Texas Trial Law Advocate
Texas Trial Law Advocate

The National Trial Lawyers Association:  Top 40 under 40 is a professional organization comprised of America’s top young trial attorneys.  Membership is by invitation only and is extended exclusively to those individuals who exemplify superior qualifications, trial results, and leadership as a lawyer under the age of 40.  Selection is based on a thorough multi-phase process which includes peer nominations combined with third-party research.  The result is a credible, comprehensive and impressive list of young attorneys chosen to represent their state.  The Top 40 under 40 is restricted to only 40 attorneys per state per year and each attorney must be under the age of 40 as of January 1, 2012.

This case involves a home owner who purchased a defective house from a contractor builder. The owner sued the contractor, who tendered the defense of the case to its liability insurer. The insurer denied coverage on several grounds repeatedly over several years.  Eventually the owner and the contractor entered into a settlement agreement, whereby the owners were assigned the contractor’s claims against its insurer.  The owners then intervened in the coverage lawsuit between the insurer and the contractor.  This case was originally tried to the court in June 2008 and the court applied the “manifestation rule” (the controlling law at the time) regarding when the injury occurred. The “manifestation rule” imposed a duty to defend only if the property damage became apparent during the policy period.  After the trial was complete and during the period of appeal on this case, the Texas Supreme Court issued its opinion in Don’s Building Supply, Inc. v. One Beacon Ins. Co., 267 S.W.3d 20 (Tex. 2008), which adopted the “actual injury” approach to determining when an injury takes place thereby rejecting the “manifestation rule”.  The “actual injury” approach holds that the property damage occurs when the actual physical damage takes place, rather than when it manifests itself or becomes discoverable. The trial court reopened evidence and eventually ruled in favor of the insurers based on the “actual injury” standard.  The trial court was concerned that the owners had failed to provide expert testimony regarding the exact date on when the property damage occurred—and by failing to show when the damages actually occurred, found in favor of the insurer. This appeal followed challenging the trial court’s interpretation of Don’s Building to require a party to allege an exact date that physical damage occurred and to require expert testimony to prove actual date of injury. 

As has been the rule for years, the duty to defend is determined under the “eight-corners rule,” where only the pleadings and policy language are considered. Burlington N. & Santa Fe Ry. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 334 S.W.3d 217, 219 (Tex.2011). The first question to determine in this case was whether the pleadings potentially allege property damage that actually occurred within the policy period. The pleadings in the underlying case contained allegations of when water damages were noticed, and given the continuous coverage of the contractor’s insurance policies, the petitions adequately pled that actual physical damage occurred during the insurance policies.  Therefore, this was sufficient to trigger the duty to defend. 

Next, with respect to the duty to indemnify, the trial court made the following finding of fact:

In May 2000, shortly after purchasing the home, there was substantial flooding from a rainstorm that caused damage to the Resident [sic], including water leaks. This property damage manifested during the coverage period of Great American Policy No. PAC 9–86–51–21–04, which was in effect from November 9, 1999 through November 9, 2000.

Because actual damages have occurred by the time they manifest, coupled with the fact that the cause of the damages was held to be defective framing which occurred between the start of construction and the completion of construction, the appellate court held the evidence showed the insurer’s duty to indemnify was triggered, and no expert testimony establishing the exact date of injury was required.  Although there were additional grounds raised in the appeal, because the trial court did not rely on them for the take-nothing judgment, the appellate court did not address them. 

The case was remanded to the trial court for further proceedings. 

Texas Trial Law Advocate
Texas Trial Law Advocate

 Automatic Stay – An Absolute Prohibition to Collect

     The filing of a bankruptcy petition operates as an automatic stay, applicable to all entities, prohibiting: (1) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; (2) any act to create, perfect, or enforce any lien against property of the estate; (3) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the bankruptcy case; (4) any act to collect, assess, or recover a claim [or debt] against the debtor that arose before the commencement of the bankruptcy case; and (5) the setoff of any debt owing to the debtor that arose before the commencement of the bankruptcy case against any claim against the debtor.  A creditor violates the automatic stay by undertaking any of these acts.  Period.  End of story.  

Automatic Stay – Willful Violations

     Moreover, if a creditor knows the automatic stay is in existence and takes a deliberate act in violation of the stay, the creditor has committed a “willful” violation, which justifies a mandatory award of actual damages.  Importantly, the “willfulness” requirement supporting recovery of damages for violation of the automatic stay refers to the deliberateness of the creditor’s conduct and the creditor’s knowledge of the debtor filing a bankruptcy petition; it does not refer to the specific intent of the creditor to violate a court order or the Bankruptcy Code.  The debtor shall also recover court costs and attorney’s fees for a willful violation of the stay.  Further, any additional finding of maliciousness or bad faith warrants imposition of punitive damages.  

     Willful violations of the automatic stay may be established only by a “preponderance of the evidence” burden of proof, meaning that a debtor only has to show that “it’s ‘more likely than not’ that the violation occurred” to prevail.  The deliberate, unwarranted, and egregious nature of a creditor’s violations of the automatic stay is taken into consideration in awarding damages.  However, whether a creditor who violates the automatic stay believes in good faith that it has a right to the property is not relevant to whether the violation was “willful” or whether damages should be awarded.

     Examples of willful violations of the automatic stay include: 

• offsetting money owed to the debtor against a debt that arose before the bankruptcy petition was filed;
• phone calls to the debtor after the bankruptcy petition has been filed; and 
• provoking a criminal prosecution of the debtor.

Conclusion

     Bottom line?  Once a creditor knows a debtor has filed for bankruptcy, a creditor can find itself in hot water for taking any action to collect on the indebtedness or to secure a lien against the debtor.

Texas Trial Law Advocate
Texas Trial Law Advocate

On May 4, 2010, the jury returned a verdict for Plaintiff. 

On May 25, 2010, after the jury verdict, but before the judgment was signed, Defendant filed a JNOV motion on legal insufficiency grounds. 

On June 14, 2010, the trial court signed a judgment for Plaintiff, initiating the appellate time table. The judgment also denied Defendant’s JNOV motion. 

On August 18, 2010, sixty-five days after the judgment was signed, Defendant filed a notice of appeal in the trial court.

Plaintiff moved to dismiss the appeal as untimely because the notice was filed beyond the thirty-day deadline that applies if none of the motions listed in Texas Rule of Appellate Procedure 26.1(a) are filed.  The court of appeals granted the motion. The court of appeals held that although a JNOV motion may extend the appellate timetable to ninety days in some circumstances, it only does so if filed after the judgment is signed, and not before. The Texas Supreme Court disagreed.

One issue before the Texas Supreme Court was whether the filing a motion to modify the judgment before the judgment is signed extends the deadline for filing a notice of appeal to ninety days. 

The Supreme Court held that filing a motion to modify the judgment before the judgment is signed extends the deadline for filing a notice of appeal to ninety days. 

Texas Trial Law Advocate
Texas Trial Law Advocate

The SEC is seeking to recover unspecified civil penalites, as well as, the return of stock trade profits and bonuses.

The company and the executives deny the SEC’s allegations.

Texas Trial Law Advocate
Texas Trial Law Advocate

The Texas Lyceum is an association of Texans whose purposes are:

1. to identify and develop the next generation of top leadership in the State
   of Texas;
2. to educate its Directors by identifying and exploring the interrelationships
   of the major issues facing Texas;
3. to help bring a better understanding of these issues to the state’s key
   decision makers; and
4. to promote an appreciation of the responsibilities of stewardship of the
   values, traditions, and resources of Texas.

To accomplish these purposes, the Lyceum conducts periodic public forums,
publishes the Lyceum Journal, produces the Texas Lyceum Poll, and convenes
programs for the Directors to explore and discuss key economic and social issues
of the state and nation.

The Texas Lyceum is comprised of a Board of Directors from across the state.
These 96 men and women have demonstrated leadership abilities not only in their
own community, but across the State. They are active, involved and interested;
they are eager to contribute their talents and time to the betterment of
Texas.

Visit www.texaslyceum.org for more informaiton.

Congratulations Craig!

Marsh USA Inc. v. Cook, No. 09-0558 (Tex. June 24, 2011), holding that, under the terms of the Covenants Not to Compete Act,a covenant not to compete signed by an employee in consideration of stock options was enforceable because the company’s provision of stock options was reasonably related to the employer’s interest in protecting its goodwill. This was deemed a business interest worthy of protection, thus the noncompete agreement was not unenforceable on that basis. A motion for rehearing was thereafter filed, and the Court recently withdrew its prior opinion and substituted a new opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. Dec. 16, 2011)

Once again, the Court found there was a nexus between the covenant not to complete and the interest being protected, thereby meeting the requirement set out in Covenants Not to Compete Act (Texas Business and Commerce Code §15.50(a)), thereby making the noncompete agreement not unenforceable as a matter of law. Thus, employers have maintained their ability to enforce noncompete agreements against employees under such circumstances.

Texas Trial Law Advocate

In In Re: Allcat Claims Service, L.P. et al., No. 11-0589, 2011 WL 6091134 (Tex. 2011), a partnership argued that the Texas Franchise Tax constituted an income tax and, as such, violated the Texas Constitution. The Texas Constitution provides that the state may not collect an income tax on natural persons.

Allcat Claims Service LP, a Boerne insurance adjustment firm that filed the suit, contended that the Franchise Tax imposed against the partnership reduced the income of Allcat’s partners, making it an income tax. 

The Supreme Court held the franchise tax is not unconstitutional. The Court distinguished the imposition of the Franchise Tax and an income tax on natural persons by reasoning that partnerships are treated as legal entities separate from their individual partners.  The franchise tax is imposed on a partnership before the partnership distributes profits to any individual partners. Accordingly, the Supreme Court held that the law does not impose an income tax and, as such, does not violate the Texas Constitution.

Texas Trial Law Advocate
Texas Trial Law Advocate