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1 Volume 4, Issue 2 A publication of Ebanks, Smith & Carlson, L.L.P Texas Supreme Court Limits Specific Jurisdiction Under The Long-Arm Statute? In Moki Mac River Expeditions v. Drugg, the Texas Supreme Court appeared to limit the reach of the Texas Long-Arm Statute for purposes of specific jurisdiction in a Texas court. For a Texas court to exercise specific jurisdiction over a non-resident defendant, there must be a substantial connection between the defendant s contacts with Texas and the operative facts of the litigation. Moki Mac, a Utah corporation, conducted guided trips in Utah and Arizona. Charles and Betsy Drugg, of Dallas, saw a brochure that Moki Mac sent to another Texas resident after that resident made inquiries into its business. The Druggs arranged for their 13-year-old son, Andy, to go on a Moki Mac rafting trip in the Grand Canyon. Both Mrs. Drugg and Continued on pg 2 Texas Supreme Court Holds Asbestosis Damages Legally Insufficient In Borg-Warner Corporation v. Flores, the Texas Supreme Court again clarified the quantum of proof necessary to impose liability for negligence and malice in the context of toxic tort lawsuits. Ortero Flores worked for a number of years grinding brake pads that contained asbestos. As a result of his work history, he claims to have developed asbestos-related health problems. Flores brought suit against several parties that manufactured some of the brake pads involved, including Borg-Warner. After a bifurcated trial, the jury apportioned 37% of the causation to Borg-Warner and 21% each to the other defendants. In addition to awarding compensatory damages, the jury found by clear and convincing evidence that Flores injuries arose from Borg-Warner s malice and awarded exemplary damages against Borg-Warner. The court of appeals affirmed. Continued on pg 4 In This Issue: Pg 1: Texas Supreme Court Limits Specific Jurisdiction Under The Long-Arm Statute? Pg 1: Texas Supreme Court Holds Asbestosis Damages Legally Insufficient Pg 2: Texas Supreme Court To Clarify Dram Shop Act Defenses Pg 3: As Is Clause and Warranty Disclaimers Permissible in Commercial Leases Pg 5-8: Opinions of Note Arbitration Attorneys Fees Civil Rights Expert Witnesses Insurance Policy Construction Medical Malpractice Premises Liability Sanctions Taxation Ebanks, Smith & Carlson, L.L.P McKinney, Suite 2700 Houston, TX

2 Texas Supreme Court To Clarify Dram Shop Act Defenses The Texas Supreme Court granted review in a Dram Shop case to determine the burden of proof required of a defendant who moves for summary judgment under the statute s Safe Harbor Defense. John Parker brought a Dram Shop and premises liability action alleging that he was severely brain damaged as the result of a fight in the parking lot of a Slick Willie s pool hall. He claimed that he and his ex-girlfriend s son, Anthony Griffin, attended the grand opening of Slick Willie s and both were served alcohol after they became obviously intoxicated. Parker claimed that he and Griffin then argued, the manager told Parker to leave, and escorted him to the parking lot. Later, Parker was seen conversing with Griffin, and Griffin subsequently struck Parker who fell, severely injuring his head. Parker sued Slick Willie s under both the Dram Shop Act and under a premises liability theory. The trial court granted Slick Willie s summary judgment. The court of appeals affirmed the summary judgment on the premises liability claim on Dram Shop preemption grounds. The court of appeals, however, held that the trial court improperly granted summary judgment on the Dram Shop claim. The Safe Harbor Defense in the Alcoholic Beverage Code immunizes a commercial provider of alcoholic beverages from liability for its employees provision of alcohol to an intoxicated customer if: (1) the employer requires its employees to attend a commission-approved seller training program; (2) the employee actually attended the training program; and (3) the employer has not directly or indirectly encouraged the employee to violate such law. TEX. ALCO. BEV. CODE ANN (Vernon 2005). The court of appeals held that a provider must prove enforcement of its alcohol policy on a particular occasion to satisfy the third element of the Safe Harbor Defense. It held that Slick Willie s did not conclusively prove that it did not directly or indirectly encourage its employees to serve alcohol to an intoxicated customer. The Supreme Court granted the alcohol provider s petition for review to clarify what the Dram Shop Act means by the employer has not directly or indirectly encouraged the employee to violate such law. The Supreme Court will also determine a collateral issue of whether a commercial alcohol provider is an insurer of its employees actions despite the Alcoholic Beverage Code s language relieving the provider of liability when its employee violates the law , Inc. v. Parker, No (review granted Mar. 12, 2007) (court of appeals opinion at 194 S.W.3d 556). 2 Long-Arm Statute... Continued from pg 1 Andy signed release forms sent by Moki Mac. Andy, unfortunately, fell to his death while hiking on the trip, and the Druggs filed suit alleging wrongful death based on intentional and negligent misrepresentations contained in the brochure and the release Continued on pg 3

3 The Court accepted as true the claim that Andy might not have gone on the trip were it not for Moki Mac s representations about safety. The operative facts of the lawsuit, however, principally concerned the guides conduct on the hiking expedition and whether the guides exercised reasonable care in supervising Andy. The jury could only assess the misrepresentation claims after thoroughly considering the manner in which Moki Mac conducted the hike. Accordingly, the Court ruled that the alleged misrepresentations were not the subject matter of the case, nor related to the operative facts of the negligence action. Whatever connection there...for specific-jurisdiction purposes, purposeful availment has no jurisdictional relevance unless the defendant s liability arises from or relates to the forum contacts. Long-Arm Statute... Continued from pg 2 forms. Moki Mac specially appeared and challenged the Texas court s personal jurisdiction over it. The trial court denied Moki Mac s special appearance, and the court of appeals affirmed. The Supreme Court reviewed the Texas Long-Arm Statute and concluded that the Druggs negligent and intentional misrepresentation claims based on Moki Mac s brochure and release form satisfied the doing-business requirement for jurisdiction under the plain language of the statute. The Court also noted that Moki Mac had minimum contacts with Texas and availed itself of doing business here. But, for specific-jurisdiction purposes, purposeful availment has no jurisdictional relevance unless the defendant s liability arises from or relates to the forum contacts. After reviewing the various standards for determining when liability arises from or relates to a defendant s contacts with Texas, the Court held that there must be a substantial connection between a non-resident s contacts with Texas and the operative facts of the litigation for a trial court to exercise specific jurisdiction. may have been between Moki Mac s promotional material sent to Texas and the operative facts that led to Andy s death in Arizona, the Court stated, we do not believe it is sufficiently direct to meet dueprocess concerns. The Court, therefore, reversed the court of appeals and remanded for that court to consider whether Moki Mac is subject to general jurisdiction in a Texas court based on its systematic contacts with Texas. Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569 (Tex. 2007). As Is Clause and Warranty Disclaimers Permissible in Commercial Leases In Gym-N-I Playgrounds, Inc. v. Snider, the Texas Supreme Court clarified permissible provisions in a commercial lease. The Court also held, for the first time, that a landlord can disclaim the implied warranty of suitability in a commercial lease. A landlord leased a business to two employees who had worked in the building for several years. The lease contained the following language: Tenant accepts the Premises as is. Landlord Continued on pg 4 3

4 makes no other warranties, express or implied, of merchantability, marketability, fitness or suitability for a particular purpose or otherwise, except as set forth herein. Any implied warranties are expressly disclaimed and excluded. The lease also contained a holdover clause. If the tenant remained in the premises, the holdover shall constitute a lease from month-tomonth, under the terms and provisions of this Lease. After the lease expired, the tenants paid rent for several years under the holdover clause until the building was destroyed by fire. The tenants then sued seeking damages for negligence, fraud, DTPA violations, and breach of the implied warranty of suitability. The trial court granted summary judgment for the landlord and the court of appeals affirmed. The Supreme Court affirmed, holding that the as is clause survived the expiration of the original lease term. The language in the holdover clause, under the terms and provisions of this Lease, meant just that the lease continued to govern the month-to-month tenancy. Thus, the as is clause was in effect when the fire occurred. Moreover, the as is clause negated the causation elements essential to the tenants negligence, negligence per se, gross negligence, DTPA, and fraud claims. Further, The implied warranty of suitability is waived when, as here, the lease expressly disclaims that warranty. the Court addressed for the first t i m e whether a landlord can expressly disclaim an implied warranty of suitability in a commercial lease. It held, as a matter of law: The implied warranty of suitability is waived when, as here, the lease expressly disclaims that warranty. The Court noted that disclaiming a warranty of suitability is supported by public policy, because Texas favors the parties freedom to contract. Thus, the as is clause and the express disclaimer of the implied warranty of suitability in the lease foreclosed the tenants suit. Gym-N-I Playgrounds, Inc. v. Snider, 220 S.W.3d 905 (Tex. 2007). 4 Asbestosis Damages...Continued from pg 1 The Court reversed, noting that, in asbestos cases, a court must determine whether the asbestos in the defendant s product was a substantial factor in bringing about the plaintiff s injuries. The Court noted, One of toxicology s central tenets is that the dose makes the poison. The Court previously recognized that exposure to asbestos, a known carcinogen, is never healthy, but fortunately does not always result in disease. The Court also previously held that epidemiological studies are without evidentiary significance if the injured person cannot show that the exposure or dose levels were comparable to or greater than those in the studies. Here, no epidemiolog- Continued on pg 5 One of toxicology s central tenets is that the dose makes the poison.

5 Asbestosis Damages...Continued from pg 4 ical studies showed that brake mechanics faced at least a double risk of asbestosis. The requirement of more than a doubling of the risk strikes a balance between the needs of our legal system and the limits of science. The Supreme Court held that in analyzing the legal sufficiency of the negligence claim, the court of appeals erred in holding that there was sufficient evidence that the defendants supplied any of the asbestos to which the Plaintiff was exposed. Instead, a plaintiff must prove that the defendant s product was a substantial factor OPINIONS ofn OTE in causing the alleged harm. The Court recognized that this proof need not be reduced to mathematical precision. Rather, defendant-specific evidence relating to the approximate dose to which the plaintiff was exposed, coupled with evidence that the dose was a substantial factor in causing the asbestos-related disease, will suffice. Without this evidence, both the negligence and strict liability claims failed for lack of a substantial-factor causation. Borg-Warner Corp. v. Flores, 2007 WL (Tex. June 8, 2007). Arbitration The Texas Supreme Court granted mandamus and compelled an employment dispute to arbitration because there was no evidence of duress involved in signing an employment contract that contained an arbitration agreement. The employee needed to show that the employer singled out the arbitration provision alone from the other provisions. If not, the claim of duress goes to the agreement generally and must be decided in arbitration. In short, the Supreme Court held the employee presented no evidence that the employer exerted duress on her to agree to the arbitration provision, as distinct from the agreement as a whole. In re RLS Legal Solutions, 221 S.W.3d 629 (Tex. 2007) (orig. proceeding). Attorneys Fees The Texas Supreme Court clarified the rule that a court may award attorneys fees only if necessary to recover on a contract or a statutory claim that allows fees. The Court eliminated the exception that allowed fees incurred solely on separate, but arguably intertwined claims. In this case, the Court noted that the plaintiffs had to defend a counterclaim to the plaintiffs claim for which fees are recoverable. Because their attorney s efforts in that regard were necessary to recover on their initial contract claim, the fees defending the counterclaim were also recoverable. The Supreme Court also held that it would not adopt a rule allowing post-judgment fees to be determined after appeal by a remand to the trial court where the trial court did not enter an award for post-judgment fees in the first place. Varner v. Cardenas, 218 S.W.3d 68 (Tex. 2007) (per curiam). Civil Rights The Fifth Circuit held that material fact issues barred summary judgment on qualified immunity grounds for a correctional officer in a section 1983 action. The court found that fact questions existed as to whether the officer acted in bad faith in Continued on pg 6 5

6 beating a handcuffed prison inmate about his head, shoulders, and back. The record contained testimony reflecting that the handcuffed inmate had been cooperative and non-threatening. Moreover, the correctional officer never alleged that his actions were in response to any misbehavior by the inmate. Thus, the officer was not entitled to qualified immunity as a matter of law. Brown v. Lippard, 472 F.3d 384 (5th Cir. 2006). The Fifth Circuit reversed a district court s dismissal of a due process claim based on a state university s alleged deliberate indifference to a risk of injury that it created. The court held that the obligations in the complaint sufficiently stated a due process claim under the state-created danger theory. In so ruling, the panel declined to follow prior panel decisions holding that the Fifth Circuit had never adopted the state-created danger doctrine. Breen v. Texas A & M University, 485 F.3d 325 (5th Cir. 2007). Expert Witnesses A hospital inadvertently produced privileged work-product documents to its expert witness, thus rendering those documents discoverable under the rules of civil procedure. The Texas Supreme Court accepted mandamus review to resolve the tension between the Rules snap-back provision that protects privileged documents and the expert-disclosure requirements. The Court held that the expert disclosure rule governing testifying experts prevails over the snap-back provision, so long as the expert intends to testify at trial despite the inadvertent document production. But, the inadvertent nature of the production preserved the applicable privilege and entitled the hospital to recover the documents upon realizing its mistake, provided the hospital s designated expert did not testify at trial. In re Christus Spohn Hospital Kleberg, 222 S.W.3d 434 (Tex. 2007) (orig. proceeding). Insurance Policy Construction The Fifth Circuit held that a fact issue existed as to whether a barge worker, provided by a labor services company, qualified as a leased worker for an insured barge owner within a CGL insurance policy s employee exclusion. After the worker sued the insured, it sought coverage under its CGL policy. The Fifth Circuit noted that the worker performed duties related to the conduct of the insured s business pursuant to an agreement, as contemplated by the policy s leased worker definition. But, on the other hand, the company provided general liability coverage, salary, workers compensation insurance, and supervision for the worker and also submitted weekly invoices to the insured. In re South Louisiana Sugars Co-op., Inc., 485 F.3d 291 (5th Cir. 2007). Medical Malpractice A psychiatrist sued his doctor for medical malpractice for failure to diagnose diverticulitis and for improperly treating him. The evidence at trial indicated that the psychiatrist did not describe the classic symptoms of diverticulitis to his doctor and failed to inform the doctor of his complete past medical history. The court s charge instructed the jury to assess both the doctor s and the patient s negligence, and the 6 Continued pg 7

7 jury found the patient-psychiatrist to be 51% responsible leading to a take-nothing judgment in favor of the doctor. The court of appeals reversed and remanded for a new trial. The Texas Supreme Court held that the ordinary care standard, modified to instruct jurors to consider a party s actions under the same or similar circumstances, means the jury must consider a physician s training. Because there was some evidence the plaintiff doctor failed to report a critical symptom when he should have, the Court reversed and reinstated the jury s verdict. The Court, however, also held that in most cases an ordinary patient s failure to report the origin of pain will be no evidence of negligence. Jackson v. Axelrad, 221 S.W.3d 650 (Tex. 2007). A mother filed a medical malpractice action on behalf of her son as next friend. The court of appeals held that, even assuming the mother lacked capacity to sue until she was appointed as guardian for the son, the 120-day deadline for a health care liability claimant to file an expert report commenced when the mother originally filed the medical malpractice action as next friend. The deadline did not restart when the mother cured the defect in her capacity to sue by obtaining an appointment as guardian and filed an amended petition in the correct capacity. Intracare Hospital North v. Campbell, 222 S.W.3d 790 (Tex. App. Houston [1st Dist.] 2007, no pet. h.). The Legislature enacted Chapter 74 of the Texas Civil Practice & Remedies Code to remove unwarranted delay and expense, to accelerate the disposition of non-meritorious cases, and to give hard-and-fast deadlines for serving expert reports. Chapter 74, however, imposes no deadline for filing a motion to dismiss when a plaintiff fails to file and serve an expert report prior to the 120-day deadline. The 21- day deadline in the statute only refers to an objection to the sufficiency of an expert report, not to the fact that an expert report was not served within the mandatory 120- day deadline. Smith v. Hamilton, 2007 WL (Tex. App. Beaumont June 21, 2007, no pet. h.). Premises Liability The Texas Supreme Court held that the plaintiff presented no evidence that a premises condition posed an unreasonable risk of harm, and reversed the court of appeals opinion to the contrary. A customer who fell from a ramp leading into a car dealership claimed that the handrail should have extended the full length of the ramp to protect a four-inch elevation difference at the end of the ramp. The court held, as a matter of law, that there was no unreasonable risk of harm. The portion of the ramp with no handrails met applicable safety standards and was outlined in yellow, a method used to indicate a change in elevation. Moreover, no other customer had been injured on the ramp in the previous ten years. Brinson Ford, Inc. v. Alger, 2007 WL (Tex. June 15, 2007) (per curiam). Sanctions The Texas Supreme Court upheld a sanctions award against an attorney for filing so-called group pleadings, where the plaintiffs alleged identical allegations or claims against several different defendants. The Court held this does Continued pg 8 7

8 not relieve a party from meeting the express requirements of Chapter 10 of the Civil Practice & Remedies Code. Whoever signs a pleading or motion certifies that each claim, each allegation, and each denial is based on the signatory s best knowledge, information, and belief formed after reasonable inquiry. The Court found that the plaintiffs attorney violated Chapter 10 by alleging that each doctor prescribed and administered certain drugs in spite of contrary information in the medical records. The Court, however, could not determine the basis of the $50, sanction under the record and remanded for the trial court to explain the basis of the award. Lowe v. Henry, 212 S.W.3d 609 (Tex. 2007). Taxation A federal appellate court disagreed with a taxpayer s attempt to treat past and future emotional distress as non-taxable income. The taxpayer argued that the damage award compensated her for substantial physical problems cause by emotional distress. The Internal Revenue Code excludes tax on damages received on account of physical injuries or physical sickness. The court held that the award was taxable income because the award compensated the taxpayer only for mental pain and anguish and for injury to her professional reputation, despite the fact that she suffered certain physical manifestations. The court also held that the award constituted gross income under the Internal Revenue Code. Murphy v. Internal Revenue Service, 2007 WL (D.C. Cir. July 3, 2007). Disclaimer This newsletter is distributed by Ebanks, Smith & Carlson, L.L.P. only as an informational source to our clients and our business associates. The articles and summaries in Escript do not constitute professional legal advice and should not be construed as rendering or offering a legal opinion on any particular lawsuit or any specific set of facts. Ebanks, Smith & Carlson, L.L.P., its partners, and its attorneys will assume no liability in connection with its use. 8 Ebanks, Smith & Carlson, L.L.P McKinney, Suite 2700 Houston, TX 77010