Texas Supreme Court: Decisions Of Interest To Business

Tuesday, September 24, 2013 - 14:14

The Editor interviews Scott Stolley, Partner, Thompson & Knight LLP.

Editor: Please tell us about your practice.

Stolley: I have been practicing law for 31 years, all of it in Dallas, Texas. I did trial work for the first ten years, after which I transitioned my practice to appellate law. I have been board certified in appellate law since 1995 and with Thompson & Knight since 1996. I am the leader of the firm’s appellate practice group. My practice focuses on representing appellants and appellees in Texas appellate courts and also in the U.S. Fifth Circuit.

Editor: In this interview, we would like your description  of cases of interest to business before the Texas Supreme Court during its just-concluded fiscal year. I understand that one case was of particular importance to construction contractors.

Stolley: El Paso Field Services, L.P. v. MasTec North America, Inc. involved a contract to construct a pipeline, where the language in the contract provided that the contractor agreed to assume the risk that it might encounter undiscovered obstacles. The owner had laid out the route, made some representations and statements about where obstacles might be along that route, and represented that they had done due diligence to discover all of the obstacles. After the construction process began, there were many more obstacles than were shown on the mapping. The contractor then sued to recover more money for the extra expense. Ultimately, the Texas Supreme Court held against the contractor. The court said that the contractor had assumed that risk, and the court harmonized the assumption-of-risk clause with the owner’s statement that they had exercised due diligence. This case highlights the importance of clauses in which one party assumes the risk.

Editor: Tell us why the media should still be concerned about defamation cases.

Stolley:  Neely v. Wilson is a defamation case brought by a medical doctor. A television station in Austin broadcast stories about the doctor after he had been investigated by the Board of Medical Examiners. The court held for the doctor, finding that he created a fact issue as to whether he had been defamed, so the court sent the case back for a trial. The basic issue was whether the gist of the media story about the doctor was true. The television station defended on the ground that all it had done was report what was said by a third party (the Board of Medical Examiners).

This case is important for business, as a caution to be careful about what you say about someone, even if you are merely repeating what a third party said.

Editor: Explain why another decision alleviates some of the unfairness in the historical practice of allowing new trials without permitting the reason to be reviewed.

Stolley: I was counsel for Toyota in In re Toyota Motor Sales, USA, Inc. Trial judges in Texas have traditionally had free rein to grant a new trial for any reason they want – and such rulings were not reviewable by an appellate court. In this case, Toyota won a defense verdict, but the trial judge granted the plaintiff a new trial for reasons we did not think were valid. We challenged those reasons, and we took it to the Texas Supreme Court, which ultimately held that the appellate courts have the power on mandamus to review the merits of the reasons a trial judge gives for granting a new trial. We are hoping that this decision will alleviate some of the unfairness in the historical practice of allowing new trials for any reason without review.

Editor: Describe a case in which the Supreme Court ruled for an insurance policyholder.

Stolley: Lennar Corp. v. Markel American Insurance Co. is an insurance case. Lennar was a homebuilder. It received complaints from some of its customers because synthetic stucco was failing on homes it had built and sold. Lennar remediated the defective stucco, and then sought coverage from its liability insurance carriers. Markel argued that there was no coverage because the liability was not due to “property damage.” The Supreme Court rejected this argument because the stucco had damaged the homes. Markel also argued that it did not have to pay the claim because Lennar settled with the claimants without Markel’s consent. There was a standard provision in the policy that the policyholder cannot settle without the consent of the insurance company. The court said that the insurance company had to prove that it was prejudiced by the settlements in order to invoke that defense and that there had been no such showing of prejudice.

Editor: Describe the case in which the Supreme Court refused to enforce an oral contract to cover someone else’s debt. 

Stolley: Dynegy, Inc v. Yates involved an attorney for a former officer of Dynegy. The attorney was seeking to recover his fees from the company for representing the former officer. He was relying on the company’s oral promise to pay his fees. In this case, the Supreme Court said that the attorney was not entitled to recover. The court applied the statute-of-frauds provisions that if you make an oral promise to cover someone else’s debt, it has to be in writing or it is not enforceable.

Editor: What about the case involving jurisdiction over a global company?

Stolley: The case is Moncrief Oil International, Inc. v. OAO Gazprom Export LLC.  Because we live in an increasingly interconnected global economy, questions arise as to whether global businesses are subject to the jurisdiction of Texas courts. In this case, the question was whether Moncrief could sue OAO Gazprom, a Russian oil-and-gas company, in Texas courts in a dispute over a failed effort to create a joint venture.

The Supreme Court split the baby. The court found that there was jurisdiction over Gazprom for a claim for misappropriation of trade secrets. There was specific jurisdiction because the alleged misappropriation occurred at meetings held in Texas.

The court held that there was no jurisdiction over Gazprom with respect to the claim of tortious interference with contract. Moncrief had argued that the contacts with Texas that created jurisdiction included a meeting in California that was aimed at killing the proposed Texas joint venture and also that Gazprom had formed a Texas entity to engage in the joint venture with somebody else.

Our Supreme Court said that those two factors were not enough to create jurisdiction in Texas over Gazprom for the tortious-interference claim.

Editor: Describe the outcome of a blockbuster tax case.

Stolley: In Re Nestle USA, Inc. was the most important tax case of the court’s fiscal year. Several years ago, Texas revamped its corporate tax structure, which resulted in the institution of a franchise tax. Nestle challenged that franchise tax on several constitutional grounds, including that under the Texas Constitution, taxation must be equal and uniform. The Supreme Court rejected all of Nestle’s constitutional arguments and upheld the franchise tax.

Editor: Tell us about an oil-and-gas case that could apply to other business contracts.

Stolley: Reeder v. Wood County Energy, LLC involved a joint operating agreement to operate oil properties. The agreement said that the operator would not be liable except for gross negligence or willful misconduct. That is a standard provision in many oil and gas agreements. It is a provision that we may start seeing in other types of agreements, because in this case, the court held it is enforceable and sets the standard for liability. In this case, the Supreme Court said there was no evidence of gross negligence or willful misconduct by the operator. The court said that the argument that the operator had breached the contract was not enough. We might now see that kind of exculpatory clause being used in more contracts.

Editor: Please discuss the case involving the issue of spoliation of evidence.

Stolley: Brookshire Bros., Ltd. v. Aldridge was argued in the Supreme Court, but has not yet been decided. This is a tort case involving a slip-and-fall in a grocery store. The big issue is spoliation of evidence. The store retained a portion of the video showing the area where the plaintiff fell, but saved only what it considered to be the crucial segments of the video. The plaintiff argues that the store should have kept the entire video, because there might have been other relevant evidence in it. Texas law is very unsettled about the law of spoliation. The cases are all over the map, and this may be the case where the Supreme Court creates some uniform rules and some certainty about the issue. With the advent of e-discovery, spoliation has become a bigger issue.

Editor:  Please discuss a case involving the oppression of a minority shareholder in a closely held company.

Stolley: The case Ritchie v. Rupe has also been argued, but not yet decided. There is much uncertainty in Texas law about the shareholder-oppression cause of action. It is unclear what a minority shareholder can sue for if he or she is oppressed by the majority shareholder. In this case, the minority shareholder claims that he was oppressed because the majority refused to meet with potential buyers who could have bought his minority interest.

There are several important issues in this case. One is what are the standards for proving oppression? Another is what remedies can the court order if oppression is found?  For example, can the court order the majority shareholders to buy the minority shareholder’s stock? Hopefully, with this decision, we will get some clarity on the oppression cause of action.

 

Please email the interviewee at scott.stolley@tklaw.com with questions about this interview.