FANNING HARPER & MARTINSON, P.C.

NEWS

FALL 2002

* * * THANKS TO ALL WHO ATTENDED OUR CLAIMS PROFESSIONAL SEMINAR***

Thanks to each of you who attended our First Annual Seminar "Texas Legal Update for the Claims Professional." You made our seminar a great success. We had over 200 claims professionals in attendance at the Crowne Plaza Hotel in Addison. If you missed our seminar and are interested in the course materials, please contact Mdyer@fhmlaw.com. We hope to see you next year!

We issue a Spring, Summer, Fall, and Winter edition of our newsletter. We may occasionally send you an email notice on a special event - like our recent CE seminar. If you prefer not to receive our newsletter, please reply with the term "UNSUBSCRIBE."

We have also summarized recent cases as a continuing service for our clients. Legal topics include:

INSURANCE LAW UPDATE,

PREMISES LIABILITY UPDATE,

MUNICIPAL LAW UPDATE,

CLASS ACTIONS UPDATE,

PRODUCTS LIABILITY UPDATE, and

EMPLOYMENT LAW UPDATE

For convenience, each of these topics is presented as a separate category. These abbreviated summaries are provided for information only and are not intended as legal advice.

At Fanning, Harper, & Martinson, we evaluate cases early, work with our clients to develop a litigation plan, and execute on that plan. We believe our pretrial discovery and thorough preparation consistently translate into positive results for our clients. Some of our recent victories are summarized below.

RECENT SUCCESSES:

In August, LESLIE PITTS earned an AV RATING from Martindale-Hubbell. The AV rating is the highest rating a lawyer can achieve. The "A" rating represents the highest rating for legal work and the "V" represents the highest ethical standards. She obtained this rating after only ten years of practice. Leslie Pitts practices in the area of insurance coverage and litigation.

MARK DYER and KING FIFER obtained a DEFENSE VERDICT in Parker v. Darr Equipment, 160th District Court, DALLAS COUNTY, before Judge Joe Cox. This was newly appointed Judge Cox’s first jury trial. The plaintiff allegedly hit his head while operating a Caterpillar scraper on unlevel ground at the Big Brown Mine in Fairfield, Texas. The Plaintiff had two neck surgeries and shoulder injuries and claimed he was permanently disabled. The Plaintiff had traversed this area several times prior to his alleged shoulder and head injuries. The Plaintiff’s demand was $500,000 and the jury rendered a take nothing verdict

MARK DYER and STEPHANIE McCAFFITY obtained a DEFENSE VERDICT in Barnard v. Bank of America, 298th District Court, DALLAS COUNTY, before Judge Canales. The plaintiff slipped and fell on ice while walking to the ATM machine at a Bank of America located in a strip shopping center in Carrollton, Texas. The plaintiff sustained a severe broken ankle and demanded $120,000 to settle. Local weatherman David Finfrock appeared as a witness for the defense. The jury rendered a take nothing verdict.

THOMAS P. BRANDT and STEPHEN D. HENNINGER obtained a victory in Wynne/Jackson Lakes Development, L.P. v. Argyle ISD, Denton ISD, and Texas Education Agency in the 345th District Court in TRAVIS COUNTY, Texas. FHM represented Denton ISD in a case alleging that the detachment/annexation procedures of the "Robin Hood" school finance legislation were unconstitutional and seeking to rescind a detachment/annexation agreement between Denton ISD and Argyle ISD. The District Court rejected all of the Plaintiff's claims, found the statute Constitutional, and upheld the detachment/annexation agreement.

DON MARTINSON, GEORGE LANKFORD, and ROBERT FUGATE filed a PETITION FOR REVIEW in the TEXAS SUPREME COURT in Northern County Mutual Insurance Co. v. Davalos, Cause No. 02-1077. The petition challenges a Corpus Christi Court of Appeals opinion allowing an insured to sue his carrier for breach of contract and alleged Article 21.55 violations after the insured refused to tender control of the defense to the insurer. The petition also questions whether Article 21.55 can ever apply to third party claim. FHM filed its petition on a "hyper-linked" CD-Rom ebrief, containing the full brief, complete clerk’s record, and all cases cited. Several Texas Supreme Court Justices have recently requested law firms begin using this technology. FHM is the first law firm to file a hyper-linked CD-Rom ebrief in the Texas Supreme Court.

DON MARTINSON and ROBERT FUGATE obtained an APPELLATE VICTORY in City of Wichita Falls, Texas v. Republic Insurance Company, Cause No. 05-01-00198-CV, decided by the DALLAS COURT OF APPEALS. FHM filed a declaratory judgment act on behalf of Republic to resolve a coverage dispute with Wichita Falls. The City contended governmental immunity prohibited the trial court from deciding the coverage issue. The trial court disagreed and denied the City’s plea to the jurisdiction. The Dallas Court of Appeals affirmed the trial court’s decision.

GERALD LOTZER and ROBERT FUGATE obtained an APPELLATE VICTORY in Rosell v. Central West Motor Stages, Inc., Cause No. 05-01-00198-CV, decided by the DALLAS COURT OF APPEALS. Gerald Lotzer defended appellant Karen Bay against wrongful death and survival action claims. After trial, the Plaintiffs brought eight issues on appeal. The Dallas Court of Appeals overruled all of the Plaintiffs’ issues. Plaintiffs challenges included: an assertions that the trial judge was constitutionally unqualified because his law license was administratively suspended for failure to pay bar dues, alleged errors in the jury charge, and issues concerning whether the trial court properly refused to submit the plaintiff’s novel theories under the "Good Samaritan" and rescue doctrines.

On November 22, 2002, MARK DYER was APPOINTED to serve on the CITY OF IRVING’S PLANNING and ZONING COMMISSION. The Commission is charged with the responsibility to hear, recommend and determine matters relating to zoning, planning or subdivision control as specified or required under the City's ordinances, charter and state law.

JOSHUA KUTCHIN recently presented papers to two national organizations holding meetings in Dallas. In September, he spoke to the US Aquatic Sports/USA Swimming group on "Issues of Sexual Abuse and Molestation." In November, Josh presented a paper to the International Pool and Spa Expo on "ANSI/NSPI Standards in the Courtroom: What You Don't Know CAN Hurt You!" Josh presented this paper with the National Spa and Pool Institute's director of technical services. The presentations shared a common theme: The best legal defense is usually the avoidance of litigation in the first place.

THOMAS P. BRANDT co-presented of a program entitled "Qualified Immunity and Assumptions About Educators’ Knowledge of School Law at the 48th ANNUAL EDUCATION LAW ASSOCIATION CONFERENCE in NEW ORLEANS, Louisiana on November 16, 2002.

In keeping with the firm giving back to the community, BARRY FANNING has agreed to be the CHAIRMAN of the COMMUNITY SERVICES FUND DRIVE for the YMCA. This program benefits The Casa Teen Shelter, fragile family counseling, and tutoring for at risk and pregnant kids to keep them in school and help develop parenting skills and Y family values.

Continuing the FHM tradition of training our newest associates to try cases, AMOS PETTIS and SCOTT HUBER won three victories in North Texas J.P. courts in the following cases:

AMOS PETTIS obtained a victory in State of Texas v. Montoya and Superior Insurance, before Justice of the Peace Blackington in DALLAS COUNTY. FHM successfully recovered a clear title to a car that had been stolen in California and resold in Texas under a new title. In a contested trial, FHM regained possession and clear title to the car against its purchaser on behalf of Superior Insurance, the original owner's insurer.

AMOS PETTIS obtained a DEFENSE VERDICT in Khwaja v. Layton, in Small Claims Court, LAMAR COUNTY, before Judge Ruthart. FHM's client drove through the window of a convenience store in Paris, Texas, damaging several items. FHM argued, and the Court agreed, that the Insurance Company's prior appraisals and payments were correct and that the Plaintiff was entitled to no additional money.

SCOTT HUBER obtained a DEFENSE VERDICT in Gonzales v. Cash America L.P., before Justice of the Peace Robert Whitney, DALLAS COUNTY. The plaintiff sued FHM’s client, claiming Defendant was negligent in allowing another party to redeem the merchandise. The plaintiff’s pledge tickets were allegedly lost or stolen. The jury, in a unanimous verdict, found for FHM’s client.

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LEGAL UPDATE - RECENT DECISIONS

FROM STATE AND FEDERAL COURTS

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INSURANCE LAW UPDATE

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TEXAS SUPREME COURT

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1. Argonaut Ins. Co. v. Baker, 45 Tex. Sup.Ct. J. 866, 2002 WL 1338077 (June 20, 2002).

The fact that an employer carries a "self-insured deductible" workers’ compensation insurance policy does not excuse the employee from reimbursing the carrier the full amount of benefits paid when the employee recovers damages from a third party.

Argonaut Insurance Company issued to Flowers Construction Company a "self-insured deductible" workers’ compensation policy that required Flowers to reimburse Argonaut for the first $250,000 paid to an injured employee. A Flowers employee injured in an automobile accident while on the job received $352,596.13 in benefits under this policy. After the employee settled with a third party for $882,000, Argonaut demanded reimbursement for the full $352,596.13. The employee countered that Argonaut was entitled to only $102,596.13, the amount of benefits paid minus the deductible.

The trial court awarded Argonaut $352,596.13. The court of appeals reversed, holding that Argonaut was entitled to $102,596.13. In reviewing the case, the supreme court examined Insurance Code article 5.55C, section (f), which provides that an employee may not be required to pay any of the deductible amount in a workers’ compensation case. The court determined that this provision was not intended to supplant the traditional notion in workers’ compensation law that the insurer is entitled to recover the "first money" paid to the injured worker until the carrier is paid in full. Accordingly, the court determined that Argonaut was entitled to reimbursement of the full $352,596.13 from the settlement.

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TEXAS COURTS OF APPEALS

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2. Wellisch v. United Servs. Auto. Ass’n, 75 S.W.3d 53 (Tex. App.- San Antonio 2002, pet. denied)

Insurer did not violate the state’s prompt payment of claims statute when it paid the parents of a child killed in an automobile accident on the day the trial court entered a judgement finding an underinsured motorist negligent in the underlying accident and assessing damages for such.

Fifteen-year-old Jessica Wellisch was killed when the driver of the car in which she was a passenger lost control and the car rolled over. With the permission of their automobile insurance carrier, Jessica’s parents settled with the driver’s estate for $1 million. When the parents subsequently made a claim against their underinsured motorist coverage, the insurer denied the claim. The parents sued for breach of contract and violations of Article 21.55 of the Texas Insurance Code. The trial court ordered separate trials for the contractual and extra-contractual claims. In the trial on the contractual claims, the jury returned a $15 million verdict on the question of damages. The insurer paid policy limits that day.

In the trial on the extra-contractual claims, the trial court entered judgment for the insurer. In affirming the judgment of the trial court, the court of appeals held that because the parents were not "legally entitled to recover" any amount from the estate of the underinsured motorist until an adjudication of responsibility and damages was had, the insurer had no obligation to pay the parents’ claim until the date such judgment was entered. Because the insurer’s liability did not arise on the UIM claim until the trial court entered a final judgment that the underinsured motorist was responsible for the accident and assessing damages, the insurer did not delay payment when it tendered a check for policy limits that same day.

3. Smither v. Progressive County Mut. Ins. Co., 76 S.W.3d 719 (Tex. App.- Houston [14th Dist.] 2002, pet. filed)

Insurer is not responsible for diminished value of insured’s automobile after adequate and complete repairs are made after a covered loss.

After the insured was involved in an accident that damaged her car, the insurer paid to have the car repaired to its pre-accident condition, to the insured’s full satisfaction. The insured subsequently sued the insurer claiming that she was owed the difference in the pre-accident and post-accident values of her vehicle. After the trial court entered summary judgment for the insurer, the insured appealed. The court of appeals, recognizing a split of authority in Texas on the question of diminution in value, held that diminution is not a loss covered under automobile policies. Rather, according to the court, an insurer is responsible only for returning a damaged vehicle to substantially the same physical, operating, and mechanical condition as existed immediately before the loss.

4. Bailey v. Progressive County Mut. Ins. Co., 78 S.W.3d 708 (Tex. App.- Dallas 2002, pet. filed)

Insurer is responsible for diminished value of insured’s automobile even after adequate and complete repairs are made after a covered loss.

After an insured was involved in an accident that damaged her car, the insurer paid to have the car repaired. However, despite the repairs the vehicle’s market value dropped $9000 because of the accident. The insureds sued the insured claiming that they were owed the difference in the pre-accident and post-accident values of their vehicle and damages for the insurer’s alleged violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code. After the trial court entered summary judgment for the insurer, the court of appeals, also recognizing a split of authority in Texas on the question of diminution in value, held that an insurer is required to repair a damaged vehicle to substantially the same value as it was prior to the loss.

5. CU Lloyd’s of Texas v. Main Street Homes, Inc., 79 S.W.3d 687 (Tex. App. - Austin 2002, no pet.)

Allegations stemming from construction defects that do not allege intentional harm constitute an "occurrence" triggering a duty to defend a homebuilder in suits by homeowners.

A builder was sued in two cases by homeowners in two subdivisions for allegedly employing design plans for the homes’ foundations that were inappropriate given the soil conditions in the area. When the builder tendered the claims to its CGL carrier for defense, the carrier denied the claims. In the ensuing coverage suit, the court of appeals focused on the intent allegations in the petitions and held that the builder was entitled to a defense under the subject policy. The court determined that one suit specifically alleged negligence, which constitutes an occurrence under that policy. As for the other suit, the court found coverage because the petition failed to allege that the builder intentionally designed the foundation to fail.

The Main Street Homes court distinguished Hartrick v. Great American Lloyds Insurance Company, 62 S.W.3d 270 (Tex. App. - Houston [1st Dist.] 2001, no pet.), which held that a homebuilder’s failure to comply with its own implied warranties by not properly preparing the soil or constructing the foundation was intentional conduct, and therefore was not a covered occurrence under the insured’s policy. According to the Main Street Homes court, Hartrick was not controlling because it dealt with the duty to indemnify, not to defend as was the issue in Main Street Homes. In Hartrick, the jury found that the builder was not negligent but had breached its warranties to the homeowners.

6. Old American County Mut. Fire Ins. Co. v. Sanchez, 81 S.W.3d 452 (Tex. App - Austin 2002, no pet. h.)

Spouse cannot waive uninsured motorist and personal injury protection coverage for named insured; the term "upon" in the definition of "occupying" in the owned-vehicle exclusion of an automobile policy did not include touching a vehicle from below while resting on the ground beneath the vehicle; insured was not "struck by" own vehicle when that vehicle collapsed on him after another vehicle hit it.

The insured, Sanchez, experienced a severe spinal cord injury when an uninsured motorist hit a vehicle owned by him but not scheduled as a covered vehicle on his automobile insurance policy. At the time of the accident, Sanchez was underneath the vehicle working on a gas tank hose. He sought to recover from his UM and PIP coverage. Sanchez’s wife had previously rejected these forms of coverage, but Sanchez was the only named insured on the policy. The insurer denied coverage. In the coverage suit, the trial court refused to give effect to the wife’s rejection of UM and PIP coverage. The court of appeals agreed, holding that Articles 5.06-1(1) and 5.06-3 of the Insurance Code unambiguously require that a named insured reject coverage.

The court also addressed whether coverage should be denied because of operation of the owned-vehicle exclusion. That exclusion would bar coverage if Sanchez were found to be occupying the vehicle at the time of the accident. The court determined that touching a vehicle from below while resting on the ground beneath the vehicle does not constitute "occupying" the vehicle since "occupying" is defined under the policy as "in upon, getting in, on out or off." Thus, the owned-vehicle exclusion was found inapplicable.

Finally, the court examined whether coverage should be barred under the policy provision that excludes coverage if the insured is "struck by" a vehicle owned by him and not covered under his insurance policy. The court determined that the vehicle under which Sanchez was working was not the "striking force" in the collision, and as such could not have ‘struck’ him as required by the exclusion.

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PREMISES LIABILITY UPDATE

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TEXAS SUPREME COURT

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1. Dow Chem. Co. v. Bright, No. 99-0929, 2002 WL 31318023 (Tex. 2002) (opinion not released in permanent law report and is subject to revision or withdrawal).

Premises owners do not owe a duty of care to employees of general contractors hired by the premises owner, unless the premises owner retains a minimum amount of control over the work performed by the contractor and employee.

Dow Chemical hired Gulf States to construct a facility in Freeport, Texas. Gulf States employed Bright to work on the project. Bright was injured when an unstable pipe, improperly secured by another Gulf States’ employee, fell on him. Bright argued Dow retained control of the premises and had a duty of reasonable care to keep the premises in a safe condition. Dow contended Gulf States was an independent contractor and Dow was not obligated to protect the independent contractors’ employees from hazards that are part of the work. The Texas Supreme Court held Dow did not retain sufficient enough control over Bright’s activities to impose a general and broad duty of care. Specifically, the Court held Dow had nothing to do with Bright’s activities, that Gulf States had accepted (through the construction contract) the responsibility for Bright’s safety, that Dow’s work safety program did not unreasonably increase the probability and severity of Bright’s injuries, and that the master construction plan implemented by Dow for the project was not evidence showing that Dow controlled the timing and sequence of the job that caused Bright’s injuries.

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TEXAS COURTS OF APPEALS

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2. Brooks v. First Assembly of God Church of Cleburne, No. 10-01-270-CV, ___ S.W.3d ___, 2002 WL 2022490 (Tex. App. – Waco 2002, pet. filed).

Whether a premises condition creates an unreasonable risk is generally a question of fact; providing lighting in the past is some evidence the risk was known.

Brooks left an evening church service, stumbled over a "curb-stop," and fell. She suffered injuries due to the fall and alleged she fell because she could not see the curb in the dark. A former church trustee testified the light fixtures in the area where Brooks fell had not worked properly for some time. The lights were programmed to turn on at certain times, but did not always do so. The trial court granted summary judgment based on its finding that Brooks presented no evidence that the curb-stop posed an unreasonable risk of harm or that the church had notice of this condition. The Waco Court of Appeals reversed, holding that whether a particular risk is unreasonable is a fact question for the jury. The Court of Appeals also held that evidence the church had installed lighting fixtures and had a person responsible for turning on the lighting in the parking lot created a fact issue as to whether or not the church had actual or constructive knowledge of the allegedly unreasonable premises condition.

3. Hanna v. Vastar Resources, Inc., 84 S.W.3d 372 (Tex. App. – Beaumont 2002, no pet.)

A premises owner does not have a duty to ensure that an independent contractor on its premises performs work in a safe manner, unless the owner retained supervisory control over the work relating to the activity that caused the injury.

Vastar operated a shore base, where materials used by the offshore oil and gas industry were stored. Vastar hired a third party to manage the shore base and operate the facility on a day-to-day basis. Hannah was making a delivery to the shore base for another company and struck his head when exiting a refrigerated box. In spite of the base policy that all delivery personnel were to wear hard hats on the base, Hanna was not wearing a hard hat. Hanna sued Vastar on a premises liability theory, claiming that Vastar, through its agent managing the base, had a duty to enforce the rule requiring Hanna to wear a hard hat. The Beaumont Court of Appeals upheld the summary judgment, holding that premises owner’s insistence upon the observance of a safety rule does not impose a duty of care on that premises owner to ensure that no one on the premises does anything unsafe. The Court held the correct duty on the premises owner is to ensure that any regulations and procedures it promulgates do not unreasonably increase the probability or severity of injury.

4. Dailey v. Albertson’s, Inc., 83 S.W.3d 222 (Tex. App. – El Paso 2002, no pet.)

A heated exchange between an employee and a customer inside the employer’s place of business is insufficient to put the employer on notice of a possible future criminal act by the employee on the employer’s premises.

Dailey alleged that Albertson’s employee criminally assaulted Dailey on Albertson’s premises. The trial court granted summary judgment in favor of Albertson’s, and Dailey appealed. Dailey entered Albertson’s to shop and encountered an Albertson’s employee with whom Dailey had an ongoing personal dispute. The employee was on break from her job duties and was seated near a store exit. When Dailey exited the store, Dailey and the employee exchanged hostile words. Dailey went to her car, then returned to the store a few moments later after realizing that she had forgotten an item. Dailey again encountered the employee, who attacked her with a box cutter. The box cutter was issued by Albertson’s to the employee for use in her normal job duties. The El Paso Court of Appeals affirmed the trial court, holding Albertson’s could not reasonably foresee, based on the employee’s general character, an attack of that nature by the employee. The court held the only evidence suggesting foreseeability was the heated exchange Dailey and the employee had at the store exit, and that was not enough to lead a reasonable person to believe that the employee would assault Dailey. Finally, it was the plaintiff Dailey, not Albertson’s, who was in a better position to foresee the conduct of the employee because Dailey had a previous hostile relationship with the employee.

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MUNICIPAL LAW UPDATE

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U.S. SUPREME COURT

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1. Hope v. Pelzer, ___ U.S.___, 152 L.Ed. 666, 122 S.Ct. 2508 (2002).

Corrections officers not entitled to qualified immunity for handcuffing inmate to hitching post as punishment for disruptive behavior.

A Mississippi prison inmate was twice handcuffed to a hitching post (above shoulder height) for disruptive behavior. The inmate filed a section 1983 action against three prison guards, alleging cruel and unusual punishment in violation of the Eighth Amendment. The trial court granted summary judgment to the guards based on qualified immunity, which was affirmed by the Eleventh Circuit. The United States Supreme Court reversed the summary judgment by a 6-3 margin, finding the inmate's claims constituted an unnecessary and wanton infliction of pain. Despite the clear lack of emergency, the guards knowingly subjected him to a substantial risk of physical harm, unnecessary pain, unnecessary exposure to the sun, prolonged thirst and taunting, and a deprivation of bathroom breaks. The Court held that a reasonable officer would have known that using a hitching post in the manner alleged by the inmate was unlawful. The Court further held the inherent cruelty in the practice should have provided the guards with some notice that their conduct was unconstitutional.

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FIFTH CIRCUIT COURT OF APPEALS

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2. Kinney v. Weaver, 301 F.3d 253 (5th Cir. 2002).

Law enforcement officers had only limited immunity for constitutional and state-law claims against them for allegedly boycotting an officer training academy after two academy instructors testified against an officer in an excessive force claim.

Plaintiffs were instructors at a police academy in East Texas who testified as expert witnesses on excessive force claim against a police officer. Following their testimony, numerous law enforcement agencies stopped enrolling their officers and cadets in Plaintiffs' classes. Plaintiffs' class enrollments dwindled to the point that their teaching contracts were not renewed. Plaintiffs then filed suit against numerous law enforcement officials, the corresponding cities or counties, and a police association alleging conspiracy, violations of their free speech and due process rights, and interference with their business relationships. The trial court denied all of the defendants' motions for summary judgment based on immunity. The Fifth Circuit found that the officers were entitled to immunity based on due process claims, but affirmed the finding of no immunity based on conspiracy and free speech claims, brought under section 1983. The Court also dismissed the appeals of the municipalities and police association.

3. Hitt v. Connell, 301 F.3d 240 (5th Cir. 2002).

Judgment in favor of deputy constable against county affirmed for claim of termination due to union activity.

Plaintiff, a former deputy constable, was involved with two labor unions for law enforcement officers. Plaintiff contacted the unions regarding grievances with several of the Constable's employment and pay practices. Plaintiff was subsequently fired, and the Constable's proffered reason was the Plaintiff had made a "bomb threat." Following a jury trial against the Constable and County, Plaintiff was awarded over $388,000 in damages for non-pecuniary harm and attorney's fees. On appeal, the Fifth Circuit affirmed the judgment in favor of the Plaintiff, but remanded to the trial court for further proceedings on the damages issue. The Fifth Circuit also held the Civil Service Commission’s act of upholding the termination did not break the chain of causation.

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TEXAS COURTS OF APPEALS

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4. Dalehite v Nauta, 79 S.W.3d 243 (Tex.App.--Houston [14th Dist.] 2002, pet. filed).

Dismissal of claim against a governmental hospital for immunity required dismissal of the claims against the employees as well.

Mrs. Dalehite died after Dr. Nauta operated on her at the University of Texas Medical Branch at Galveston. The Dalehite family filed suit against the doctor and hospital. The trial court granted the hospital's plea to the jurisdiction, because the hospital was a governmental entity. Dr. Nauta moved for summary judgment on the grounds that the judgment for the hospital barred any claims against him. The trial court granted the summary judgment, which was affirmed by the Houston Court of Appeals. The Court held the dismissal of the hospital for want of jurisdiction was a judgment on the merits, which barred further claims against the hospital’s employees, such as Dr. Nauta, due to immunity.

5. Salazar v Lopez, No. 04-02-00115-CV, 2002 WL 1801750 (Tex.App.--San Antonio 2002, no pet. h.).

Immunity was not waived in this wrongful termination suit against a county for refusing to perform illegal act.

Plaintiff, a deputy sheriff, witnessed a car accident between a civilian and another deputy. The plaintiff alleged the Sheriff and other deputies asked him to falsify his testimony. Plaintiff claims he was fired for refusing to perform an illegal act and subsequently filed suit against the County and the Sheriff. The trial court granted the Defendants' pleas to the jurisdiction, and the San Antonio Court affirmed. The Court held that, absent consent by the state, the state generally has immunity from suit for wrongful termination. That general rule applied in this case, notwithstanding the Plaintiff's claim of a "Sabine Pilot" exception to the employment-at-will doctrine.

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CLASS ACTION UPDATE

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TEXAS SUPREME COURT

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1. Henry Schein, Inc. v. Stromboe, No. 00-1162, 2002 WL 31426407, (Texas October 31, 2002).

Class action decertified due to lack of predominance of common issue.

The trial court certified a nation-wide class of dentists, who asserted claims against the producer of dental office management software. In one of the few cases upholding class certification after the Texas Supreme Court's landmark decision in Southwestern Refining Co. v. Bernal, 22 S.W.3d 425 (Tex. 2000), the Austin Court of Appeals affirmed the certification. However, the Texas Supreme Court decertified the class. It held individual issues (such as reliance and damages) and not common issues (defects in the software) would predominate at trial and that the dentists failed to provide a trial plan for the efficient trial of the common issues. The Court also held class members from other jurisdictions should not be subject to Texas law merely because a named Plaintiff filed suit in Texas. In addition, a class action would not be superior to individual suits because the dentists had means to obtain counsel to pursue their damages of $5,000 to $8,000 each, potential exemplary damages, and attorney's fees under the DTPA.

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FIFTH CIRCUIT COURT OF APPEALS

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2. Paterson v. Texas, No. 02-40651, ___ F.3d ___, 2002 WL 31154830 (5th Cir. Sept. 27, 2002).

Fifth Circuit holds the State of Texas has no standing to challenge a class action settlement provision allowing the defendant corporation to retain money not collected by class members.

The plaintiffs alleged Western Union over-charged customers who used credit cards to transfer money. A nationwide class action was certified. The trial court approved a settlement agreement whereby class members received a partial refund of fees paid to Western Union. However, the agreement contained a "reversion provision," providing that unclaimed funds reverted to Western Union after a certain amount of time. The State of Texas then intervened and alleged that the Texas Property Code mandates that persons holding certain abandoned property belonging to another must turn that property over to the State Comptroller. The State of Texas proposed to hold those unclaimed settlement monies in perpetuity for Texas class members and argued the settlement agreement would have to be modified so unclaimed money did not revert to Western Union.

The Fifth Circuit held the State of Texas did not have standing in this suit and dismissed the appeal and claim of the State of Texas. Specifically, the Court held (1) no unclaimed funds were present and (2) the State of Texas had no authority to represent Texas class members. Rather, the class members were represented by the class representatives, who were authorized to prosecute and settle the claims of the class members.

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TEXAS COURTS OF APPEALS

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3. Farmers Ins. Exchange v. Leonard, No. 03-01-00649-CV, ___ S.W.3d. ___, 2002 WL 1994193 (Tex.App.-Austin, Aug. 30, 2002, no pet. h.).

Austin Court of Appeals affirms certification of insurance agents bringing claims against insurers for alleged breach of contract in paying bonuses.

Insurance agents for Farmers were awarded bonuses each year for meeting certain profitability and sales requirements. Farmers offers a number of such programs and the insurance agents brought suit on four distinct bonus programs, which Farmers sent to 13,000 agents in 29 different states. The class alleged that Farmers uniformly breached the four bonus contracts at issue by improperly calculating and awarding the bonuses to the insurance agents.

The trial court certified the class after a six day certification hearing. Notably, the trial court determined that California’s substantive law should apply to the case because the contracts were drafted and issued from California. The appellate court upheld the class certification and held that under a choice of law analysis that California law was applicable to the case. The ruling is notable because Farmers argued a proper choice of law analysis required application of the law of all twenty-nine states in which class members resided. Therefore, Farmers argued that the class was not suitable for certification because individual issues would predominate and a class action would no longer be a superior method because of the disparity in the laws. However, the court applied the restatement of conflict of laws test and determined that the proper substantive law to be applied was that of California.

Second, the decision is notable in that two class representatives were each appointed to represent different subclasses in accordance with the four different types of contracts issued. Specifically, insurance agents Leonard and Sawyer could both serve as representatives for three of the subclasses, but only Sawyer could represent a fourth subclass. Farmers contended that as a result that there would be a conflict among the multiple subclasses and specifically that such a conflict could arise in the event of a settlement opportunity. Farmers argued a settlement opportunity could present conflicts because the classes would be competing for a maximum return from a limited settlement fund. However, the Austin Court of Appeals was unpersuaded and held the amount of damages for each subclass could be mathematically determined. Therefore, no conflict existed and the class representatives were adequate.

The Austin Court of Appeals also held the trial plan was sufficient under the guidelines of the Bernal case. Specifically, the trial court made findings and concluded the case could be tried as a single breach of contract action in a bench trial. The trial plan also included an alternative in case other issues developed during the course of litigation, such as whether the bonus award contracts were ambiguous. In this event, the trial plan provided for the court to present a single jury with specific questions concerning disputed terms of the contract. The court would then utilize those findings to determine as a matter of law the correct contract interpretation and to establish a damage formula.

Finally, the court concluded that individual adjudication was not superior to class adjudication of the case. Specifically, trying a case as a single action provided great economic benefits as opposed to the alternative of 13,000 individual lawsuits.

4. National Western Life Ins. Co. v. Rowe, No. 03-01-00396-CV, ___ S.W.3d ___, 2002 WL 1804928 (Tex.App.-Austin Aug. 08, 2002, no pet. h.).

Austin Court of Appeals affirms class certification of insureds bringing claims for insurer’s failure to refund premiums collected on life insurance policies, which should have been remitted after termination of child rider coverage.

Here, the Austin Court of Appeals of Austin issued its second reported decision in the past three months affirming a class certification. The case involved child riders to life insurance policies sold by National Western Life. The riders provided for a $1,000 benefit to be paid upon the death of a child prior to termination of coverage. The riders terminated once the child turned twenty-five. However, National may have continued to receive rider premiums even after coverage terminated. The rider disclaims liability for benefits if premiums are received and accepted after coverage terminated. Although the rider promised a refund, National did not offer to refund those premiums collected. National’s failure to refund those premiums paid after a child turns twenty-five was the basis of the litigation. The class brought suit for breach of contract, fraud, negligent misrepresentation, and violations of the DTPA and Article 21.21 of the Insurance Code.

National, on the other hand, contended that it should not be responsible for notifying policy holders because it had no way of knowing the ages of the children covered by the rider and did not maintain records of the ages and names of the children covered. National also argued that some policyholders may have chosen to continue paying for the rider to insure that any after born or after adopted children are covered.

The Austin Court of Appeals again performed a choice of law analysis similar to the Farmers Insurance Exchange v. Leonard case. It concluded that Texas substantive law should apply. The case is also notable for its extensive analysis of the trial plan submitted by the class. For example, the trial court intended to attach a proof-of-additional-children form to the class notice. Class members with additional children still under the age of 25 may then opt out of the class. The trial plan addressed discovery needs and allowed for adequate time for discovery as National indicated that it may want to depose or obtain discovery from every class member. The trial plan also provided for a no-evidence motion for summary judgment as to all class members. If the no-evidence motion failed, then the trial plan called for proof-of-claim forms to be issued and for class members with children under 25 to be allowed to opt out at that time.

With regard to the trial itself, the trial plan called for a single jury trial of two phases. The first would determine liability and damages and the second would determine punitive damages. The trial plan also stated that statute of limitation defenses could be tried and proposed that jury issues on fraudulent concealment and discovery rule questions with regard to the statute of limitations would be posed to the jury. The trial plan was attacked on grounds that the class should have to prove individual reliance for each class member. However, the court noted that a breach-of-contract case does not require proof of reliance by the class members.

In a notable procedural ruling, the court held that the trial court did not err in admitting expert testimony without undergoing a Robinson/Daubert analysis. The Court held that at a certification hearing the trial court must only have enough material before it to determine the nature of the claims and that the concerns of Robinson (that juries might give undue weight to unreliable expert testimony) are not present in a class certification hearing. This may essentially foreclose any such Robinson challenges to experts designated for future class certification hearings before the Austin Court of Appeals.

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PRODUCTS LIABILITY UPDATE

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TEXAS COURTS OF APPEALS

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1. ASI Technologies, Inc. v. Johnson Equip. Co., 75 S.W.3d 545 (Tex. App.--San Antonio 2002, pet. denied).

Seller waived its statutory right to indemnity by signing, with manufacturer, an agreement to share damages assessed against them in products liability litigation.

A seller and manufacturer, both Defendants in a product liability case, signed an agreement that dictated the amount each would pay under a high-low settlement agreement entered with the Plaintiff . The jury found that the product was defectively designed and marketed by the manufacturer, but found no liability on the part of the seller. The seller moved for judgment as a matter of law on its cross-claim against the manufacturer for statutory indemnity pursuant to Section 82.002 of the Texas Civil Practice & Remedies Code. The trial court entered judgment in favor of seller, and manufacturer appealed.

Under Texas law, a manufacturer shall indemnify and hold harmless a seller against loss arising out of a products liability action, except for any loss caused by the seller’s negligence, intentional misconduct, or other act or omission. Tex. Civ. Prac. & Rem. Code § 82.002(a). The San Antonio Court of Appeals analyzed the agreement under contract law, finding that it was unambiguous and construing it against the drafter--the seller. The seller could have included a provision in which it reserved its right to statutory indemnity, but it did not. The Court concluded that allowing the seller to seek indemnity would render the agreement meaningless, which it was unwilling to do. "In short, a deal is a deal."

2. Chandler v. Gene Messer Ford, Inc., 81 S.W.3d 493 (Tex. App.--Eastland 2002, no pet. h.).

A genuine issue of material fact remains as to whether air bags are unreasonably dangerous to children.

A seven year old child riding in the front seat of a Ford Aspire suffered a severe closed-head injury when the vehicle was struck by another car. Plaintiffs alleged the passenger air bag worsened the child’s injuries. Plaintiffs also alleged Ford and the dealership misrepresented the vehicle’s safety characteristics and failed to warn them of the possible risks to a child riding in the front passenger seat. The Court reversed the trial court’s summary judgment on the ground that a fact question remained as to whether Ford’s warnings to the Plaintiffs were adequate to inform them of the danger to a young child. The window visor held a warning that indicated small children would be safer in the back seat, but there is a question as to the definition of small children. The Court also indicated the Plaintiffs’ failure to read the warnings provided by Ford could be used to refute the necessary element of causation.

3. Robins v. Kroger Co., 80 S.W.3d 641 (Tex. App.--Houston [1st Dist.] 2002, no pet. h.).

Risk-utility analysis precluded summary judgment in products liability action involving lighter.

A three-year-old child was injured when he set fire to a pile of clothes with a disposable cigarette lighter. The parents brought a products liability action against Kroger, which had allegedly sold the lighter. The trial court granted summary judgment in favor of Kroger, and plaintiffs appealed. The First District Court of Appeals at Houston decided this case under the risk-utility analysis, which involves several factors. The Court held a genuine issue of material fact as to risk-utility analysis precluded summary judgment; no one factor, standing alone, precluded judgment against the seller. The fact that the parents of the child might have been aware of obvious dangers in allowing the child access to lighters, or that the child was not the intended user of the lighter, or that the cigarette lighter’s design may have met consumer expectations, were not, standing alone, absolute bars to recovery. These factors do have to be considered in the entirety of the risk-utility analysis to determine whether the cigarette lighter was an unreasonably dangerous, defectively designed product.

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EMPLOYMENT LAW UPDATE

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FIFTH CIRCUIT CASES

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Patel v. Midland Mem’l Hosp. & Med. Ctr., 298 F.3d 333 (5th Cir. 2002).

Claims arising out of a hospital’s suspension of a doctor’s clinical privileges were not actionable where 1) plaintiff received all the pre-suspension process he was constitutionally due, and 2) he failed to present evidence of pretext from which racial discrimination could be inferred, or that suspension was for anti-competitive reasons.

Taylor v. Books a Million, Inc., 296 F.3d 376 (5th Cir. 2002).

An employee’s Title VII claims were properly dismissed, where a plaintiff filed a charge with the EEOC, received a statutory notice of right to sue, and under the maximum 7-day presumption of receipt doctrine his complaint was still untimely.

Teemac v. Henderson, 298 F.3d 452 (5th Cir. 2002).

Plaintiff, a federal employee failed to seek informal counseling within forty-five days of the alleged discrimination before filing a formal complaint with the Equal Employment Opportunity Commission. The court denied equitable tolling because Plaintiff’s inability to speak English was insufficient.

Tyler v. Union Oil Co. of California, 304 F.3d 379 (5th Cir. 2002).

In multiple appeals in an employment discrimination action, admission of statistical employment evidence was proper, and an award of damages on an ADEA claim was not supported by sufficient evidence of an adverse employment action after a transfer.

Perez v. Region 20 Educ. Serv. Ctr., 307 F.3d 318 (5th Cir. 2002).

An employee’s failure to promote claims and Title VII claims related to discharge were not supported by evidence, and because a regional education program administration center is an arm of the state of Texas, the Eleventh Amendment bars a claim under the ADA.

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TEXAS COURTS OF APPEALS

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Hoffmann-LaRoche, Inc. v. Gonzales, 69 S.W.3d 634 (Tex. App.–Corpus Christi 2002).

Under the continuing violation theory, a plaintiff is not required to prove that the entire violation occurred within the actionable period if the plaintiff can show a series of related acts, one or more of which falls within the limitations period. The court held that the primary focus of the continuing violation doctrine is that equitable consideration may require that the filing period not begin until acts supportive of a civil rights action would be apparent to a reasonable prudent person in the same or similar position. In other words, an "event should, in fairness and logic, have alerted the average layperson to act to protect his or her rights."

William v. Northrop Grumman Vought, 68 S.W.3d 102 (Tex. App.–Dallas 2001).

A plaintiff who filed with both the EEOC and the TCHR may pursue a lawsuit in either state or federal court. Once either the state or federal claim is pursued to final judgment that judgment will be res judicata as to the remaining action. Plaintiff filed a lawsuit in state court alleging harassment in violation of the TCHRA at the same time the EEOC was investigating Plaintiff’s Title VII charge. The lawsuit was based on the same allegation included in the EEOC charge. The employer argued that Plaintiff was precluded from pursuing the lawsuit in state court because she had a complaint pending before the EEOC. The court disagreed and found that a person who has initiated an action in the proper court or who has an action pending before an appropriate administrative agency charged with investigation acts that would be unlawful employment practice under the TCHRA may file a complaint under the Labor Code for the same grievance.

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© Fanning, Harper & Martinson, P.C., December 4, 2002.

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