence. See W. Star Transp. v. Robison, 457 S.W.3d 178, 187 (Tex. App.—Amarillo 2015). “Accordingly, if any negligent act by [McMillan] was a substantial factor in bringing about [Hearne’s] fall and subsequent injuries, and if that event was a foreseeable occurrence without which the fall and injuries would not have occurred, then liability has been established.” See id.

The Court of Appeals found that there was sufficient evidence to support the jury’s finding that the employer was negligent. However, the Court did find that the employer was entitled to an offset of $65k for medical and wage benefits provided to the employee under the employer’s employee benefit plan.

Although, workers compensation coverage can be expensive, especially in certain high risk industries like construction, it can also be catastrophic to a small business if it fails to purchase this coverage. A single on the job injury can result in hundreds of thousands or even millions of dollars in exposure driving a small business into bankruptcy. Thus, most entrepreneurs should budget for this expense before starting a new business.

In Texas, when a person who leaves a will passes away, the decedent’s estate vests immediately in the devisees under the will, subject to payment of the decedent’s debts. But what are the rights of the surviving spouse in his or her community property interest in the decedent’s property? This issue was recently addressed by a recent El Paso Court of Appeals decision. ( See Matter of Estate of Abraham, 583 S.W.3d 374, 377 (Tex. App.—El Paso 2019, no pet. h.).

In this case, the surviving spouse, Margaret, executed a deed assigning all of her interest in community real property that had been acquired by her deceased husband (the “Decedent”). This assignment was made after the Decedent’s date of death and after the Decedent’s Will making Margaret the sole beneficiary of the estate had been admitted to probate. However, there was a lien against the property, at the time of the assignment, for a debt that had been incurred by the Decedent, and the creditor made a claim against the estate.  Margaret did not seek the probate court’s permission to make the assignment.

As a result, the Administrator of the estate filed a lawsuit against Margaret in the probate proceedings to set aside the deed executed by Margaret. The probate court granted the Administrator’s motion for summary judgment and set aside the deed. The decision was affirmed on appeal.

In upholding the probate court’s decision, the El Paso Court of appeals stated, at p. 377:

When a person dies leaving a lawful will, “all of the person’s estate that is devised by the will vests immediately in the devisees[.]” Tex.Est.Code Ann. § 101.001(a)(1). At same time, the decedent’s estate vests subject to the payment of the debts of the decedent, unless those debts are otherwise exempted by law. Id. at § 101.051(a)(1). And more specifically, the community property that was under the deceased spouse’s sole or joint management during the marriage continues to be subject to the debts of that spouse upon his or her death. Id. at § 101.052(a); see also Tex.Fam.Code Ann. § 3.202(c)(“The community property subject to a spouse’s sole or joint management, control, and disposition is subject to the liabilities incurred by the spouse before or during marriage.”).

The Court then explained that the Texas Estates Code establishes procedures for earlier distributions of assets to the estate beneficiaries in a manner that affords protection to the estate creditors. For example, a beneficiary under the will may submit an application to the court for a partial distribution of the estate after the inventory is filed by the Administrator and approved by the court. Further, under the Texas Estates Code, a surviving spouse can obtain legal title to his or her share of community estate property by applying with the court to partition the community property and following the other applicable statutory requirements. Once again this can only be filed after the filing and approval of the inventory. Id at p. 378.

The Court of Appeals found that Margaret did not follow any of these procedures. Thus, the deed executed by Margaret after Decedent’s date of death was void and the Court of Appeals upheld the lower court’s decision to set the deed aside.

A factoring company is not subject to liability under the Texas Construction Trust Fund Act for misapplication of construction funds, according to at least one Texas Court of Appeals. Dakota Util. Contractors, Inc. v. Sterling Commercial Credit, LLC, 583 S.W.3d 199, 201 (Tex. App.—Corpus Christi 2018, pet. denied). Although, the Court indicated that this holding may frustrate the purpose of the Act to protect subcontractors and materialmen from the risk of nonpayment, the Court found that its decision was mandated by the  language of the statute.

The Texas Construction Trust Fund Act includes protection for the payment rights of subcontractors and suppliers on construction projects. In order for the Act to be applicable, “trust funds” must be received by a “trustee” as defined in the Act. Tex. Prop. Code § 162.031. Construction payments are trust funds “if the payments are made to a contractor or subcontractor or to an officer, director, or agent of a contractor or subcontractor, under a construction contract for the improvement of specific real property in this state.” Tex. Prop. Code Ann. § 162.001.  “A contractor, subcontractor, or owner or an officer, director, or agent of a contractor, subcontractor, or owner, who receives trust funds or who has control or direction of trust funds, is a trustee of the trust funds.” Tex. Prop. Code Ann. § 162.002. The Act does not apply to “a bank, savings and loan, or other lender.” Tex. Prop. Code Ann. § 162.004(a)(1).

So, for example, a general contractor would be considered a trustee under the Act of funds it received from a construction project owner for work performed by the general contractor’s subcontractor on the project. If the general contractor failed to pay its subcontractor from funds received from the owner  for the subcontractor’s work, the general contractor and its owners, officers, directors or agents who received or had control or direction of the funds could be subject to liability under the Act for misapplying the funds. The Act carries both criminal and civil penalties.

In Dakota Util. Contractors, Inc. v. Sterling Commercial Credit, supra, Atmos hired Dambold to provide pipeline construction and repair services. In turn, Dambold hired subcontractor Dakota to provide directional drilling services on several of Atmos’s projects.

At some point, Dambold also entered into a factoring agreement with Sterling, a factoring company.  Dambold factored its invoices on Atmos projects in exchange for monetary advances from Sterling. Pursuant to the factoring arrangement, Sterling was entitled to be paid directly by Atmos for Dambold’s invoices.

Atmos later defaulted under its agreement with Sterling, ceased operations and filed for bankruptcy. Apparently, Sterling had received payments from Atmos that included funds for work performed by Dakota for Dambold, and Sterling did not pay these funds over to Dakota. A partial settlement was reached in the bankruptcy case, but Dakota claimed that it was still owed money for work it performed for Dambold from funds received by Sterling from Atmos. In a nutshell, Dakota was contending that Sterling, the factoring company, stepped into the shoes of Dambold when Sterling received money from Atmos. Since the funds Sterling collected directly from Atmos included payments for work that Dakota performed, then Sterling should have paid those funds over to Dakota.

Thus, Dakota filed suit in state court for the deficiency alleging that Sterling, the factoring company, misapplied construction trust funds under the Act that were owed to Dakota.. The question before the trial court was whether Sterling was a “trustee” under the Act that owed a duty to pay over funds to Dakota for Dakota’s work. The trial court found as a matter of law that Dakota was not entitled to recover anything from Sterling under the Act and Dakota appealed.

The Court of Appeals affirmed and held that the Act did not apply to Sterling because it was not a  “trustee” and was also exempt under the Act as an “other lender”. Id at p. 208. In that regard, the Court stated:

Here, Dakota, a subcontractor, contends that Sterling, a factoring company, is liable under the Act as a trustee because Sterling acted as an agent of Dambold, a contractor, when Atmos paid Sterling the construction fees, in the form of receivables, that Atmos owed to Dambold. We disagree with this contention based on the facts of this case, the plain language of the Act, and the foregoing authority. Fundamentally, the record indicates that Sterling, as a financing entity, is not a “trustee” under the Act because it is not a “contractor, subcontractor, or owner or an officer, director, or agent of a contractor, subcontractor, or owner.” ……. In this regard, Sterling falls within the Act’s explicit exemption as an “other lender.” See Tex. Prop. Code Ann. § 162.004(a)(1).

The Court also held that payments that Atmos made to Sterling did not constitute trust funds under the statute. “Under the Act, “construction payments” are “trust funds” if the payments are made “under a construction contract for the improvement of specific real property in this state.” Tex. Prop. Code Ann. § 162.001(a).” ­.  The Court stated at pp. 208–209:

Here, the payments that Atmos made to Sterling were not made “under a construction contract” but were instead based on the factoring agreement between Dambold and Sterling.

The Court concluded that Sterling was not liable to Dakota under the Act. The Court recognized that factoring agreements may frustrate the intent of the act to protect subcontractors and materialmen from the risk of nonpayment. Unfortunately, for the subcontractor, the Court determined that its hands were tied because of the language of the Act. Thus, to the extent this creates a loophole under the statute, the Court stated it would have to be addressed by the legislature.

Introduction. Family estate disputes over trusts and wills often bring out the worst in the parties as was exemplified in the recent case of ESTATE OF FELIPE A. RADELAT, DECEASED, 02-17-00264-CV, 2019 WL 5792652, at *1 (Tex. App.—Fort Worth Nov. 7, 2019, no pet. h.). In this case, Lourdes Radelat sued her mother and brother, appellants Ana and Andrew Radelat, over their handling of an estate matter. The appellants’ defenses to the suit included that the alleged claims were barred by the statute of limitations. In other words, Lourdes waited too long to file the lawsuit. However, Lourdes countered this defense with the fraudulent concealment doctrine. That is, appellants’ fraudulent concealment tolled the running of the statute of limitations. According to the record, after the lawsuit was filed, the appellants engaged in a series of actions that violated the court’s orders and abused the discovery process. The trial court struck the appellants’ defenses and rendered what is known as death-penalty sanctions and entered judgment against the appellants who then appealed.

Background. Lourdes filed her lawsuit in 2012 pertaining to the estate of her father Felipe Radelat, the decedent, who died in 1994. The decedent created two testamentary trusts in his will which provided that upon his death the bulk of his estate was to be transferred to these two trusts. The will named decedent’s wife Anna as the executor of the estate. The will named Lourdes, Ana, and Andrew as co-trustees of the trusts. Ana, as executor, did not fund the trusts.

Apparently, Lourdes did not find out about the trusts and the fact that she was supposed to be a co-trustee until 2012, when appellants attempted to sell real estate that belonged to one of the trusts. According to Lourdes, “appellants had withheld the will from her and misled her about its content. Lourdes alleged that appellants  breached their fiduciary duties by concealing Felipe’s estate plan, failing to properly fund the trusts, and self-dealing with trust property, among other misdeeds. Lourdes demanded a statutory accounting for the trusts.” Id. at 1.

Appellant’s filed an answer to the lawsuit that included the statute of limitations defense. Further, appellants filed counterclaims to the lawsuit. Lourdes responded that limitations were tolled by appellants’ fraudulent concealment.

After the lawsuit was filed, the trial court granted a temporary injunction that restrained appellants from using funds belonging to the trust among other restrictions. During the course of the litigation, the trial court also ordered the appellants to provide an accounting to Lourdes. Further, the parties engaged in discovery including the taking of depositions.

Apparently, appellants engaged in a pattern of misconduct during the course of the proceedings. They violated the temporary injunction order by collecting rent for property that belonged to one of the trusts, submitted a false accounting to the court, failed to provide a statutory accounting for the trusts, failed to produce documents despite an order compelling production, and failed to cooperate in giving their depositions.

On January 11, 2017, after numerous hearings on these issues, the trial court ordered death-penalty sanctions against appellants for contempt of court. The court struck appellants’ answer including the statute of limitations defense.

“After a hearing to prove damages, the trial court rendered a final judgment awarding Lourdes $1,145,401 in damages and $173,467 in attorney’s fees and ordering that all remaining trust assets be distributed to Lourdes. This appeal followed.” Id. at 3.

Holding by Court of Appeals. On appeal, the appellants contended that: “as a general rule, before death-penalty sanctions may issue, the misconduct should justify the presumption that the claim or defense lacks merit.” Id. at 4.

In affirming the trial court’s decision against appellants ,the court of appeals stated (Id. at 6):

In its order, the trial court found that each of these forms of misconduct—discovery abuses,4 refusal to cooperate, violations of a temporary injunction meant to protect trust property, and deception of the court—had occurred, along with failure to produce an accounting and other misconduct. Each of these forms of misconduct generally favors the notion that appellants’ defenses lack merit.

The court of appeals also stated (Id. at 6):

But beyond this general connection, we think appellants’ misconduct speaks to the merits directly. Appellants’ primary defense was limitations. To this, Lourdes pleaded fraudulent concealment, alleging that limitations should be tolled because appellants deceived her and hid the true nature of the will and the trusts from her. See Valdez v. Hollenbeck, 465 S.W.3d 217, 230 (Tex. 2015). The nature of appellants’ misconduct—a borderline fraud on the court—could have rationally persuaded the trial court that appellants also fraudulently concealed the truth from Lourdes. Appellants’ misconduct might have convinced the judge that just as appellants provided the court with false information, they also provided Lourdes with false information concerning the nature of the will; that just as appellants withheld bank records, they likewise withheld the will from Lourdes; and that just as Ana acted with “guile and artifice” in pretending not to understand the litigation process in order to obstruct it, she acted with a similar intent in pretending not to understand her responsibilities under Felipe’s estate plan. Under this view, appellants’ misconduct could have convinced the trial court that appellants fraudulently concealed the truth from Lourdes and, therefore, that appellants’ limitations defense lacked merit. 

The court of appeals held that the trial court did not abuse its discretion and overruled the issue raised by appellants on appeal. The trial court’s judgment was affirmed.

The Texas Citizens Participation Act (TCPA), our state’s version of an anti-SLAPP (Strategic Lawsuits Against Public Participation) statute has been amended in an attempt to narrow its scope. It was originally enacted to protect free speech such as a Facebook posting by a concerned citizen about a company polluting the environment, which might trigger the filing of a lawsuit by the polluter to silence the citizen expressing their concerns. In that situation, the TCPA provided for a procedure to request the court to dismiss the lawsuit in its early stages, limit the defense costs to the citizen and provide for the citizen to recover attorney fees.

Unfortunately, due to the vague wording of the TCPA as originally enacted, it was being applied to causes of action in ways never intended by the Act. For example it has been applied to causes of action involving theft of trade secrets and violations of employment non-compete agreements.

Thus, effective as of September 1, 2019 the statute has been amended in an attempt to narrow its scope. Key amendments to the statute include:

  • Clarification that the Act does not apply to arbitration proceedings.
  • Modification of the definition of the terms “exercise of the right of association” to mean “to join together to collectively express, promote, pursue, or defend common interests relating to a governmental proceeding or a matter of public concern.”
  • Modification of the definition for the terms “matter of public concern” to mean “ a statement or activity regarding (a) public official, public figure, or other person who has drawn substantial public attention due to the person’s official acts, theme, notoriety, or celebrity; (b) a matter of political, social, or other interest to the community; or (C) a subject of concern to the public.”
  • Requirement that the movant provide written notice of the date and time of the TCPA hearing not later than 21 days before the date of the dismissal hearing.
  • Requirement that the respondent file a response to the motion no later than 7 days before the date of the dismissal hearing.
  • Making a court award of sanctions discretionary rather than mandatory.
  • Expanding the list of specified claims excluded from the Act to include actions for misappropriation of trade secrets, enforcement of covenants not to compete, Deceptive Trade Practices Act violations, and common law fraud.

Hopefully, the courts will find that the TCPA only applies to the type of protected free speech to which it was intended to apply. Only time will tell how the courts will interpret the amendments. Stay tuned for further developments.

It can be tricky to preserve your rights to recover damages for breach of warranty involving goods, including expensive commercial equipment, as exemplified in a recent Houston Court of Appeals case. Equistar Chemicals, LP v. ClydeUnion DB, Ltd., 579 S.W.3d 505, 509 (Tex. App.—Houston [14th Dist.] 2019, pet. filed).

In this case, Equistar Chemicals, LP purchased pumps from ClydeUnion DB, Limited used for transporting ethane from one location to another. However, the pumps were defective and Equistar eventually had them repaired by another company. Equistar sued ClydeUnion for breach of warranty and ClydeUnion counter-sued for Equistar’s failure to pay the full purchase price for the pumps.  “The jury awarded Equistar $391,694 in damages on the breach of warranty claim. The jury also found that Equistar failed to comply with the agreement to pay the full price for the pumps, and the jury awarded ClydeUnion $150,781.06 for the breach of contract claim. After considering the parties’ post-verdict motions, the trial court rendered a judgment for ClydeUnion in the amount of $150,781.06.” Id at 510. Apparently, the reason the trial court awarded this amount to ClydeUnion was because the jury found that Equistar failed to give ClydeUnion a reasonable opportunity to cure the breaches of warranties, and thus, the trial court found that Equistar was barred from recovering damages from ClydeUnion.

The issues on appeal included whether the expert testimony presented by ClydeUnion was sufficient to limit Equistar’s damages for lost profits, whether Equistar was required to give ClydeUnion the opportunity to cure in order to recover damages for breach of warranty, and the amount  which ClydeUnion was entitled to recover as an offset for its litigation costs.

The court of appeals found that the testimony from ClydeUnion’s damages expert rebutting the testimony from Equistar’s damages expert was sufficiently reliable for the jury to consider in determining the amount of lost profits sustained by Equistar.

In regard to whether Equistar was required to give ClydeUnion a reasonable opportunity to cure the defective pumps, the court of appeals  found that this was not required. This dispute was governed by the Uniform Commercial Code (UCC). When a buyer such as Equistar accepts noncomforming goods, the buyer only has to give the seller notice within a reasonable time after the defects are discovered. According to the court of appeals, the purpose of the notice is to open the door for settlement negotiations. Equistar timely notified ClydeUnion of the defects and did not have to give ClydeUnion the opportunity to cure.

Lastly in determining the amount of litigation costs that ClydeUnion was entitled to recover, the Court discussed Chapter 42 of the Texas Civil Practice  & Remedies Code. If a defendant makes a settlement offer under this statute and the ultimate award by the fact-finder at trial is less than 80% of the rejected offer, then the defendant is entitled to recover its litigation costs including attorney fees up to the total amount of plaintiff’s recovery. ClydeUnion apparently made an offer of settlement under the statute entitling it to recover litigation costs from Equistar. The court of appeals found that the statute limits the defendant’s recovery of litigation costs to plaintiff’s net recovery from the defendant, before making adjustments for defendant’s litigation costs. Since ClydeUnion’s litigation costs exceeded Equistar’s net recovery, then neither party was entitled to recover anything from the other.

In conclusion, this appears to be a case where there were no winners. Reading between the lines, Equistar had an opportunity to settle for terms that would have been more favorable than the take nothing judgment rendered and ClydeUnion incurred attorney fees and other litigation costs that greatly exceeded the amount it was owed for the equipment.

The El Paso Court of Appeals has held that the project manager of a commercial construction project was not liable for the injuries sustained by another contractor’s employee. Diaz v. R & A Consultants, 579 S.W.3d 460, 464 (Tex. App.—El Paso 2019, no pet. h.).

In this construction accident case, the court was asked to decide, in essence, whether one contractor owed a duty to another contractor’s employes. The construction project involved the abatement of asbestos and the injured employee worked for the asbestos abatement contractor. The project manager who the injured employee sued had been hired by the owner of the project to provide project design and air monitoring services. During the course of performing his work, the injured employee fell approximately 17’ to the ground sustaining serious injuries. He alleged that his injuries resulted from an inadequate fall protection system.

The Court stated that, as a general rule, the project manager, like a general contractor, “does not owe a duty to ensure that an independent contractor performs its work in a safe manner.” Exceptions to this rule include when a general contractor retains some control over how the independent contractor performs his work. In that instance, the general contractor must exercise that control in a reasonable manner. Id at 466.

“Traditionally, a party can prove the right to control in two ways: (1) by evidence of a contractual agreement that explicitly assigns a right to control or (2) in the absence of such a contractual agreement, by evidence of the actual exercise of control.” Id. at 467.

There were no contractual obligations that gave the project manager control over the other contractor’s fall protection system. Further, the  project manager did not exercise any control over the alleged injury causing event — the fall projection system. Thus, the project manager did not owe a duty to ensure that an adequate fall protection system was provided to the independent contractor’s injured employee and therefore was not liable for the injuries. 

The San Antonio Court of Appeals recently held that an automobile insurer can be held liable to its policyholder for attorney fees and extracontractual damages if it breaches its duty of good faith in failing to reasonably investigate or timely pay an uninsured motorist claim. State Farm Mut. Auto. Ass’n v. Cook, 04-18-00729-CV, 2019 WL 4453763 (Tex. App.—San Antonio Sept. 18, 2019, no pet. h.).

In Texas, an automobile insurance carrier must offer a policyholder uninsured/underinsured motorist (UM) coverage unless the policyholder rejects this coverage in writing. Let’s face it, all too often there are drivers operating vehicles who either have no or insufficient liability insurance coverage to pay all the damages they negligently cause to others. That’s where UM coverage comes into play. If you are injured in a car accident caused by a negligent driver who has insufficient liability insurance coverage, then your UM coverage will fill in the gap by covering damages you sustain in excess of the liability insurance policy limits.

So, assume you are injured in a car accident caused by a negligent driver who only has minimal liability coverage limits of $30,000. You need surgery and sustain a total of $100,000 in damages. Assume further that you have $100,000 in UM coverage for bodily injury. In that event, the liability insurance carrier should pay you the $30,000 in liability insurance coverage and your UM motorist carrier should pay you $70,000 in underinsured motorist proceeds, so that your total recovery is $100,000.

But when is your UM insurer contractually required to pay you the UM proceeds? The Texas Supreme Court has held that the UM carrier has no contractual duty to pay these proceeds to you until you go to court and get a judgment establishing the liability and underinsured status of the driver at fault. See Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006). The result of this decision is that you are not entitled to recover attorney fees from the UM insurer under a breach of contract theory, unless the insurer fails to pay the amounts owed to you within 30 days of obtaining the judgment. This is all that the insurer is required to do under the terms of the automobile insurance policy. It makes one wonder whether you should even bother with obtaining this type of coverage. After all, isn’t the point of obtaining insurance to be able to responsibly and timely cover your losses in the event of an unexpected event?

However, the recent decision of the  San Antonio Court of Appeals provides some relief for the insured consumer. In the Cook decision, the Court essentially held that a UM insurer has a statutory and common law duty of good faith to reasonably investigate and timely pay a UM claim once the insurer’s liability becomes reasonably clear. Thus, if a UM carrier withholds payment of UM proceeds until a judgment is obtained, even though a reasonably investigation by the insurer would have shown that the UM insurer’s liability for payment of the UM proceeds was reasonably clear, the insured consumer can hold the insurer accountable for attorney fees and extra-contractual damages.

Introduction. In Ivy v. Garcia, Buyer sued Sellers for fraudulently inducing Buyer into entering a contract and buying Sellers’ defective home. 03-18-00545-CV, 2019 WL 3756483 (Tex. App.—Austin Aug. 9, 2019, no pet. h.). Sellers filed a motion for summary judgment on the basis that the as-is clause in the purchase contact barred Buyer’s claims as a matter of law. The trial court granted the motion for summary judgment and the Austin Court of Appeals reversed.

Background. On July 26, 2015, Buyer entered into a purchase agreement to buy Sellers’ home using a standard contract promulgated by the Texas Real Estate Commission. The contract contained a clause that the Buyer accepted the home “As Is” defined as “the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract.”

On August 17, 2017, two years after purchasing the house, Buyer sued Sellers alleging Sellers failed to disclose defects in the home. Buyer alleged causes of action including for deceptive trade and fraudulent inducement to enter a contract. Sellers stated in the disclosure notice that they were not aware of any fires. As part of the Buyer’s response to the Seller’s motion for summary judgment, Buyer attached a report from the local fire department report documenting that the home had been struck by lightning and that it caused a small fire in the home.

Court’s holding. The Austin Court of Appeals found that under Texas law, a buyer is not bound to an as-is agreement, “if the agreement is a product of a fraudulent representation or concealment of information by the seller.” Prudential Ins. Co. of Am. v. Jefferson Associates, Ltd., 896 S.W.2d 156, 162 (Tex. 1995). The court went onto hold that the report presented by the Buyer from the local fire department presented an issue of fact as to the Buyer’s fraudulent inducement claim. The Court of Appeals reversed the Trial Court’s dismissal of Buyer’s claims and remanded the case to the Trial Court for further proceedings.

Lessons learned. A seller in a real estate transaction should ensure that the seller makes full and adequate disclosures in any required disclosure statement. The seller’s attorney will also want to make sure that an “as-is” provision in the sale agreement is coupled with a disclaimer clause stating that the buyer is not relying upon any representations not included in the sale agreement including as to the condition of the property being sold. This should help the seller to defeat a fraudulent inducement claim by a buyer attempting to avoid enforcement of an “as-is” clause.

Introduction. The failure of the plaintiff in a construction lawsuit to properly address the unique procedural and evidentiary issues involved may result in the dismissal of the plaintiff’s claims. This is exactly what happened to the plaintiff in a recent case filed in San Antonio, Texas against an architectural firm when the plaintiff failed to attach an affidavit known as a certificate of merit to the lawsuit. Studio E Architecture and Interiors, Inc., Appellant v. Emily Lehmberg, 04-19-00026-CV, 2019 WL 3229194, at *1 (Tex. App.—San Antonio Apr. 17, 2019, no pet.).

Background. The Plaintiff, Emily Lehmberg, filed a lawsuit including claims for fraud and deceptive trade against two licensed architects, the Escamillas, and their architectural firm, Studio E, who were involved in the administration of the construction project in dispute. Lehmberg did not attach to her lawsuit a certificate of merit from a qualified expert in support of these claims.

The record from the opinion states:

“In 2012, appellee Emily Lehmberg (“Lehmberg”) hired Projekt Construction, Inc. (“Projekt”) to perform construction on residential real property located in San Antonio. Lehmberg alleges Joaquin and Aimee Escamilla (“the Escamillas”) initially represented that Projekt was a partnership between themselves and another individual. Projekt shared office space with Studio E—a separate company also owned by the Escamillas. Lehmberg contends Projekt’s construction permit for the property was revoked, and the Escamillas subsequently began representing that the construction project belonged to Studio E. According to Lehmberg’s pleading, Studio E was “the de facto General Contractor at the Property” and ultimately “conducted construction management and oversaw the project at the Property.” Id. at p. 1.

In her lawsuit filed in 2016, Lehmberg alleged that “the Escamillas as representatives of Studio E, “manipulated, forged, and double paid on multiple invoices which greatly increased the cost of construction.” Against Studio E specifically, Lehmberg asserted claims for violations of the Texas Deceptive Trade Practices Act (DTPA), common law fraud, money had and received, and breach of fiduciary duty. Lehmberg claimed Studio E and the other defendants “committed fraud by making material misrepresentations regarding pricing and invoicing,” “purposefully manipulated documents to hide their wrongful payments to contractors, double payments to contractors, and payments to themselves,” and “misappropriated and misapplied proceeds from [Lehmberg’s] construction trust fund.”” Id. at p. 1.

Plaintiff denied that she was asserting any claims arising from these defendant’s providing professional architectural services.

Studio E filed a motion to dismiss the claims against it on the grounds that Lehmberg failed to comply with the Texas Civil Practices & Remedies § 150.002 (the Certificate of Merit Statute) by failing to attach a certificate of merit  to the lawsuit. The trial court denied the motion to dismiss. Unfortunately for Lehmberg on appeal, the San Antonio Court of Appeals reversed the trial court’s decision and found that the claims against Studio E should be dismissed.

The Court of Appeals found that even a claim for an intentional tort such as fraud alleged against design professionals may fall within the scope of the Certificate of Merit Statute. The court stated:

Here, too, by alleging Studio E “conducted construction management and oversaw the project at the Property,” Lehmberg alleges conduct involving “observing the construction, modification, or alteration of work to evaluate conformance with architectural plans and specifications.” See TEX. OCC. CODE ANN. § 1051.001(7)(C). And, while Lehmberg does not assert Studio E was negligent in doing so, Studio E’s alleged misconduct necessarily took place in the context of that activity.

Id. at p. 4.

The court went on to conclude that Lehmberg was seeking damages “arising out of the provision of professional services by a licensed or registered professional.” Thus, Lehmberg’s claims against Studio E were covered by the Certificate of Merit Statute requiring Lehmberg to attach a certificate of merit from a qualified expert to her lawsuit. Since, Lehmerberg failed to do so, the trial court erred in not dismissing the claims against Studio E. The Court of Appeals reversed the trial court’s order and remanded the case to the trial court to determine whether the dismissal should be with or without prejudice to refiling.

Conclusion. Lately, there have been a series of Texas cases dismissing the plaintiff’s claims against architects and engineers because the plaintiff failed to comply with the Certificate of Merit Statute. See previous blog article on this topic. The bottom line is that a plaintiff pursuing construction-related claims against an architect or engineer should retain an expert prior to filing suit who can provide the necessary affidavit in support of the lawsuit. This will not only help ensure that the lawsuit will withstand a motion to dismiss but it will also provide necessary expert testimony to support the claims for the duration of the lawsuit.  Alternatively, if a competent expert determines that the design professionals were not at fault, this will save the plaintiff and the potential defendants the costs of fighting a meritless lawsuit.