Texas Supreme Court Clarifies When Employers are Responsible for Employees’ Negligence

U5drUHKezGhrZZC7zuRZG27Dz7miJyK_1680x8400When are employers liable for negligence of their employees? For example, when an employee is driving a company vehicle and gets in a car accident, when can his/her employer be held liable for the injuries caused by the employee? The legal standard – vicarious liability – has been around for a long time, but last week the Texas Supreme Court added a much-needed clarity to it. 

In Texas, before an employer can be held liable for its employees’ negligence, the following two questions must be answered:

  1. At the time of the negligent act, was the worker an employee (as opposed to an independent contractor) of the employer?
  2. At the time of the negligent act, was the worker acting in the course and scope of his or her employment?

If the answer to both of these questions is “yes,” then the employer can be held liable for that employee’s negligent conduct.   

The “Control” QuestionThe answer to the first question depends on whether an employer has the right to control the details and progress of the worker’s job. The Supreme Court clarified that the “control” question is not evaluated on a task-by-task basis, but is a question of general control over the worker.  If an employer does not dispute that a particular worker is its employee, then the question of control becomes irrelevant and the party seeking vicarious liability can skip to the second question in the analysis. 

In Painter, et al. v. Amerimex Drilling, I., Ltd., the employer conceded that the driller that got into a car accident injuring several people was an employee.  Nevertheless, it argued that because it exercised no control over the details of the driller’s driving at the time of the accident, i.e., the particular task during which the incident occurred, it could not be vicariously liable.  The Texas Supreme Court rejected this argument and stated that once the employer-employee relationship was established, the only remaining question was whether at the at the time of the accident the driller was acting in the scope and course of his employment. 

The “Scope and Course of Employment” Question This question seeks to determine whether an employee committed a negligent act while performing his duties for the employer or while he was doing something unrelated.  A classic law school example would be a driver, who is still “on the clock” taking a detour to run a personal errand and getting into an accident while doing so.  In that situation, his employer would not be vicariously liable because the employee was acting outside the course and scope of the employment. 

In Painter, et al., the driller got into a car accident while he was driving the drilling crew from the drilling site to the campsite provided by the employer. Normally, driving to and from work would not be considered to be within the course and scope of employment.  However, in this case, the driller received $50 bonus from his employer for driving the crew between the drilling site and the campsite, the employer was contractually required to pay such a bonus, and there was evidence that the driller was providing the driving services as part of his assigned job duties.  Therefore, when the driller got into an accident while driving the drilling crew from the drill site to their campsite, the Court concluded that he could have been acting within the course and scope of his employment and the employer was not entitled to a summary judgment on this issue.* 

BOTTOM LINE: Texas employers can be held liable for their employees’ negligence as long as the negligent act occurred when the employee was performing his or her duties for the employer.  Where the employer-employee relationship is not disputed, the only question that stands between the employer and the vicarious liability for employee’s actions is whether, at the time of the accident, the employee acted within the course and scope of his employment or whether he deviated from his/her duties.  

Therefore, Texas employers must carefully consider how they structure employment relationships, contractual obligations and risk-shifting provisions, and how they describe and define employees’ duties.  In facing the question of vicarious liability in litigation, employers should carefully analyze the situation using the Painter framework. 

*Justices Green and Brown penned a dissenting opinion arguing that the proper standard for “control” analysis in vicarious liability cases should be on a task-by-task basis. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.


Texas Supreme Court Rules Competitors Can be Excluded from the Courtroom

cartoonUntil recently, companies suing for trade secret theft ran a risk of having to disclose to their competitors in open court certain aspects of their trade secrets in order to prove their claim. The companies often argued that they shouldn’t have to give up their trade secrets in order to pursue their legal rights.  On the other hand, defendants argued that they cannot defend against a claim when they don’t know what they are accused of taking. Last month, the Texas Supreme Court clarified how such dilemma is to be resolved. 

The Court ruled that a company suing for trade secret misappropriation may exclude its competitor’s representatives from the courtroom when their trade secrets are discussed, leaving only the lawyers and independent outside experts of the competitor to hear such testimony. This way, a defendant can learn the information it needs to defend against the claims brought against it, but the information cannot be used outside of the lawsuit. 

Under TUTSA, trial courts are required to take “reasonable measures” to protect trade secrets during litigation, including, among other things, “holding in camera hearings” i.e. hearings that are closed to the public because they will involve discussion of trade secrets.  TUTSA does not specifically define the term or explain exactly who may or may not be present during in camera hearings.  Recently, NOV and M-I Swaco battled in court over whether NOV’s corporate representative could be present at a hearing where M-I Swaco offered testimony about what trade secrets its former employee took from it and gave to NOV.

In In Re M-I, LLC d/b/a M-I Swaco, NOV argued that as a party to the lawsuit where it was accused of stealing trade secrets from M-I Swaco, it had a right to be present at a temporary injunction hearing and hear what trade secrets M-I Swaco claimed NOV misappropriated.  The Texas Supreme Court did not buy into this argument finding that in camera hearings could include hearings where a party or its representatives (but not its attorneys) could be excluded.

The Supreme Court explained that when a trial judge is faced with the decision on whether to exclude a corporate representative from the courtroom during testimony about trade secrets, which he might not already know by virtue of misappropriation, the judge must balance (1) the “degree of competitive harm” the party would have suffered from the disclosure of its trade secrets to the other party’s corporate representative and (2)  the degree to which a party’s defense of a trade secrets case might be impaired if its corporate representative is excluded from the courtroom.

To make this determination regarding the degree of competitive harm, the court must consider the relative value of the party’s trade secrets to its competitor as well as whether the corporate representative acts as a competitive decision-maker at his company.  If he does, disclosure of alleged trade secrets would “necessarily entail greater competitive harm” because, even when acting in good faith, the corporate representative would not be able to resist acting on what he or she may learn during the hearing. To determine whether a party’s defense might be impaired, the court should consider whether a corporate representative possess unique expertise that a party may not find in outside experts.

Takeway:  The Texas Supreme Court has made it clear that a company wishing to prosecute theft of trade secrets can do so without having to disclose its trade secrets to a competitor in an open court.  If the disclosure of such information in open court will harm the company, it may ask the judge to remove its competitor’s representatives from the courtroom when critical proprietary information is discussed, leaving it up to the other sides’ lawyers and experts to analyze the testimony or evidence.  While this will certainly increase the cost of trade secrets litigation, it will also ensure that a competitor cannot use the courtroom to get to the “secret sauce.”

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

The Texas Supreme Court Nixes Common Law Minority Shareholder Oppression Claims

In a surprising move last month, the Texas Supreme Court overturned 25 years of legal precedent when it ruled[1] that Texas does not recognize a common-law cause of action for minority shareholder oppression, leaving the appointment of a rehabilitative receiver as the only remedy for oppressive actions by corporate management.

In Ritchie v. Rupe, Rupe, a minority shareholder in a closely held corporation alleged that the corporation’s other shareholders, who were also on the board of directors, engaged in “oppressive” actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admitted to this conduct but insisted that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The Dallas Court of Appeals agreed that the directors’ refusal to meet with prospective purchasers was “oppressive” and upheld the buy-out order.

The Supreme Court reversed and held that the directors’ conduct was not “oppressive” under the Texas Business Organizations Code §11.404, but even if it was, the statute did not authorize courts to order a corporation to buy out a minority shareholder’s interest. Moreover, the Court “decline[d] to recognize or create a Texas common-law cause of action for ‘minority shareholder oppression.'” Whereas before Ritchie, a minority shareholder could use a threat of a court-ordered buyout to force the majority to buy him or her out a certain price, now the minority shareholders’ only relief for “oppressive” conduct by the company is to seek an appointment of a rehabilitative receiver under Section 11.404.

In addition to abrogating the common law claims for minority shareholder oppression, the Supreme Court also narrowed the definition of “oppressive” conduct, which is not defined in the statute, to include only those instances where the majority “abuse[s] their authority with intent to harm the interests of one or more shareholders in a manner that does not comport with the honest exercise of their business judgment.”  Thus, to obtain an appointment of a receiver under Section 11.404, a minority shareholder must show that the majority intended to harm him or her through their actions, and courts must apply the “business judgment” rule instead of the “fair dealing” and “reasonable expectations” tests to determine whether any oppression occurred.  Furthermore, because the appointment of a receiver is a “harsh” remedy and is meant to be used only in “exigent circumstances,” a minority shareholder seeking such appointment must show that all other lesser available remedies based on other claims or other provisions of the statute are not adequate.

In reviewing the various forms of conduct that minority shareholders have often alleged as giving rise to a common-law oppression claims, including the denial of access to books and records, the withholding of dividends, termination of employment, misapplication of funds, diversion of corporate opportunities, and manipulation of stock price, the Supreme Court concluded that other available causes of actions adequately addressed such wrongdoing and, therefore, a common law oppression cause of action was not necessary.  A minority shareholder, for example, can bring derivative lawsuits on behalf of the corporation, and claims for accounting, breach of fiduciary duty, breach of contract, fraud, constructive fraud, conversion, fraudulent transfer, conspiracy, unjust enrichment, and quantum meruit.

BOTTOM LINE: The Texas Supreme Court recognized that there is a gap in protection afforded to minority shareholders in Texas, but refused to create a new common law cause of action that would address this gap because the standard for what constitutes “oppressive” conduct outside of the statute is “so vague and subject to so many different meanings in different circumstances,” that creating an independent legal remedy for “oppressive” actions would be “bad jurisprudence” and would only “foster litigation.”

[1] Justices Guzman, Willett and Brown dissented from the majority opinion.

For more information regarding business litigation in Texas, contact Leiza Dolghih.

Defamation in Texas: Being Called a “Liar” Will Not Get You Presumed Damages

Texas law recognizes two types of defamation: defamation and defamation per se. While a plaintiff has to prove actual damages in a defamation claim, such damages are presumed in a defamation per se lawsuit, making it a much easier claim for the plaintiff to prove. Whether a particular statement constitutes a defamation or a defamation per se depends on the nature of the statement. Texas law presumes that the following statements are defamatory per se: (1) statements that unambiguously charge a crime, dishonesty, fraud, rascality, or general depravity or (2) statements that are falsehoods that injure one in his office, business, profession, or occupation. See Main v. Royall, 348 S.W.3d 318, 390 (Tex. App.—Dallas 2011, no pet.).

Recently, in the case of Hancock v. Variyam, the Texas Supreme Court found that the statements that a doctor “lacked veracity” and “dealt in half truths” and circulated to his colleagues were not defamatory per se because they did not injure him in his profession as a physician. The Supreme Court proceeded to reverse $181,000 award of damages ($90,000 in actual damages and $85,000 in exemplary damages) because the doctor had failed to provide any proof of them at trial.

The Supreme Court explained that “because the [defamatory] statements did not ascribe the lack of a necessary skill that is peculiar or unique to the profession of being a physician” they were not defamatory per se. Furthermore, because “the specific trait of truthfulness is not peculiar or unique to being a physician,” but is a trait that is necessary in every profession, the defendant’s statement that the plaintiff “lacked veracity” was not defamatory per se. Thus, the plaintiff had to provide evidence of actual damages he had suffered due to the plaintiff’s statements – either evidence that he had lost patients or suffered mental anguish – in order to recover under this claim.

The Supreme Court rejected the Court of Appeals’ reasoning that accusing somebody of being a liar is so obviously hurtful to the person that the damages should be presumed. It also rejected the plaintiff’s argument that the statements by the defendant that the plaintiff “lacked veracity” would so clearly impact his patient care, teaching, research, and publication, that the damages had to be presumed.

Providing an example of what statements would be considered defamatory per se, the Supreme Court relied on the Restatement (Second) of Torts § 573, explaining that statements that a physician is a drunkard or a quack or that he is incompetent or negligent in the practice of his profession or that he is dishonest in his fees, would constitute defamation per se, and the damages would be presumed.

THE PRACTICAL EFFECT: Defamation is a great tool for protecting one’s professional reputation or reputation as a business owner. However, before diving into a defamation lawsuit, it is important to assess what evidence a party will need to prove a claim of defamation and what evidence it has. If the purported defamatory statements fall under the defamation per se category, then the damages will be presumed. However, if the statements are of general nature and do not specifically relate to the party’s profession or occupation, the injured party will have to put on evidence of actual damages incurred as the result of such statements.

According to Hancock, unless being truthful is a specific trait of a profession or a business, being called or labeled a “liar” is not enough to allow a presumption of actual damages.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Important Changes in Home Equity Lending Rules

On June 21, the Texas Supreme Court invalidated several state regulations related to home equity loans. The immediate effect of the Court’s ruling is that (1) the popular discount points offered by lenders will now be included in the calculation of the 3% cap on loan fees; and (2) borrowers will no longer be able to mail their consent to the place of closing or attend a closing through their attorney-in-fact. Both lenders and consumers need to be aware of the Court’s ruling in Finance Commission of Texas v. Norwood as it significantly changes the home equity lending rules.

The Background Regarding Home Equity Loans in Texas 

Texas did not allow home equity loans until 1997 due to a historically strong protection of homestead in this state. Section 50 of the Texas Constitution regulates home equity loans and imposes strict requirements on lenders. Even an unintentional failure to comply with Section 50 can cause a lender to lose the right of forced sale of the homestead and forfeit the entire principal and interest on the home equity loan.

The Texas Finance Commission and the Texas Credit Union Commission (collectively “the Commissions”) have been authorized by the Legislature to issue regulatory interpretations of Section 50, which they have done over the years. In Norwood, the Supreme Court struck down some of their interpretations and the resulting rules.

3% Cap on Fees in Home Equity Loans

Pursuant to Section 50(a)(6)(E), home equity loan fees are capped at 3%, excluding interest. The Commissions defined “interest” the same way that Section 301.002(a)(4) of the Texas Finance Code defines it.  The Supreme Court found that the definition was so broad that it would render the 3% cap meaningless and that Section 50(a)(6)(E) “interest” instead should be equal to “loan amount multiplied by the interest rate.”  The Court further explained that “this narrower definition of interest does not limit the amount a lender can charge for a loan; it limits only what part of the total charge can be paid in front-end fees rather than interest over time.”

Practical Effect: Prior to Norwood, many lenders in Texas allowed borrowers to pay a lower interest rate if they pre-paid some of the interest during the closing. This points (or discounts points) system allowed a borrower to pay anywhere from 1 to 4 points – 1% to 4% of the loan principal – during the closing in exchange for receiving a lower interest rate on the loan. The lenders excluded these pre-paid points from the calculation of the 3% fee cap. The Norwood decision has changed that. Under the Supreme Court’s definition, the discount points are considered fees and not “interest” and must be included in the calculation of the fee cap.  Moreover, some other charges that lenders have not been treating as interest might be now included in the 3% fee cap.

In the past two weeks, many lenders have increased their interest rates to account for the inclusion of discount points in the fee cap.

Closing the Loan Via a Power of Attorney

Section 50(a)(6)(N) provides that a loan may only be closed at the office of a lender, an attorney-at-law or a title company. The Commissions interpreted this provision to allow a borrower to mail a lender the required consent to having a lien placed on his homestead. The Supreme Court, however, held that “[e]xecuting the required consent or a power of attorney are part of the closing process and must occur only at one of the locations allowed by the constitutional provisions” – the office of the lender, an attorney, or a title company.

Practical Effect: Whereas prior to Norwood, a borrower could mail his consent and send his attorney-in-fact to the closing, now the borrower will have to appear at closing in person. Some title companies, however, have interpreted the Court’s ruling to allow them to accept a power of attorney or a mailed consent as long as a borrower provides additional evidence that the power of attorney was signed by the borrower at the office of the lender, an attorney, or a title company. Other title companies have refused to close home equity loans under a power of attorney at all. In light of the Court’s ruling, the title companies who continue to accept a power of attorney might be playing with fire since a finding that they have violated Section 50 by the Commissions might result in very harsh consequences.

Notice to the Borrower

Section 50(g) requires that a loan not be closed before the 12th day after the lender provides the borrower the prescribed home equity loan consumer disclosure notice.  The Commissions interpreted this provision with a rebuttable presumption that notice is received, and therefore provided, three days after it is mailed. The Supreme Court upheld the interpretation as a reasonable procedure because it does not prevent the homeowner from insisting that the lender establish actual receipt of notice in each case.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Whistleblowing – The Right and the Wrong Way to Do It

The Texas Whistleblower Act protects public employees who make good faith reports of violations of law by their employer or co-workers to an  “appropriate law enforcement authority.”  Under the Act, an employer may not suspend or terminate the employment, or take other adverse personnel action against, a public employee who makes a report under the Act.

The Texas Supreme Court recently ruled that an “appropriate law enforcement authority” does not include employee’s supervisor, even if that supervisor ensures internal compliance with the law within the organization.  Thus, while “[o]ther states’ whistleblower laws accommodate internal reports to supervisors; Texas law does not.”  In that regard, the Texas Whistleblower Act is very similar to the Dodd Frank Wall Street Reform and Protection Act, which also requires employees to make reports to an external entity, rather than internally.

In University of Texas Southwestern Medical Center at Dallas v. Larry M. GentilelloDr. Larry Gentilello, a professor of surgery at the University of Texas Southwestern Medical Center at Dallas, had complained to his supervisor, Dr. Robert Rege, that trauma residents in Parkland Hospital in Dallas were treating and operating on patients without an attending physician’s supervision, in violation of Medicare and Medicaid requirements and procedures.  After Dr. Gentilello was stripped of his faculty chair positions, he filed a whistleblower suit that alleged that the demotion was in retaliation for reporting the center’s violation of federal rules.

The Texas Supreme Court reasoned that just because the department chair could discipline employees who violated Medicaid/Medicare requirements, he did not qualify as an appropriate law enforcement authority under the Act.  Thus, Dr. Gentilello’s report to Mr. Rege was insufficient to afford him protection against retaliation under the Act.   The supervisor’s purely internal authority was not law enforcement but law compliance — in other words, the supervisor was only capable of ensuring that the medical center followed federal directives.  This bare power to urge compliance or pure noncompliance did not transform him into an “appropriate law enforcement authority” as defined in the Act.

MORAL OF THE STORY? If you want the protection of the Texas Whistleblower Act, blow the whistle to those authorities that either issue or enforce laws or investigate or prosecute their violation (hint: they are likely to be outside the organization).  Reporting a violation to an internal supervisor, with a few very narrow exceptions, will not afford the protection against retaliation under the Texas Whistleblower Act.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Last Minute Changes to the Expedited Trial Rules in Response to Comments

After receiving hundreds of public comments regarding the expedited trial rules, the Texas Supreme Court made some changes to the Texas Rule of Civil Procedure 169 (final version here).

Some of the comments criticized the draft rules’ mandatory nature and opposed the prohibition of alternative dispute resolution in expedited actions; other comments raised concerns with the limits on discovery and trial time.  (Previous coverage at The New Expedited Trial Rules: What to Expect).

The Texas Supreme Court kept the mandatory nature of the rules, but made the following changes to TRCP 169 before giving its final approval:

1.  Lawsuits filed in Justice Courts are now exempt from the expedited trial procedure.

2.  The courts can continue an expedited lawsuit twice, not to exceed 60 days.

3.  The trial time has increased from 5 to 8 hours per side, and the parties can extend that time up to a maximum of 12 hours per side for good cause.

4.  The judges can now refer cases to an alternative dispute resolution (ADR) procedure unless the parties have agreed not to engage in ADR.   The ADR cannot exceed a half-day in length, and its cost cannot exceed twice the amount of the applicable civil filing fees.  It must be done at least 60 days before trial.

5.  Finally, in comments to TRCP 169, the Texas Supreme Court offered more guidance on the factors that a judge should consider in determining whether a good cause exists for removal of a case from the expedited process, including:

a.   whether there are multiple claimants seeking damages against the same defendant totaling more than $100,000;

b.   whether a defendant’s counterclaim exceeds $100,000; and

c.   the number of parties and witnesses, the complexity of the legal and factual issues, and whether an interpreter is necessary.

Texas Supreme Court Justice Nathan Hecht explained that the Court will monitor statistics gathered by the Texas Office of Court Administration about the cases that go to trial under the expedited trial rules, and might amend the rules in the future depending on what the statistics show about their effectiveness.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

The New Expedited Trial Rules: What To Expect

The new expedited trial rules (specifically, amendments to TRCP 47, 169, 190.2 and 190.5) will go into effect on MARCH 1, 2013.

Virtually every faction of the litigation community has opposed the mandatory nature of the rules.   The Plaintiffs’ bar does not like the rules because they discourage novel litigation by forcing a rigid and cookie-cutter approach.  The Defense bar does not like them because the rules lump any compulsory counterclaims over $100,000 under the expedited trial rules as long as the plaintiff’s claim is $100,000 or less.   The judiciary is not thrilled about the rules because they take away the discretion from the bench and force the judges to act as timekeepers.  Finally, the mediators are worried that without the judge-ordered mediation, most litigants will choose to forego it.  Regardless of the objections, the Texas Supreme Court has decided to implement the rules.  Thus, the practice of law for most us as we know it is about to change.  Here are some ideas on what to expect.

Texas Rule of Civil Procedure 47 – Claims for Relief 

Damages statement:  Under TRCP 47, plaintiffs and counter-plaintiffs must include within their pleading a statement that the claims sought either: (1) are less than 100K; (2) are less than 100K without a claim for non-monetary relief; (3) are between 100k-500K; (4) are between 500K and 1 million; or (5) exceed 1 million.  These statements are inclusive of all damages except post-judgment interest.

No discovery may be conducted until the pleading contains the above damages statement.

Although it is not clear whether TRCP 47 applies retroactively or not, expect that come March 1, 2013, defendants will be filing motions to stay discovery until the petitions are amended to include the damages statement.  If a new petition is filed after March 1, 2013, as a plaintiff’s attorney, make sure you include the language or you will not be able to conduct discovery.  On the defense side, make sure the petition includes the language, and if it does not, file a special exception and/or a motion for protective order to prevent discovery.

On the plaintiff’s side, unless you want to be governed by the expedited trial rules, there is really no reason to plead damages under $100K.  The rules do not provide defendants with any special tools to challenge the amount of plead damages, thus, pleading over $100K , will not bear any adverse consequences.  In contrast, pleading less than $100K in damages, will ensure that the plaintiff cannot recover more than $100K, even if the jury awards a larger sum.  Such result, could lead to some unhappy clients, and, arguably, malpractice claims.

Some of Dallas judges estimate that 50-60% of district court cases will be filed under this expedited trial rules.  The percentage might reach 80-85% in the county-court-at-law cases.  For example, most of the debt collection and auto-collision cases are expected to fall under the expedited trial rules.

Texas Rule of Civil Procedure 169 – Expedited Actions 

Under TRCP 169, the expedited trial process applies to:

(1)  suits in which all claimants, other than counter-claimants, affirmatively plead that they seek only monetary relief aggregating $100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees.

(2) The expedited actions process does not apply to suit in which party has filed claim governed by the Family Code, the Property Code, the Tax Code, or Chapter 74 of the Civil Practice Remedies Code.

DiscoveryThe discovery in the expedited actions is governed by TRCP 190.2 (see below).

Trial Setting:  The court mus set the case for a trial date that is within 90 days after the discovery period ends.  Nothing, however, prevents the judge from resetting the case at a later point in time after the original trial date is reached.  If, on March 1, a court has a backlog of pre-expedited trial procedure cases, expect the newly filed Rule 169 cases to be reset for trial several times after the original 90-day period ends before they actually go to trial.

Removal from the expedited trial procedure:  A plaintiff can remove the case from the expedited procedure by amending the pleading to show damages exceeding $100K.   S/he can amend the pleading without leave of court within 30 days of the close of discovery or 30 days before the date set for trial.  Otherwise, the plaintiff must seek leave of court and establish that good case outweighs the prejudice to the defendant.   The good case standard is pretty low and the judges are not likely to deny the motion to leave as long as some reason for a late amendment is presented to them.

If multiple plaintiffs seek the monetary relief allowed under TRCP 169(a)(1) against the same defendant, the defendant may move to remove the case from the expedited trial procedure.

If a suit is removed from the expedited actions process, then the court must continue the trial date and reopen discovery under Rule 190.2(c).

Trial time:  Each side (not party) is allowed five hours to complete all of the following: jury selection, opening statements, presentation of evidence, examination and cross-examination of witness, and closing arguments.  If you have a co-defendant or co-plaintiffs, you need to make sure you agree on how to split that time.  The judges have no discretion to allow for a longer trial under the rules.  They do, however, have discretion in determining how much time within the 5-hour window should be spent on voir dire or opening/closing arguments.

It is not clear under the rules as to who is supposed to keep the time.

The drastic time limitations will force the parties to pick and choose what evidence to present to the jury.   A party should strive to get in as much evidence as possible and hope that it will preserve some grounds for appeal.

Expert Testimony:  A party may only file Daubert/Robinson motions during the trial; not before.  Presumably, the time spent on expert challenges during trial is included in the five-hour trial time limit.

Alternative Dispute Resolution:  Unless the parties have agreed to engage in the ADR or are required to do so by contract, the court may not order them to engage in such process.  Nevertheless, some judges may issues standing orders requiring “settlement conferences” or “recommend” that the parties engage in mediation.

TRCP 190.2 – Discovery Control Plan (also applies to divorces involving $50K or less)

Under this rule, all discovery must be conducted within 180 days after the date the first request for discovery of any kind served on a party.

Deposition Time:  Each party gets no more than six hours to examine & cross-examine all witnesses in oral depositions.  Thus, for example, if a plaintiff sues three defendants, the plaintiff gets six hours in deposition time, while defendants get 18 hours.  The parties may agree to expand the time to ten hours in total.

RFPs, RFAs, Interrogatories and RFDs:  Each party gets 15 RFPs, 15 RFAs, and 15 interrogatories.  Additionally, each party is allowed to request a disclosure of all documents, electronic information,a and tangible items that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses.  Such an RFD is NOT considered a request for production (although it, technically, is).

Reopening of Discovery:  If a suit is removed from the Rule 169 proceedings, the discovery reopens under Rules 190.3 or 190.4, whichever is applicable.  Any person previously deposed may be redeposed, and, on a motion of any party, the court should continue the trial date.

TRCP 190.5 – Modification of Discovery Control Plan 

Discovery Plan Modification:  The court may modify a discovery plan at any time when the interests of justice require.  Once again, this standard is pretty low, so expect to see a lot of modification motions in the expedited trial cases.

TRCP 91a – Dismissal of Baseless Causes of Action

Under this rule, a party may move to dismiss a cause of action on the grounds that it has no basis in law or fact.  As of now, it appears, that this rule will only help to dismiss the truly frivolous lawsuits and is not likely to change the motion practice significantly.  Moreover, the requirement that a judge rule on the motion within 45 days also does not speak in favor of many of such motions being granted.

CONCLUSION:  If you do not have a good reason, do not file under TRCP 169.  If you end up in an expedited action, remember that the judge can modify the discovery plan and give you more discovery for “good cause.”  If you need to get out of the expedited trial procedure, amend the pleading to assert damages over $100K and move to remove the case.  Finally, if you end up in an expedited trial, understand that the five-hour limit will probably be enforced rather strictly, so plan accordingly.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

New Expedited Process for Lawsuits With Less Than $100,000 in Damages

Late last week, the Texas Supreme Court issued Rules for Dismissals and Expedited Actions.  Under the new Texas Rule of Civil Procedure (TRCP) 169, the expedited process is mandatory for cases where relief is limited to “$100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees.”

TRCP 169 does not apply to healthcare-liability claims or claims governed by the Family Code, Property Code, or Tax Code.

The expedited proceedings will include an expedited pretrial process, limits on discovery, and an expedited trial.  More specifically:

• Once discovery begins, it must be completed within 180 days.

• Written discovery is limited to 15 written interrogatories, 15 requests for production, 15 requests for admissions, and a request for disclosure.

• Each party has a total limit of six hours for all depositions.

• At the request of any party, the court must set the case for a trial date within 90 days after the discovery period ends.

• At trial, each side is limited to five hours for jury selection, opening, closing, and examination of witnesses.

• The court cannot order the parties to engage in alternative dispute resolution, unless the parties agree or are required by contract to do so.

Additionally, under the new Texas Rule of Civil Procedure 91a, a party may move to dismiss a cause of action on the grounds that it has no basis in law or fact.  The winning party gets the attorneys fees.  Thus, if a party files a motion to dismiss and loses, it must pay the other side’s attorneys fees.  Likewise, if a party’s case gets dismissed as the result of the motion, that party will have to pay the other side’s attorneys fees.

How will this affect litigation? 

Given that $100,000 cap includes all types of damages, including attorneys’ fees and interest, the expedited rules will end up applying only to truly small cases.  However, they will end up streamlining such cases, which could result in a faster and less expensive resolution of a dispute.   A trial could occur as early as nine months after the filing of suit (or even earlier if the court desires), with limited discovery, no mediation, and perhaps a two-day trial.

The dismissal rules could prevent frivolous lawsuits from being filed.  If a lawsuit is found to have no basis in law or fact and  is dismissed under TRCP 91a, the plaintiff will be forced to pay the defendant’s attorneys fees.  This should serve as a deterrent to frivolous lawsuits.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

The Texas Supreme Court OKs do-it-yourself divorce forms

The Texas Supreme Court has approved new do-it-yourself divorce forms this Tuesday.

The forms are designed only for uncontested divorces with no children or real estate and are intended to help low-income Texans who cannot afford legal representation.

The Court stated that it is confident the forms will be useful “in addressing the burgeoning population of litigants who cannot afford representation and are unable to obtain representation through legal service provider.”

Last year, almost 58,000 Texans filed family law cases without help from a lawyer — more than could be absorbed by attorneys offering to work without charge, the court said.

Clearly, if you are considering a divorce, and you and your spouse have property, debts, or children, you should consult with an attorney.   However, if no such issues are present, and neither of spouses is contesting the divorce, the form approved by the Court might be all they need.

The form is available on the Texas Supreme Court website and in the near future will be posted on TexasLawHelp.org, a website offering legal help to low-income people.

You can find it at  http://www.supreme.courts.state.tx.us/miscdocket/12/12919200.pdf. NOTE: The form might be modified in response to comments received on or before February 1, 2013.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  His practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.